The commercial world is a high pace platform where conflicts and claims are inevitable for the conduct of business. It can be a disagreement over a contract, a breach of such contract, a dispute over an international transaction… Resolving these conflicts must be done in an efficient and effective way to ensure the business relationships are not deteriorating and to safeguard the parties’ interests. One way of resolving these conflicts and such ways is the use of commercial arbitration

Definition

Commercial arbitration is a hybrid system between the codified systems and the common law sources by adopting the best of both worlds: a flexible and private out-of-court process where parties can submit their disagreement to an impartial arbitrator or panel of arbitrators.

Most states in the world have now recognised, with the growth of world trade, that 90% of commercial disputes should be settled in arbitration and not courts of law. To illustrate this view, they have allowed arbitration laws to be passed nationally, which makes it difficult for national courts to intervene.

To appeal an arbitration award is not as easy as appealing a decision from a national court. The national arbitration laws are designed in a way to discourage the courts from intervening. Arbitration is internationally accepted as the way to resolve disputes.

Unlike traditional litigation, it offers flexibility, neutrality, efficiency, and confidentiality, making it an attractive solution for businesses seeking to resolve conflict in a timely and cost-effective manner.

Advantages

1. Neutrality: The parties can decide where to go and on which basis. They can decide what law is applicable and who will make the decision.
2. Efficiency: Arbitration proceedings are typically quicker than traditional court litigation. Disputes are resolved faster, which means business is not interrupted or at least less than with a Court procedure.
3. Flexibility: Arbitration allows customisation of the process to suit the parties’ needs, including selecting the arbitrator, choosing the rules, and determining the place and time or the arbitration.
4. Deep expertise: the parties can chose who will deal with their matter and therefore can have somebody who is an expert in very niche areas to be involved. It ensures that decisions are made by people with a deep understanding of the relevant matter.
5. Confidentiality: Court proceedings are usually public. Arbitration allows more privacy, which is attractive for businesses dealing with confidential information and savoir-faire.
6. Enforceability: decisions are binding and enforceable like a Court judgment would be. In addition, an award is hard to challenge, giving the parties a binding and final decision.

Settings

When considering commercial arbitration, businesses should consider the following factors:

1. Nature of the Dispute: is the dispute adequate for arbitration based on the complexity, nature of resolution and preferences of the parties?
2. Agreement: does the contract includes a well drafted clause regarding the resolution of the dispute? Is there a valid arbitration agreement? 4 factors under the NY convention of 1958: (i) The Agreement must be in writing and signed by the parties: Since 1958 there has been an explosion in the ways that people communicate, must the agreement now be in writing and signed by the parties? No, as long as there is evidence of the agreement and the exchange of consent (ii) The arbitration agreement deals with existing or future disputes. (iii) The disputes arise in respect of a defined legal relationship, (iv)The arbitration agreement concerns a subject matter capable of settlement by arbitration.
3. Arbitrator Selection: the parties must ensure the arbitrator dealing with their claim has the relevant expertise.
4. Arbitration Rules: Choose appropriate arbitration rules, whether institutional or ad hoc, to govern the arbitration process. There are five laws to consider: (i) Law governing the arbitration clause, (ii)The law governing the place or seat of the arbitration, (iii)The law of the contract itself “proper law, the substantive law, the governing law, or the applicable law”, (iv) Guidelines (confidentiality, etc), (v) The law governing the recognition and enforcement of the award

How we can help?

In today’s commercial world, businesses must be aware of the necessity to deal with disputes in a fast and efficient way. Commercial arbitration offers an alternative to traditional litigation, with more flexibility and certainty. It is crucial for the commercial lawyers to understand the advantages of commercial arbitration and make informed decisions. If you would like to find more how we can help with a dispute, contact Adam Haffenden on 0203 440 8139 or email adam.haffenden@tvedwards.com.

Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.