Arbitration clauses (or other alternative dispute resolution clauses) are absent in a disturbing number of agreements. This is all well and good if you don't mind fighting in the courts, but if you would like to have a chat before you go to court, or would like to at least try to arbitrate or mediate, a dispute resolution clause is a good idea.
This update looks at ten good reasons to get to know arbitration.
- The arbitration agreement is generally binding
In general terms, the court treats arbitration agreements like every other form of written agreement. That is, unless both parties agree to waive their right to arbitrate or the arbitration agreement is null, void or incapable of being performed, you can be compelled to arbitrate.
- The arbitration agreement continues to exist despite
termination of the underlying agreement
There are two types of arbitration agreements, 'freestanding' arbitration agreements and arbitration agreements that are part of an underlying contract (e.g. a dispute resolution clause in a contract).
Where the arbitration agreement is part of an underlying agreement, it is 'severable' from the underlying contract (becoming effectively 'freestanding') and remains valid even if the underlying agreement is terminated.
- You can choose your own arbitrator
Judges are people. Arbitrators are people. Both will inevitably carry some sort of bias, no matter how impartial they try to be. The difference between litigation and arbitration is that parties to an arbitration can choose who they would like to decide their dispute.
- You can choose your own arbitration rules
Arbitration proceedings can be either ad hoc or institutional. If they are ad hoc they are not governed by procedural rules; the parties and the arbitrator decide on the procedure as they go.
Institutional arbitrations are so called because they are governed by rules of an institution that govern the procedural aspects of the arbitration (for example, the Arbitration Rules of the International Chamber of Commerce). Each set of rules is different and you can make your selection based on what set of rules suit the parties.
- You can take the 'fast track'
Some institutional rules allow the parties to opt for 'fast track' arbitration proceedings. More generally, parties can (in consultation with the arbitral panel) choose shorter time frames for the filing of pleadings and other documents in order to speed up the dispute resolution process.
- Arbitration is handy for international
Imagine that your business is party to a contract with an Afghan company. The contract relates to drilling for oil in Afghanistan and is governed by Afghani law. A dispute arises and you are served with a summons to appear in a Supreme Court of Afghanistan. Feel like a trip?
If an arbitration clause had been included in your contract the parties could have agreed on a neutral location for the arbitration and for proceedings to be heard by an arbitrator from neither party's country (amongst other things).
- Arbitration allows you to combine business with
Because parties to an arbitration agreement can choose the venue for an arbitration, proceedings can be conducted in some of the world's most exotic and interesting destinations. If you don't feel like arbitrating in Siberia, why not invite them here?
- The arbitrator's decision is like a judgment of the
Arbitration was designed to be a fast and final way of resolving disputes. Invariably, this interest has to be balanced against the interests of justice. Accordingly, the decision of the arbitrator is final and will generally be subject to only very limited grounds of appeal (for example, an error of law).
- Investor-State arbitration isn't as far-fetched as
Investor-State arbitration is a relatively new beast but is already causing quite a stir. Australia is a party to investment treaties with 22 countries. Investment treaties are designed to set rules for the protection of investments by nationals of one country in the territory of another. The treaties usually require the parties to submit disputes to arbitration for resolution.
- Ability to limit costs in your arbitration
While the possibility of incurring substantial costs in arbitration proceedings is very real, the parties arguably have a greater ability to limit those costs by choosing cost and time effective procedures than they would if they litigate their dispute in the courts.
This update will be followed in the coming months with a review of mediation. In the meantime, we will be keeping an eye on the Attorney-General's Department, which is currently reviewing the International Arbitration Act 1974 (Cth).
For more information, please contact:
t (02) 9931 4873
t (02) 9931 4783
t (08) 9323 0955
t (08) 9323 0911
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.