UK: Arbitration: Still A Valued Means Of Resolving Disputes?

Last Updated: 1 November 2007
Article by Leigh Williams and Simon Jackson

It is appropriate that the (re)insurance market regularly returns to the debate over the available options for the resolution of disputes that inevitably arise. The choice of dispute resolution method is something which needs to be addressed and built into the contract when the prospect of dispute is furthest from the parties' minds, namely when a new and hopefully mutually beneficial business relationship is being forged.

Advantages Of Arbitration


A fundamental difference between court-based litigation and arbitration is that the former takes place in public and therefore under the scrutiny of the press, the public at large and, more importantly for the parties, their customers, prospective customers and competitors. Imagine the situation: it is the morning of a key pitch for a new account, everything has been prepared to give the view of your company as an ideal business partner. You pick up the trade press and it is full of the lurid details of an acrimonious dispute with a former client which has just come to trial.

Had the dispute been resolved by arbitration, the details would have been kept private and confidential, the rather embarrassing explanation of the court case would not need to have been given at the pitch and the customer would not have gone elsewhere.

Legal Precedent

Another important point is that parties might not want the result of their dispute to create a legal precedent to which they (or others) are bound in the future. One arbitration award is not binding on another tribunal, and so having disputes concerning the same point determined in arbitration enables you to live to fight another day.


Arbitration is consensual, the rules and procedure (for example, in relation to disclosure) can be tailored to the particular needs of the dispute, either by agreement between the parties or determination by the arbitrators. Court procedure is "one size fits all" and, except to a limited extent, cannot be tailored to the particular requirements of a dispute or its parties.


This is widely regarded as the key advantage of arbitration over court litigation. There is an international mechanism for the straightforward enforcement of arbitration awards - the New York Convention - which has been ratified by 143 countries. Because of the number of signatories to the New York Convention, an arbitration award is more readily enforceable in many more countries than, say, an English Commercial Court judgment. No treaty on the enforcement of foreign judgments comes close.

Ability To Choose Arbitrators

In arbitration, the parties can generally choose the arbitrators. While in a UK arbitration the arbitrators must not be partisan, a party may wish to have someone on the panel because of his or her technical expertise, market experience or inclination to look at matters in a particular way. Connected with this is a further advantage which arbitration has over court litigation - continuity of the tribunal. In court litigation, a case can be overseen by many judges and the trial judge may not necessarily come anywhere near the case until trial. However, in arbitration the tribunal get to know the case and the personalities very well indeed. Having said that, if a party falls out with the tribunal early on that can make life very difficult.

Disadvantages Of Arbitration


While flexibility is seen as an advantage of arbitration, the downside is that the more flexible a dispute resolution mechanism is, the less predictable it is likely to be. This is especially so where the arbitration agreement contains an "honourable engagement" clause, empowering the arbitrators to decide the dispute in accordance with what it regards as commercially or morally fair rather than the law strictly applied.


The cost of arbitration as opposed to litigation has been a matter of debate. On one hand, if the advantages of arbitration are fully utilised, proceedings can be streamlined by the tribunal resulting in costs savings. However, despite the potential for flexibility, big arbitrations often ape equivalent court proceedings with numerous interim applications. Parties must also pay for the arbitrators, the venue for the arbitration and any administration costs (where the arbitration takes place under institutional rules). Court fees can seem cheap by comparison, usually amounting to no more than a few thousand pounds, no matter how long or complex the final hearing is.

However, it should be borne in mind that arbitration is generally speaking a "one stop shop" with a limited right of appeal rather than the first stage in a journey through the land's higher courts.

Consolidation Of Proceedings

Commercial disputes often involve multiple parties, not all of which might be party to the original agreement in dispute. A common example of this would be proceedings against a broker for negligence following the successful avoidance of a reinsurance cover. This is no problem for courts, which have wide powers to consolidate or join additional parties to proceedings. Arbitral tribunals have no such power as the source of their authority is a contractual agreement to arbitrate. If a party to the dispute is not a party to the agreement, that party cannot be compelled to arbitrate.

Problems arise when not all of the parties to a dispute have that dispute resolved in one set of proceedings. Those that are not parties to an arbitration are not bound by the findings of the tribunal and can re-open and re-litigate issues afresh if they so choose.


The availability of appeals from arbitration awards is very limited. This can be seen as an advantage - parties get finality and do not spend time and money litigating their way through multiple tiers of appeal. However, the downside is that if you don't like the award, or are on the receiving end of a disappointing decision, you are stuck with it. This means that in one-off, high value cases where privacy is not a relevant or important consideration, submitting to arbitration can be high risk.

So Which Should You Choose?

Determining whether to litigate or arbitrate involves assessing how important the advantages of each form of dispute resolution are to you. The fact that arbitration remains popular for the resolution of reinsurance disputes perhaps indicates that it is in the nature of the industry to give particular significance to the advantages of this particular method. Is privacy paramount? If so, arbitration would make sense. Is there a commercial reason to avoid setting a legal precedent? Are there only a few possible parties, or does the dispute implicate a large number of parties such that the only way to resolve it once and for all is to have it heard in court? These are the questions that parties and their legal advisers must consider very closely at the outset of a new business relationship. Get the analysis wrong, and you will fail to get full value out of either process.

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.

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