Arbitration and its possible advantages over litigation
It is common for parties in a dispute to have their matter settled by going to court. However there is another option open to them through arbitration. This is an alternative than going to court which is used in many different situations. The parties both decide on an ‘arbiter’ who will therefore come to a decision which both parties agree to accept as binding. Sometimes there can be two arbiters, one put forward by each party. Conciquently if the two arbiters are not in agreement, they or the parties can appoint an ‘oversman’ who will then make a decision.
" to exclude a court of law from the determination of some matter which is in dispute; and to take in its place the judgement or award of some private person or persons, selected by the parties to arbitrate between them." (Bell, Treatise on the Law of Arbitration in Scotland).
Throughout this essay I shall be looking at a number of things relating to the nature of arbitration. Firstly looking briefly at the matters that can be referred to arbitration, referring to such cases as Roxburgh v. Dinardo. 1981. Also pointing out important things as arbitration clauses in some contracts. I will then go on to describe the main characteristics of arbitration showing its most important points and how it is of use. Finally and most importantly the essay will go on to outline the main advantages which the use of arbitration has to offer.
Arbitration can be used in many different situations of law, in fact almost any matter which involves civil rights and obligations can be tackled. This could be anything from the inheritance of property to any kind of contract law. Thus showing that arbitration has the power to deal with any questions of fact or law. The courts are even excluded when they have jurisdiction in the matter, whether it is founded on statute or common law. However it is important to remember that the ‘words used must be wide enough’ to overcome the courts jurisdiction, meaning it must be stated clearly enough that the case at hand has good reason to skip court and use the arbitration process. This point was highlighted in the case of Roxburgh v. Dinardo in 1981. In this case there was a partnership agreement which contained a arbitration clause, saying that arbitration has to be used if
"any question, dispute or difference between the parties arising out of this agreement or relating to the partnership business". This was in fact held as ‘not wide enough’ and was therefore within the courts jurisdiction, therefore the ruling was made by the court to disregard the partnership on the "just and equitable" ground, (Partnership Act 1890).
There are of course some matters which cannot be decided by arbitration. For example, things like whether a person is married or divorced, is not allowed to be decided by arbitration. Also, criminal matters cannot be made the subject of arbitration and are strictly for the criminal justice system. However in the case of Earl of Kintore v. Union Bank of Scotland (1863) it was suggested that the criminal matter such as fraud could be tackled by arbitration. This case was however shown to be restricted to the civil aspects of fraud and therefore could not be held up as an exemption to the fact that criminal matters are not allowed to be decided by arbitration.
The main characteristics of arbitration
One of the main points of arbitration is the fact that once the parties have decided to go through with the arbitration process there is no going back. More specifically this means that the parties have now bound themselves to abide by the arbiter’s award and to follow through with it. This therefore means that the parties are willing to take the risk that their arbiter ‘may get it wrong’, in which case they have no real grounds to appeal to the courts against the final decision. In fact once the arbiter has given his answer it is considered as good as a decree of the court. However in some extreme cases the courts would be allowed to interfere with the arbiter’s decision, this is in cases where the decision was considered far to unreasonable and would therefore be reviewed by the courts.
One of the main reasons which the courts could intervene in the case, is if the arbiters decision is though to be dishonest or tainted in some way.
"It clearly appears to be an implied condition under the contract, that the parties shall only be bound by the award if it be pronounced with honesty and impartiality by the arbiter"(Scots Mercantile Law. Enid Marshall 1996).
This could be through bribery or other means of corruption. Another point at which the decision could be held as unaccountable is if one of the parties discovers that the arbiter has a personal interest in the outcome. A good example of this is if the arbiter has shares in one of the companies.
The courts are also able to dismiss the verdict of the arbiter if he does what is known as ‘ultra fines compromissi’ this is where the arbiter has went outwith the conditions which were imposed on him by the parties " beyond the bounds of submission". The arbitration can also be called void if the arbiter has in fact not investigated far enough, meaning he has not asked all the appropriate questions set by both parties. Finally and most importantly it is obvious that a case would become void if both of the parties at hand where not given an equal chance to state their case, either that or the procedure as a hole was done in a totally inappropriate manner. With all things considered however arbitration is seen as a popular and good option in some cases, rather than the use of the courts.
There are of course many advantages through the use of arbitration, and this is why there are a lot of people who now prefer to use the option of arbitration rather than go through the courts. The first of these advantages can be seen through the informality of the process. In arbitration it is up to the parties to decide on the degree of formality throughout the case. This is not always the norm as this matter is sometimes left to the arbiter’s discretion. With this in mind it is still obvious that the process is a lot less strict than that of the court procedures.
The next and possibly one of the most important advantages of arbitration is its speed. It is widely known that going through the litigation system takes time, this is due to the fact that a case must wait its turn in the court timetable. It is a totally different system through arbitration, here the timetable is arranged by the parties and the arbiter himself. Therefore an arbiters decision is far quicker to obtain. Although this is usually the case, it sometimes does not work out this way and the case can be long drawn out. This happens in large scale arbitration’s like that of (Crudens Ltd v. Tayside Health Board, 1979). It was in this case that the arbiter was in such demand that his commitments prevented him from giving the case his undivided attention, therefore the parties spent a lot of time and money on a one hundred-day arbitration. This thankfully is very rare and the process in usually very speedy.
The litigation process is usually a costly one; this is especially true for the losing party. This is through many ways, such as court fees and also the price of a solicitor is not exactly cheap! It is however a totally different set-up with arbitration and this process is usually far less expensive. In some cases however this is not always true, this is due to the fact that some parties may wish to use a lawyer to represent them. In conjunction with this there is the point of paying the arbiter, who in some occasions could be very expensive due to his popularity and expertise in the field. Generally however arbitration is far cheaper than the high price of litigation.
Another major advantage of choosing arbitration over litigation is its privacy. When going through the courts, the proceedings are usually taken place in public. Therefore the whole procedure can be highlighted and reported by the press. Arbitration is totally different in the way in which the goings on can be keep strictly between the parties. This is seen, as a major advantage as in many cases privacy is essential. This could be because companies want to avoid disclosure of their financial details etc.
But without doubt the most important advantages, and probably the most influential point in deciding to use arbitration is the use of technical expertise, therefore it is here that arbitration is superior in a big way to the judicial system. The parties are able to pick their arbiter themselves therefore they can pick the ‘ideal man for the job’. Meaning that if a dispute is in a certain technical area, and therefore very complex, the parties are able to pick someone with more experience and understanding of the topic. Consequently this would be far better than a judge who may never of heard of the topic and have little understanding of the issue, who therefore could have a totally different and wrong perception of events. A good example of this would be in the case of a computer firm the parties would be able to pick someone with mass experience in the field and who would understand all the technical ‘jargon’.
It is obvious therefore that arbitration has many advantages over the litigation process, cheapness and privacy to name only a couple. Thus showing that arbitration can in some ways help the legal system, giving an advantage to not only the parties but also the justice system as a whole. This is through its ability to come to a decision which is as good as a decree of the court without getting involved in its costly events.
Macmillan & Macfarlance- Scottish Business law, 2nd Edition, 1993, Pitman
E. A. Marshall- General principles of Scots law, 6th Edition, W. Green
MacMillan & Lambie- Scottish business Law, 3rd Edition, Pitman
E. A. Marshall- Scots Mercantile Law, 3rd Edition, W. Green/ Sweet & Maxwell