Arbitration is a consensual method of resolving disputes, based on the parties' agreement to submit their issues to an arbitral tribunal, typically consisting of one or three independent arbitrators appointed by or on behalf of the parties. Arbitration is conducted according to the terms specified in the parties' arbitration agreement, often found within commercial contract provisions or applicable investment treaties.
Known for its procedural flexibility, arbitration allows parties to engage in an efficient, confidential, and fair process that leads to a final, binding, and enforceable award. Arbitration awards are enforceable in over 150 countries due to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
Types of Arbitration
There are two main types of arbitration: institutional and ad hoc, each with distinct characteristics:
Institutional Arbitration:
An arbitration institution, such as the IBA – ADRIC, manages institutional arbitration. Proceedings are typically conducted under the arbitration rules selected by the parties, which have been drafted by the chosen institution that outline the procedure from the submission of the notice of arbitration to the issuance of the award.
Ad Hoc Arbitration:
Ad hoc arbitration is arranged solely between the arbitrators and the parties. The parties themselves must plan and advance the arbitration procedure under the tribunal's supervision. They may choose to adopt a set of established arbitration rules, like the UNCITRAL Rules of Arbitration or they may create bespoke rules specifically for their case.
Advantages of Arbitration
The main advantages of arbitration include:
Neutrality: Parties can choose a neutral arbitral venue and appoint independent arbitrators to form a neutral tribunal.
Flexibility: Arbitration allows parties to agree on the procedures they wish to apply.
Time and Cost Efficiency: Due to its flexibility and finality, arbitration can often resolve disputes more quickly and cheaply than court litigation or other dispute resolution methods.
Confidentiality: Arbitration hearings are private, and awards are typically not published, ensuring that disputes remain confidential and business relationships can be preserved.
Enforceability: The New York Convention, signed by over 150 jurisdictions, ensures that arbitral awards are recognized and enforceable in other signatory countries, unlike foreign court judgments, which can be difficult to enforce without a bilateral treaty.
Final and Binding: Arbitration awards are usually final and not subject to review on the merits, allowing parties to avoid prolonged court appeal procedures.