Arbitration - Hits And Myths

By Roger Billins

There is a considerable degree of confusion about the nature of arbitration and its relationship with litigation and other forms of dispute resolution. Davenport Lyons have recently won a substantial award in an arbitration conducted under the auspices of the London Chamber of International Arbitration and our Contentious Rights and Dispute Resolution Department has considerable experience in dealing with arbitrations over a range of issues.

The most common myth about arbitration is that it is a cheap version of litigation. This is not necessarily the case. Litigants in court only have to pay at most a couple of thousand pounds by way of “renting“ the use of the courts and a judge. By way of contrast, the cost of an arbitrator can be very substantial so that in the case we have just undertaken, the arbitrator’s fee will be in excess of £100,000 and the cost of hiring a venue will be at least £7,500. In theory, the more informal, consensual approach that prevails in arbitration should reduce the parties’ own legal costs but our experience is that if one side is uncooperative in dealing with procedural matters such as disclosure then the costs can be as high as they would be for litigation.

The big plus point of arbitration is confidentiality. The reason why arbitration clauses are commonly included in commercial contracts (at least to the extent the parties have thought about it rather than a lawyer simply including a boiler plate clause) is that arbitration is conducted in private and there is no risk of a party having dirty linen washed in public.

There is also much to be said for the informality of arbitration proceedings. Parties prefer an environment that has more in common with a boardroom than a courtroom and which does not appear so daunting. The procedures are determined by the arbitrator in consultation with the parties and their advisors and are often more flexible and user-friendly than the rules of court.

What is vital is the choice of arbitrator. The parties have no say in the judge that they will get to hear their case and the quality can vary enormously. The parties will often be able to choose the arbitrator from the panel available from the particular arbitral body chosen. Many arbitration clauses are silent as to the arbitral body so that will be the first choice. The parties will try to narrow down the field to three potential candidates and it is worth spending time taking soundings in the marketplace about each. The candidate should of course not only have the right legal qualifications but should also have some commercial experience of the business area around the subject of the dispute.

The identity of the arbitrator is particularly vital, because unlike litigation, the right of appeal is very limited. If the rules of the arbitral body allow, there will the right of appeal only on points of law but very often, the rules of the body (such as the LCIA) or the contract between the parties, preclude the right of appeal.  At least this has the advantage of finality but may not be attractive to the losing side!

Finally, arbitration should not be confused with mediation. Arbitration involves determination of the issues that is final and binding on the parties. Mediation is simply the process whereby a third party tries to knock the heads of the parties together to achieve a commercial settlement. Unlike arbitration, it is speedy and modest in cost, which is why mediation (or Alternative Dispute Resolution as it is sometimes called) clauses are often to be found as the first step in dispute resolution clauses in contracts.

If you are interested in discovering more about arbitration, please speak to Roger Billins, a partner in our Contentious Rights and Dispute Resolution Department or your usual DL contact.