Topic 1 - Arbitration in Context

LLM228: Arbitration Law, Practice and Procedure - Topic 1: Arbitration in Context
Topic 1: Arbitration in Context:
Topic Preview
• Litigation and ADR methods: the position of arbitration within the

wider ADR landscape
• What is arbitration?
• Other features of arbitration: expense and privacy
• Industry use of arbitration
• Sources of arbitration rules
• Rules for Institutional and ad hoc arbitration
Topic Content
1. LITIGATION AND ADR METHODS: THE POSITION

OF ARBITRATION
“Disputes are a reality of modern life. Each of us has our own

perspectives, our own interest, our own resources, our own
aspirations, and our own fears. It is no wonder, that as we run into
each other, we sometimes find ourselves in disagreement about
what has happened or about what ought to happen.”1
Individuals and businesses alike find themselves involved in disputes of

various nature and origins. Over time, mankind has developed a very
1
Moffitt, Michael L., and Robert C. Bordone, eds. The handbook of dispute resolution. (John
Wiley & Sons, 2012) 1.
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sophisticated network of methods to deal with disputes. What follows in

the next sections is a description of some of the most common methods
used for resolution of civil and commercial legal disputes (as distinguished
from criminal and administrative justice and dispute resolution which will
not concern us in this module).
Alternative Dispute Resolution (ADR) is a generic name for a number of

different techniques used to resolve disputes. There are many definitions
of ADR, mainly boiling down to that it is a means of dispute settlement
distinct from litigation in courts of law. ADR comes in many forms. There
are probably around 10-20 main forms of ADR which are recognised,
some of them being variants of others.
The need for finality
All methods of dispute resolution need either to be final or to have in the

background another, final solution should they fail. How else can one be
sure that the dispute will be laid to rest? In commercial disputes, the
alternatives for such finality are litigation or arbitration, either of which
must be available should prior mediation, conciliation or the like not
succeed.
The critical comparisons are between the final methods and all the others,
and between the two final methods of arbitration and litigation.
a) Litigation
Litigation is the term used for the process of resolving disputes through
the courts, a system of the state in which the jurisdiction is located. The
term “litigation” is from the Latin words ‘lis’ meaning dispute and ‘agere’
which means ‘to set in motion’. Litigation is different from other
mechanisms of dispute resolution in that it is carried out solely by the
court established the by the government. Courts are the manifestation of
the government, they play exemplary roles in the society, keeping in place
and justifying a particular view of how the social world is, and how it ought
to be.
The courts, being organs of the state, must ensure that all their decisions
are consistent with each other and with ‘public policy’, down to the finest
detail. This means that litigation must be held (with very few exceptions)
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in public and a court’s decisions, the judgments handed down by judges,

must be so correct and precise that they conform to the law and,
generally, also to all previous decisions of that court or of any higher
court. All the courts’ decisions must, of course, be made in accordance
with the law of that state.
Importantly, justice in the courts is rendered by specially appointed

individuals who normally exercise their functions on a professional basis,
possess a special status, and wield considerable power. Court decisions
must be implemented by the losing party and any other individual or a
company they concern, without delay; if not implemented voluntarily they
can be enforced by designated officials (bailiffs).
Litigation is a ‘default option’ for the disputing parties; even if one of the
parties is unwilling to litigate, it can be compelled to do so through the
court. It is also the ultimate go-to option to which the parties can resort
if all other methods of dispute resolution have failed. Providing the society
with the working system of criminal and civil justice is nowadays seen as
an obligation of every government.
Litigation in the courts is conducted in the specific procedural form

designed to protect the interests of all concerned parties. This procedural
form is often traditional, rigid, formalistic, and has a symbolic
significance; this explains, for example, the complicated terminology in
court documents, or the fact that judges (often) have to wear wigs and
gowns.
Every country in the world has its own system of civil justice. So, for
instance, litigation in England will be in an overwhelming multitude of
respects different from litigation in France.
It can be said that all other methods of dispute resolution are alternative
to litigation, and are therefore termed Alternative Dispute Resolution
(ADR) methods.
b) Arbitration
Arbitration, by contrast with litigation, is private and based upon the

parties’ voluntary agreement to arbitrate. It is conducted by private
individuals – arbitrators who, unlike judges, have not been authorised by
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any state or government authority to resolve disputes. However, arbitral

award is final and binding on the parties, and, under some conditions, can
be enforced, i.e. the losing party can be compelled to comply with the
arbitral award. More on arbitration, which is our main subject in this
module, will follow.
Whether or not arbitration should be considered an ADR method has been

a subject of some debate. Some authors prefer to classify it as such
because arbitration is clearly not the same as litigation; others are
reluctant to consider arbitration an ADR method because, unlike other
ADR methods, it produces a final and binding decision (arbitral award).
This discussion is indicative of an ambiguity inherent in the notion of ADR,
rather than of any difficulty in providing a working definition for
arbitration.
Settlement Based Processes
a) Negotiation
Negotiation is rooted in commerce; its root word is the Latin negotium

meaning ‘business’. To negotiate is: to confer for the purpose of mutual
arrangement; to bargain; to traffic. Parties in dispute always can, and
generally should try – at least before taking the matter further – to
negotiate between themselves to reach a settlement of their dispute. It
hardly needs to be pointed out, of course, that negotiation is the main
and preferred method of resolving disputes. Negotiation can take place in
advance of a court action or arbitration or any other formal process or
during it but before a final decision has been made; negotiations can take
place even after the court or arbitrator has pronounced his decision but
during the appeals process. There are, of course, a number of theories
and techniques around negotiation, and many best-selling books on
negotiation have been written.
The beauty of a negotiated settlement is that the parties choose the

resolution, and so will (to a varying degree) be content with the outcome.
In more formal decision making fora, such as courts and arbitral tribunals,
the decision is imposed in a ‘winner takes all’ environment. This will
almost always lead to one party being very pleased, the loser being very
despondent. On the downside, unlike court decisions and arbitral awards,
negotiated agreement is not directly enforceable. It may be enforced
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through courts as a contract, but this will have to be preceded by another,

longest and the most expensive method of dispute resolution – litigation.
Broadly speaking, there are two main theories of negotiation: the problem
solving approach and the competitive theory.
The problem solving approach involves the negotiator trying to resolve

the dispute by suggesting resolutions that can be to the advantage of
both parties; in other words, concentrating not on the negotiating party’s
own position but seeking a mutually beneficial outcome by focussing on
both parties’ interests.
By contrast, the competitive theory involves a tough, powerful and

competitive negotiation. According to this theory, the aim is to obtain the
best outcome for the individual negotiator and the ‘common good’ is
irrelevant. In fact, in this theory, gestures of empathy or attempts to
reach a mutually beneficial solution are seen as signs of weakness. In this
theory, each side is out to gain as much as possible and lose as little as
possible.
These approaches are not the only ones. In fact, during the course of a
negotiation or series of negotiations the approach may alter, perhaps
several times. One side may use one approach, and the other a different
approach.
The question of which approach to use will vary according to a number of

factors, including:
• The relative bargaining position of the parties: a large company can

perhaps easily afford a court battle while the cash strapped smaller
enterprise might be more desperate for much needed cash flow.
• The relationship between the parties: if more business is to follow

parties will usually be keen not to be too competitive, although this
will depend on the circumstances since one party might rely on the
other party more for future business, again coming back to the
parties’ relative bargaining positions.
• The identity of the negotiating party: what is at stake for them in the
negotiation? If the negotiator is a lawyer, there might be a sense of
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detachment, which might not exist if the party is negotiating on his

own.
• The value of the dispute: if small, the parties are unlikely to spend
much time negotiating and are more likely to be able to compromise.
The cost of lengthy negotiations, in terms of time or legal fees might
be prohibitive in comparison to the value of the dispute, however
sometimes the value is not the only influence; there is sometimes a
‘point of principle’ at stake!
• The strength of the parties’ legal positions: if one side is in a strong

legal position, their negotiating style might be influenced - they are
less likely to be willing to compromise. On the other hand if the law
is uncertain, this can encourage a more open negotiation since the
parties may wish to avoid a long, expensive drawn out litigation with
appeals etc.
• Cultural differences: this can be very important for the negotiator in

an international situation. Cultural differences can be pronounced
and the negotiator must be aware of what is an acceptable style of
negotiation in the country or culture of his opponent, otherwise a
negotiation can be jeopardised if offence is caused.
• The personality of the negotiators: this can be very important where

the negotiators have met before and perhaps negotiated before -
their strengths and weaknesses can be anticipated - but beware!
Negotiators sometimes alter their style and approach depending on
the circumstances.
• The progress of the negotiation: the style or approach of one of the

parties might have an influence and may even alter the strategy of
the other party. Also, the aims of the parties might clarify as the
negotiation proceeds, or the parties may even gradually agree on
certain points of dispute as the negotiation proceeds. Any of these
factors can alter or influence negotiating style.
• Gender of the negotiator: this is controversial for obvious reasons. It

could be linked with the question of culture. Some negotiators might
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alter their style (without perhaps even knowing it!) when negotiating
with a member of the opposite sex.
• Reputation: A major factor in a negotiation might be the reputation

of either or both of the parties or their relationship with others in the
same business community. Even reputation with customers can be
an important consideration. If a party is seen as a soft touch, this
might encourage more litigious behaviour by others in the local
commercial community. If he is too inflexible or unreasonable, this
could alienate others in the business community, and influence how
the business is viewed generally and the approach of others to
dispute resolution with the company in the future.
These factors are not exhaustive and there may be others in any particular
negotiation. Also, it is likely that more than one will be present in any
resolution attempt. Some will be more important than others in each
individual negotiation.
b) Mediation
Mediation occurs where a third party assists disputants to settle their own
dispute. In its generic form the mediator does not make a decision, much
less impose it. Whatever the particular procedure, any settlement made
by mediation can generally only have the force of any agreement, that is,
the force of contract. This is the common feature of mediation and
negotiation. Mediation procedures do not need to conform even to the
basic legal principles required in arbitration. For example, a mediator may
meet separately with one disputant (and frequently does) without
damaging the process. In arbitration, such an occurrence would be a
serious breach of the principle of fairness which upholds a party’s right to
know the case against him; all evidence must be provided openly between
the parties, from one in the total knowledge (that is, copied if
documentary) or in the presence of the other (if given orally or by way of
inspection).
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c) Conciliation
Unless more specifically defined, conciliation in the commercial sense is

generally understood as an extension to mediation where, when the
disputants are unable to agree despite the conciliator’s assistance, the
conciliator (who has been acting up to this point as a mediator) is asked
to give his opinion as to what should be the terms of a settlement. This
opinion is then presented to the disputants and, unless one or more of
them rejects it within a specified time, it becomes their agreed settlement
of the dispute. This is what conciliation means in England, for example.
In continental Europe, it usually means the same as mediation but where
all the meetings and communications with the parties are together,
thereby not contravening the arbitral principle of fairness. A Civilian
conciliator may therefore proceed to arbitrate the same dispute, or parts
of it, if the conciliation fails.
Provisional Decisions By A Third Party
a) Adjudication
‘Adjudication’ can have a wide meaning covering any decision-making

process (including litigation) or may have a much more restricted
meaning, as recently in England by statute.
Adjudication is now enshrined in English statute as a mandatory process

in the Housing Grants, Construction & Regeneration Act 1996 (as
amended by The Local Democracy, Economic Development and
Construction Act 2009). This Act covers virtually all construction work and
came into force in mid-1998. Its adjudication provision requires that, in
most circumstances, an adjudicator makes a binding decision on a dispute
submitted to him within 28 days whatever the nature or extent of the
dispute.
While forms of expert evaluation have been used for a long time, this Act
has given this process a specific definition, essentially as an investigative,
evaluative, third-party determination that is binding on the disputing
parties unless one or more of them objects within a specified time. There
are few grounds for challenging an adjudicator’s decision: whether he has
jurisdiction; or if he acts in bad faith or is negligent in carrying out his
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evaluation. An adjudicator’s valid decision must be performed, but may

be later reconsidered in arbitration or litigation.
In general terms, Adjudication or Expert Determination or Independent

Expert Appraisal occurs when an independent expert is appointed by
parties (directly or indirectly) to investigate and report on a matter within
his expertise. His report is usually binding on the parties as an obligation.
There are many names and varieties of this type of process. For example,
the International Chamber of Commerce [ICC] provides several kinds of
this type of adjudicative process in the services offered by its International
Centre for Expertise and its Pre-arbitral Referee Procedure. A variety of
this process is known as Dispute Boards, or Dispute Adjudication Boards
(DAB) which are becoming more and more popular in construction
industry over the last decades. Many of you will study these in more detail
in later modules.
Shortcuts, Combinations & Specialities
a) Facilitation
Facilitation is used mostly (but not exclusively) in the public sector for
collective bargaining. A ‘fact finder’ is given information by both sides and
makes additional research into the matter before recommending a
resolution. Facilitation is non-binding.
b) Assisted Negotiation
Assisted Negotiation is a term used where disputing parties are assisted

in their negotiations by a third party who ‘coaches’ or represents them in
their negotiations. There is no formalised structure for this assistance.
The third party may be partisan in that he is often acting on the side of
one of the parties. There is no required qualification for this third party
and there are no formal rules as to how the negotiations are conducted.
c) Early Neutral Evaluation
This process gives disputants a quick valuation of their case by an expert

in the matter of their dispute who is independent of both it and the parties.
Parties are moved away from unrealistic views of their case and
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settlement is promoted in a more realistic view of the dispute. Many

jurisdictions allow such a process under their court rules, usually through
a confidential case conference ordered by the court. Early neutral
evaluation generally reduces a case to a manageable size, clarifies
relevant facts, allows a balanced evaluation of strengths and weaknesses,
and provides an estimate of the likely damages. It also involves the
parties, with beneficial effects up to and including settlement.
d) Fast-track Arbitration
This isn’t a locomotive racing out of control! It is ‘short-form’ arbitration

where parties agree to limit the issues and/or set aside the rules of
evidence and/or exchange short forms of points of claim and/or submit
an agreed set of facts to the arbitrator who may not be required to give
his reasons but must make his award within a prescribed time.
e) Med-Arb
Med-Arb combines some of the features of mediation and arbitration.

Most med-arb proceedings require a third party first to mediate as many
issues as possible, then to arbitrate the remaining issues. Sometimes, the
same third party performs the two roles, sometimes the roles are split. A
third variant requires a single third party to perform both roles but
restricts the mediation to joint sessions only.
f) Arb-Med
Arb-Med similarly combines features of both arbitration and mediation,

this time using arbitration as a ‘filter’. A major issue –such as the meaning
of a contract term or condition (or even its validity), or liability– is
arbitrated and, once it is decided, any subsequent issues (quantum etc.)
are mediated. This way round, the role of mediator would not be
compromised if the same person were to have been the arbitrator at the
start and it is usually the case that the same person acts throughout the
arbitration and the mediation.
Due to these concerns –about disclosing confidential information and the

potential impact on the fairness of existing arbitration or litigation
proceedings– med-arb is less commonly used in common law and Western
jurisdictions. In Asia, however, med-arb is a relatively familiar practice.
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Although parties in Asian jurisdictions will still commence formal

arbitration or litigation proceedings at the beginning of a dispute as a
strong message of their intent, the same parties are often willing to
engage in informal or formal mediation processes, since their commercial
culture tends to favour a negotiated settlement; arbitral tribunals and
courts in Asian and other civil law jurisdictions often strongly encourage
settlement and, in particular mediation, during the course of the formal
proceedings.
g) Expert determination
In this form of decision making, which is becoming more and more

popular, the dispute is referred to an expert who will make a decision
which will usually be a final one. There will be no appeal. An expert
determination agreement is usually appropriate where the contract
subject matter is highly technical, or where a technical dispute is likely to
arise, and where referral to someone other than a specially trained and
experienced individual would be pointless since the technicalities would
be lost on anyone else. The problem with such an agreement as a clause
in the main contract (as opposed to an ad hoc agreement once a particular
dispute arises) is that other forms of dispute resolution for non-technical
disputes will have to lie alongside expert determination. This becomes
very complex, since there might then be a dispute as to which type of
dispute is in question, and so whether the expert determination clause is
triggered or whether (say) the arbitration clause applies, or, in the
absence of anything other than expert determination being provided for,
whether court action is required. Expert determination is often chosen
where there is an issue of valuation at stake.
The danger with relying on an ad hoc agreement is, of course, as with any
ad hoc arrangement, that by the time the dispute arises, the parties are
already in a state of disagreement and an agreement as to the form of
dispute resolution might prove to be impossible.
One of the main advantages of expert determination is speed – the expert

need not follow established procedures in the same way as an arbitrator
must (although there are some examples of rules that exist) and with no
danger of an appeal (save where the circumstances are exceptional), the
parties can be sure of a swift, expert and final decision. The only cases in
which an appeal may take place following the decision of an expert is
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where it is claimed he has exceeded his remit (decided something outwith

his terms of reference) or where he has behaved in an extreme way, such
as in response to bribery by one of the parties.
One of the disadvantages of expert determination is that a separate action

will be needed in order to enforce the expert’s decision (unless the
decision is implemented voluntarily). This is the case since the expert
determination clause is simply a clause of the contract like any other and,
if it is breached, a court action will have to be raised to enforce the remedy
that arises as a result of that breach. The decision of the expert cannot
be taken and be recognised and enforced under the New York Convention
(which applies in the case of arbitral awards) or some regional convention
on the enforcement of court decrees (such as the Rome Convention).
Although this court action (if needed) should not be contentious, as it will
normally involve a stamp of approval being given to the decision of the
expert, it is an additional step, which will add to cost and delay.
h) Mini-trial
Mini-trial is where parties choose a third party to hear their dispute in a

very shortened proceeding, pleadings being brief and to the point, and
evidence being limited, frequently merely detailed submissions with
minimal cross-examination. The ‘judge’ gives a quick decision on what
has been presented and the parties then consider what to do about their
dispute, considering that this purely advisory and non-binding decision is
likely to be in line with what would result from full litigation or arbitration.
A common mini-trial format for commercial entities is conducted by a third

party neutral and can ‘compress two years of litigation into two months’.
Each party presents an abbreviated version of its case, not to the neutral
but to panels comprised of executives from each party. Presentation of
the case can be through oral testimony or documentary evidence, or both.
After the presentations, the panels retire to discuss terms for settling the
case. The neutral presides over the mini-trial and can become an
arbitrator or mediator if necessary.
A partial goal of the mini-trial is to have responsible agents for each party
experience the trial presentation of that side’s case first-hand. Ideally,
this should give the parties a better sense of the risks involved in litigation
or arbitration proceedings. A second benefit of such a minitrial is that the
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work needed to participate can be used in a court trial if no settlement is

reached.
i) Summary Jury Trial
This is a court initiated process that uses a “mock jury” to give an advisory
opinion. It is of particular value where constitutional rights are at stake,
a precedent will be set, where government is a party or where there are
numerous parties. Summary jury trials, where permitted, have the
advantage of being backed by courts and give judges the ability to assess
jury responses. There are the same preparations as for a trial in court but
at no more cost and they give the parties their day in court.
j) Moderated Settlement Conference
This process uses three experienced lawyers to evaluate the legal merits
of a case. It can be applied to an entire case or just part and it is not
promoted by an interest in settlement. It has no precedential value.
Moderated settlement conferences are widely used in, for example, US
state courts with abbreviated presentation.
k) Rent-a-judge or Private Judging
In some jurisdictions, a court can, if parties request it, refer a pending

lawsuit to a private neutral party for trial with the same effect as if the
case were tried in court. The verdict can be appealed through the usual
appellate court system.
Private judging is provided for in statutes of some of the US states and is
used:
− where there is a need for a quick decision;
− for highly technical or complex cases;
− for privacy; or
− if the logistics of the case are difficult or costly.
It allows parties to choose their judge with particular, relevant experience.
It also allows parties to control their schedule and costs as well as being
confidential, probably the most important commercial consideration.
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l) Court Referrals
Court-annexed Arbitration is generally mandatory and non-binding. This

contrasts it with generic commercial arbitration. Judges refer certain
classes of civil dispute to arbitrators for their decision. If a party does not
accept the arbitrator’s award, most of these schemes allow it to be
appealed to a court hearing though this could result in costs being
awarded against the appellant if the appeal does not achieve a minimum
degree of betterment. In many jurisdictions, courts are required to refer
disputing parties to mediation. While some of these referrals are nominal,
others require actual performance in mediation before parties can bring
their dispute into the court for decision. This is now a potent force in
English civil procedure where it has resulted in a losing party being
awarded its costs because the winning party refused to mediate before
the trial.
In various jurisdictions, most notably the U.S. Canada, United Kingdom

and Australia, the court has a formal role in the non-litigious settlement
of disputes. This role is sometimes optional. In the UK, for example, the
courts can refer a family law case to mediation.
However, we have already seen that in England, there are even specific
court practice rules dealing with the duty on the court to encourage
settlement by ADR methods, and even delay the progress of the case
(with or without the parties consent) for this purpose. In fact, given the
strength of the powers that have been held to vest in the English courts,
parties can virtually be economically forced to go to ADR in terms of the
following provisions and case law:
• CPR England- r. 26.4- order to stay proceedings and general

encouragement- r. 1.4(2) (e)
• Dunnett v Railtrack plc [2002] 1 WLR 2434 - costs consequences
if fail to take chance of ADR (even if win on merits, can lose costs)
• Hasley v Milton Keynes General NHS Trust [2004] 1 WLR 3002 -
parties cannot be forced to use ADR (contrary to some decisions of
lower English courts)
• The Earl of Malmesbury v Strutt and Parker [2008] EWHC 424 –
unreasonable conduct during a mediation can have an effect on later
court costs
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• Nigel Witham Ltd v Robert Smith and others (No 2) [2008] EHC
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The role of courts in encouraging settlement does not end there. Many
courts informally (and verbally) actively encourage settlement of cases at
all stages verbally. This takes place most notably on the day of the proof
or trial when the parties themselves will be present. This method can be
particularly effective since the parties will not want to irritate the judge
who believes that the case should resolved amicably by insisting that it
goes ahead. The judge must, however, be careful when expressing his
views that he does not show bias.
m) Ombudsman/Independent Complaints Review
An Ombudsman is a third party neutral who receives and investigates

complaints or grievances against an institution (which may be a
government organ) by that institution’s members, clients or employees.
This is essentially an inquisitorial process whereby the ombudsman (or
Independent Complaints Reviewer, or ‘commissioner’) inquires into the
matter and initially decides when there is sufficient detail and evidence to
form a view on it. This view is then proposed to the complainant. If it is
accepted by the complainant, it becomes binding on the institution.
2. WHAT IS ARBITRATION?
Professor DM Walker defines arbitration thus:
“The Adjudication of a dispute or controversy on fact or law or both outside

the ordinary civil courts, by one or more persons to whom the parties who
are at issue refer the matter for a decision.” 2
Julian D M Lew et al in the book Comparative International Commercial

Arbitration define international arbitration as:
‘a specifically established mechanism for the final and binding

determination of disputes, concerning a contractual or other relationship
with an international element, by independent arbitrators, in accordance
2
Apologies for the lack of reference which I will check and update
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with the procedures, structures and substantive legal or non-legal

standards chosen directly or indirectly by the parties’ 3
Before moving on, it is pertinent to note that arbitration is a procedural

subject. To put it another way, it will not directly provide the solution to
the dispute but it sets out the procedure to be followed in resolving it.
There are five important features of arbitration which form the very basis
of this dispute resolution process. They are:
• the agreement to arbitrate;

• procedural freedom of choice;
• the binding nature of the arbitrator’s/arbitral panel’s/arbitrator’s
decision
• the enforcement of the award
• the judicial nature of the arbitrator
The Arbitration Agreement
Arbitration will rarely occur unless the parties to a contract agree. There
are some forms of statutory arbitration, but these are rare and need not
concern us in this module.
The agreement will normally provide for arbitration in the event of any
dispute arising out of the terms of the contract. Alternatively, only certain
clauses might be subject to arbitration. We will deal with this later.
It is, in most systems, possible to agree orally or in writing to refer a

particular dispute to arbitration after it has arisen. Normally, however,
the contract will make provision for arbitration in advance.
Freedom of Choice
Parties are free to select the arbitrators, i.e. third party neutral who
conducts the arbitration (‘arbiter’ was the term traditionally used in
Scotland until 2010). Unlike in public courts, parties can resort to the
expertise, knowledge or authority of a person of their own choosing,
rather than be compelled to accept whatever decision-maker could be
officially assigned within the court to hear their case.
Arbitral tribunal may consist of one or more arbitrators. If the parties fail
to agree on a particular person(s), they can at least agree on a procedure
3
Ibid
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for their appointment. For instance, it is a common procedure for tribunals

consisting of three arbitrators that each party selects one arbitrator, and
the two arbitrators so selected jointly appoint the third one (the chairman
of the tribunal).
Thus, the parties do not have to accept the judge who happens to be in
court on that particular day, who might have little or no expertise of
what might be a complex subject area. Where the parties chose a
particular person, there can be an element of trust in that person’s
decision on both sides.
Choice can also be exercised in the area of procedure. The parties can
set their own timetable for lodging documents and for a hearing. There
is greater flexibility as to the means by which each party can present its
case – and the way in which the dispute is managed.
Alternatively they can leave that to the arbitrator, or to a set of

arbitration rules. They are not stuck with the court procedures and
timetables. Party autonomy is the guiding principle of international law
and arbitration which enables parties, by contract, to select their own
methods and procedures for the resolution of their disputes.
Also, the parties can agree the expenses to be awarded by the

arbitrator, and are not required to pay costs according to the fixed scale
in place for court actions (see The Expense of Arbitration, below).
The Binding Nature of Arbitration
If the contract provides for a genuine arbitration, arbitral award is final

and binding on the parties; the losing party in arbitration is under alegal
obligation to comply with the award.
Arbitration differs from other ‘pure’ forms of ADR such as mediation,

since in the latter case, the mediator tries to persuade the parties to
agree, he cannot force a decision on the parties which they must abide
by.
The Enforcement of the Award
Arbitral award is enforceable against the parties, as if it were a court

decree (order), so the losing party can be compelled to implement the
decision even against its will.
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One important feature of arbitration is that arbitral awards, unlike national

court judgments, can be enforced in almost any country of the world
thanks to the New York Convention 1958 “On recognition and
Enforcement of Foreign Arbitral Awards” (we will discuss it in greater
detail later). This is generally not the case with national court judgments
and will depend on there being an international treaty providing for
enforcement of judgments. Thus, for example, an arbitral award rendered
in England can be enforced in Russia (because both counties are parties
to the New York Convention), but an English court judgment is unlikely to
be enforced (because there is no treaty between Russia and the UK
providing for such enforcement).
The Judicial Nature of Arbitration
Arbitrators cannot act as they like, and ignore basic notions of justice.
They must act fairly towards the parties 4 Subject to that basic
requirement, they have more freedom than judges in the public courts,
particularly as regards procedure. Where the arbitrator does not abide by
the basic rules of fairness, his decision can be challenged in court - this is
not a popular move, since the whole point of arbitration is to avoid
litigation in the courts. In fact, a common feature of arbitration is that
appealing an arbitral award is a lot more difficult than appealing a court
decree. So, for example, it can be more difficult, or impossible, to appeal
an arbitral award where the arbitrator has made an error in law, even
where, had he been correct, his decision would have been different.
3. OTHER FEATURES OF ARBITRATION: EXPENSE AND PRIVACY
The Expense of Arbitration
The question of whether arbitration is cheaper than a court action is not

easy to answer. It will depend on the particular case. The following are
influencing factors:
1. Strictly speaking, no lawyer is absolutely necessary for arbitration.

Generally one is required for court, because the right of audience is
provided only to suitably qualified and experienced persons, such as
barristers in England. This could be a saving but means someone will
have to prepare the case - presumably someone in the firm and this
4
S 33(1) of the English Arbitration Act 1996
18
might be more expensive than a lawyer - and less experienced at

presenting and managing a case. Also, often there will be an arbitral
clerk, who is usually a lawyer. This will influence costs. In commercial
cases of any magnitude, it is now an overwhelming practice to involve
lawyers in preparing and presenting the case.
2. Delay can be minimized in arbitration. The case is on its own

procedural track in arbitration. It is not locked into the rigid and long
court timetable - delay can add to cost, particularly where a large sum
of money is outstanding. However, if a case is complex, as much time
may be taken in arbitration as in a court action. Much will depend
upon the arbitral rules/regime that applies and how much power is
given to the arbitrator in those rules.
3. Parties can agree to restrict costs between them - in a court action

this is not generally possible - but this is subject to the consideration
of lawyers’ costs and point 4 below.
4. In arbitration, the costs of the venue, the arbitrator and all other
ancillary costs have to be met by the parties - in a court action, the
state meets these costs. Any saving in resolving the dispute more
quickly may be lost on these administrative outlays. The costs can
spiral even further if a central administration is being used to run the
Arbitration, such as in International Chamber of Commerce (ICC)
arbitration.
Overall, it is often the case today that arbitration is more expensive than
litigation, although traditionally costs were listed among the advantages
of arbitration.
Privacy
Almost all court proceedings are held in public. This means that members
of the public can come along and watch, and that includes the press. In
addition, all papers are accessible to members of the public, including the
press.
Some companies value their public image and reputation sufficiently to

wish to protect against any adverse publicity and they enter an arbitration
clause in all (or at least most) contracts for all disputes. Another privacy
consideration might be the desire to prevent market sensitive information
(including pricing information and contractual conditions) falling into the
19
wrong hands, such as competitors. Where the desire for privacy is strong,
the company may overlook any disadvantages of arbitration, in order to
ensure secrecy.
4. INDUSTRY USE OF ARBITRATION
Arbitration is used across a wide range of industries, as a method of

dispute resolution of disputes arising out of sometimes very complex and
high value contracts. These industries include the construction industry,
engineering and oil and gas. Of course, litigation is also popular. There is
no industry in which arbitration is used exclusively. In a number of
industries, there are arbitration clauses that are used as standard, and
the use of those recommended by arbitral institutions are common. On
the other hand there are many bespoke clauses, and these are generally
more dangerous and more likely to provoke a dispute. We will look at
some examples later in the semester, but for the moment it is sufficient
to say that one of the most prevalent (and unfortunate) types of arbitral
dispute arises out of what is known as a ‘defective’ arbitration or dispute
resolution clause.
5. SOURCES OF ARBITRATION RULES
It is one thing to agree to arbitrate, another to determine how the

arbitration is to take place. The rules for the conduct of arbitration can
come from three possible sources:
1. The contract itself. The parties can agree detailed provisions on the
identity of the arbitrator, the timetable, the venue, the powers and
duties of the arbitrator, costs, etc. in the agreement itself. This is rare,
since it clutters up the contract – and requires additional areas for
negotiation.
2. The rules of a body. There are dozens of sets of arbitration rules which
exist to cover all kinds of arbitrations. These rules are usually
maintained by the associations who have written them and they may
also provide a framework within which the arbitration could take place,
at a cost, of course. Alternatively, the contract can make reference to
the rules of a body with the procedure being agreed to by the parties
after the dispute arises. A set of rules may also be fashioned by the
parties (and incorporated in the contract) using the best parts of
various sets of rules. Finally, different rules can be used in different
contracts to suit the individual case. See below the section on
Institutional Rules.
20
3. Where the parties have not agreed detailed rules and have not
incorporated the rules of an association into their contract, but have
agreed to arbitrate, the general applicable law on arbitration (for
example, Scots Law, English Law) fills the gap. Sometimes, provision
is made in the contract for most of the procedure, but not all. Where
there is a gap, for example, no mention of the arbitrator’s powers in a
particular situation, the background applicable law of the chosen or
lega y appointed country is used.
6. RULES FOR INSTITUTIONAL AND AD HOC ARBITRATION
In many commercial contracts, or in agreements reached after disputes

have arisen, the parties choose a particular set of pre-existing rules to
govern the settlement of all disputes or some disputes or a particular
dispute between them.
These rules are normally prepared by an organisation and will provide a

complete set of regulations on how the arbitration is to be conducted.
When the parties contract initially, normally the particular institution’s
rules are specified in the clause dealing with the resolution of disputes in
the contract.
It is important to note the distinction between institutional arbitration and

ad hoc arbitration. In the case of institutional arbitration, there is an
established organisation with experience, personnel and resources to
assist the parties. In the case of ad hoc arbitration, there is nothing of a
kind; parties only have their own resources to rely upon. Ad hoc means
“for this” in Latin, so ad hoc arbitration means “arbitration constituted to
resolve this one particular case”.
Whereas in the case of institutional arbitration there is normally a

welldeveloped administrative framework (secretariat, venues,
administrative personnel etc.) to assist the parties, in ad hoc arbitration
there is none and parties are essentially left on their own. While ad hoc
arbitration presents a greater challenge from a procedural point of view,
it also presents opportunities for increased confidentiality, absence of any
affiliations whatsoever, and generally greater procedural choices. Several
sets of procedural rules exist to help the parties in ad hoc arbitrations to
deal with the multiplicity of procedural issues, most notably the UNCITRAL
Rules briefly discussed earlier. Still, the institutional rules remain a
popular choice among contracting parties worldwide.
21
The choice of institutional rules will depend on a number of factors: the

nature of the contract, the nationality of the contracting parties, the
relative bargaining power of the parties. Generally, institutional rules
come under a number of categories:
• “Universal” rules/institutions attempting to cover all kinds of

business and all regions, for example the International Chamber of
Commerce (ICC).
• Rules/institutions specific to particular industries, trades or
professions, for example International Centre for Energy Arbitration
(ICEA) or The Grain and Feed Trade Association (GAFTA).
• Rules/institutions primarily aimed at particular regions, for example
International Commercial Arbitration Court in Moscow or Hong Kong
International Arbitration Centre.
Each major institution may have different sets of rules for different
procedural contingencies, e.g.
• Rules suitable for international disputes only, for example The

American Arbitration Association (AAA) International Arbitration
Rules;
• Rules suitable for both domestic and international disputes, for

example The London Court of International Arbitration (LCIA) Rules
or the Chartered Institute of Arbitrators Rules;
• Highly specialised rules for particular kinds of disputes, e.g. AAA’s

Accounting and Related Services Arbitration Rules and Mediation
Procedures; etc.
Normally, each major institution will have its own fairly sophisticated
procedural provisions enshrined in tis Rules; and there is also usually a
recommended arbitration clause based upon the previous experience of
this particular institution, and incorporating the Rules into the parties’
agreement.
Of course, there are thousands of sets of rules across the world that can
be used. We will look at some of the most commonly chosen sets of rules
in commercial contracts.
22
(a) The Chartered Institute of Arbitrators
This is one of the main arbitral bodies in the UK, with facilities aimed at
training and appointment of arbitrators, set up in 1915. It has around
11,000 members in over 100 countries. It is a registered charity; there
is a Scottish branch as well. It has two main sets of general arbitration
rules:
• General arbitration rules

• Controlled cost arbitration rules (2018 edition).
Both sets of rules are based on the English Arbitration Act 1996. They
can therefore apply to domestic or international arbitration. The rules can
be varied by agreement, but not after the arbitration begins unless the
arbitrator consents.
The controlled cost rules are designed to encourage both the arbitrator(s)
and the parties to keep costs low.
More information and the Rules are available here:

https://www.ciarb.org/resources/rules/
Suggested clauses for the activation of the rules are included.

The website as a whole is worth browsing (www.ciarb.org)
(b) The International Chamber of Commerce (ICC)
The International Court of Arbitration was established in 1923. The ICC

itself was set up in 1919; it does not settle any disputes, this task is
carried out by the various arbitral tribunals who will be appointed and
chosen (either in advance or, more commonly, after a dispute has arisen)
by the parties. The role of the Court, which has around 100 members
from around 70 countries, is outlined by Article 1 of the Rules of
Arbitration (current version effective since 2017) and a copy of the
Statute of the Court is attached to the Rules as Appendix 1. This role
includes, unusually, scrutiny of all awards rendered by ICC arbitral
tribunals, and the award does not become final and binding on the parties
until the award has been approved by the Court (Article 34 of the Rules).
The internal rules of operation of the Court are set out as Appendix II of
the Rules of Arbitration.
The ICC rules are among the most commonly used rules for international
arbitration but they can also be used for domestic arbitrations. The
Chamber has its headquarters in Paris where the administrative office
(Secretariat) and the Court are based. Arbitrations under the rules take
23
place in around 40 countries world-wide. The Court is independent of the

ICC itself.
ICC also provides a number of different ADR alternatives, any one of

which can be chosen by the parties. ADR is dealt with in the next topic.
Also, if an expert witness who is independent is required, the ICC

International Centre can assist.
Finally, the ICC will also act as appointing authority when provided for by
the parties and where the UNCITRAL Model Law applies, or in any agreed
ad hoc arbitration. There is a separate set of rules governing procedure.
The costs of an ICC Arbitration are outlined in Appendix 3 of the

Arbitration Rules. In the case of an ICC ADR procedure, the costs are less
specifically prescribed, except for certain administrative costs (see the
Appendix to the ADR rules).
The ICC website carries all sets of rules and further information on the
dispute resolution services offered by the ICC at:
https://iccwbo.org/dispute-resolution-services/arbitration/
The ICC has promulgated some new rules which came into force on 1
January 2021. These are under review by us on this course and we will
provide an update in due course, if there is anything relevant here.
(c) The London Court of International Arbitration (LCIA)
This organisation consists of the Company (non-profit making and limited

by guarantee), the secretariat and the Court and therefore has similar
structure to the ICC. It is the oldest arbitral institution in the world, dating
from 1892.
The Court appoints tribunals, determines challenges to arbitrators and

controls costs. It sits in London and operates a set of stand-alone rules
or can operate in conjunction with the Arbitration Act 1996.
It also operates a mediation procedure and a fast track arbitration option.

It holds an extensive list of arbitrators.
The present arbitration rules were revised in 2014.
Unlike in many other arbitral institutions, arbitrators’ fees in LCIA are

normally charged on an hourly basis.
24
The website of the Court, including copies of the current rules, costs and
other information, can be found at:
http://www.lcia.org
The LCIA have also recently updated their rules – to the extent that
these bear on the subject matter of the module, we will update in due
course.
(e) The American Arbitration Association (AAA)
This association, founded in 1926, has produced a number of sets of rules

to suit various types of arbitration. They have produced International
Arbitration Rules and International Mediation Rules, both under their
International Dispute Resolution Procedures document, effective from
2014.
The AAA has many more domestic cases than international ones.
However, this institution is becoming more important in international
terms and is dealing with more and more international cases. It handled
187,500 cases in 2011 and they have 22 offices. They also hold a long
list of subject specific rules – including for large scale construction
disputes. Their website address, where their rules and further information
about their work can be found is at:
http://www.adr.org/
(f) The Hong Kong International Arbitration Centre
This is the main dispute resolution service in Asia. It was set up in 1985
by business people and professionals in Hong Kong and is self sufficiently
funded (having previous had some government funding).
It operates a number of sets of rules including a short form procedure

and rules based on the UNCITRAL Model Law. It also offers mediation
services and has a separate set of mediation rules, as well as adjudication
procedures and specialist domain name services.
The web address of this organisation is at:
http://www.hkiac.org/
(g) The International Centre for Settlement of Investment

Disputes (ICSID)
25
This Centre is based in Washington, D.C., in the U.S. It was set up by the
World Bank in 1966 under the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States. It
arbitrates disputes between companies and States only, in other words
not disputes between companies or private individuals. As the name
suggests, it deals with investment disputes only and not commercial
disputes.
There are arbitration and conciliation rules, effective from April 2006.
It used to have a small but economically significant workload. This

particular branch of arbitration (investment arbitration or investor-state
arbitration) is currently very much in the focus of public and scholarly
attention; in 2015 there are some 500 cases being heard by ICSID. Its
website is at:
https://icsid.worldbank.org
Regional Centres
Some arbitral rules and procedures are not world-wide but are instead
designed to cater for disputes involving countries in a particular
geographical area. For example, there are centres in Europe: Lyon, Lille
and Milan; and in the Middle East Asia and Australia - Cairo, Kuala
Lumpur, Sydney, Singapore, Hong Kong.
Choice of Arbitral Rules
When choosing which arbitral rules to incorporate parties should take into
account certain factors. These include:
• Cost: compared with litigation and also compared with other arbitral
rules; some rules attached to institutions can lead to the costs of
arbitrations spiralling, particularly where there are significant
administrative costs involved.
• Enforceability: if successful, will the award (whether it is for a sum

of money, and/or a non-money decree and/ or an expenses award)
be able to be enforced as desired?
• Privacy: are the proceedings open to the public?
26
• Reputation of Arbitral body: is the arbitration likely to be handled

fairly and predictably?
• Specialisation: are the rules designed for an international commercial

dispute and/or for a dispute of a certain nature for example a certain
subject matter?
• Delay: does the procedure keep this to a minimum? Is delay an

advantage for the company concerned?
• Party autonomy: does the arbitral tribunal keep close control over
procedure or do the parties have freedom to agree a timetable and
other procedural rules? Is a tight and inflexible timetable better?
• Different Rules: are there available a variety of rules to suit different

situations- fast track rules, mediation rules?
• Venue: this is linked to costs, is there a convenient local venue for

the arbitration? Witnesses may have to travel as well as lawyers (if
employed) and this could add considerably to costs.
• Relative economic strength: the procedure to be followed might

depend on the bargaining position of the other party - can they afford
to argue about the point? One party could be in a position to
disadvantage the other by insisting on a set of rules, which suits them
and not their opponent in the event of a dispute.
There are some other general options that can also be considered:
• Tailor made arbitration procedure: a company can produce a set of

rules to suit its needs and can incorporate it in an agreement with
others. It could even adopt several depending on the nature of the
contract and other party.
• Adoption of set of rules with amendments: a pre-existing set of

rules could be adopted and altered to suit. It could then be
incorporated into a contract. This would take the arbitration outwit
the procedural framework of the institution and give the parties
freedom to agree on venue, costs procedure etc.
Much arbitration is dealt with by institutional rules chosen by the parties

at the time the contract is entered into. It is important to choose the right
set of rules to cater for the contract and the parties’ contractual
relationship. Many companies use one set of rules for all arbitrations of
27
all of their contracts. This is probably unwise, since almost certainly,

some contracts would be better suited to a different set of rules.
Consideration should also be given to the fluid nature of the rules. Unlike
legislative arbitration regimes, the rules of an institute will sometimes
alter radically, removing any advantage gained by one of or both of the
contracting parties by selecting the rules. The rules which apply, unless
otherwise provided for in the contract or by the rules themselves, will be
the rules which exist at the time of the arbitration, not when the contract
is concluded or when the dispute arises.
Further Reading
• Nigel Blackaby and Constantine Partasides, with Alan Redfern and Martin
Hunter, Redfern & Hunter on International Commercial Arbitration, (6th ed.,
2015), chapter 1.
• Fraser P. Davidson, Arbitration (W.Green, 2nd Revised edition, 2012),
chapter 2.
These are just some suggested titles. As always, you are encouraged to read
around the topic as much as possible.
Topic Activities
Please post your thoughts on the below in the forum for this topic. It is a
useful exercise in reflecting on the blend between what is set out above and
“real life”. It will also some sharing of experience. It will also help with getting
back into the relevant methods of writing and study.
Question:
Consider a dispute which has arisen in the course of your employment and describe
it briefly (without sharing any confidential information). It can be about anything
and of any consequence.
Consider how it was resolved.

• What was the method used to resolve it.
• What were the key features which helped to drive that (eventual)
resolution, and
• what could have been done differently?
28

Topic 1 - Arbitration in Context

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LLM228: Arbitration Law, Practice and Procedure - Topic 1: Arbitration in Context

Topic 1: Arbitration in Context:

• Litigation and ADR methods: the position of arbitration within the

• Other features of arbitration: expense and privacy

• Industry use of arbitration

• Sources of arbitration rules

• Rules for Institutional and ad hoc arbitration

1. LITIGATION AND ADR METHODS: THE POSITION

“Disputes are a reality of modern life. Each of us has our own

Individuals and businesses alike find themselves involved in disputes of

sophisticated network of methods to deal with disputes. What follows in

Alternative Dispute Resolution (ADR) is a generic name for a number of

The need for finality

All methods of dispute resolution need either to be final or to have in the

in public and a court’s decisions, the judgments handed down by judges,

Importantly, justice in the courts is rendered by specially appointed

Litigation in the courts is conducted in the specific procedural form

Arbitration, by contrast with litigation, is private and based upon the

any state or government authority to resolve disputes. However, arbitral

Whether or not arbitration should be considered an ADR method has been

Settlement Based Processes

Negotiation is rooted in commerce; its root word is the Latin negotium

The beauty of a negotiated settlement is that the parties choose the

through courts as a contract, but this will have to be preceded by another,

The problem solving approach involves the negotiator trying to resolve

By contrast, the competitive theory involves a tough, powerful and

The question of which approach to use will vary according to a number of

• The relative bargaining position of the parties: a large company can

• The relationship between the parties: if more business is to follow

detachment, which might not exist if the party is negotiating on his

• The strength of the parties’ legal positions: if one side is in a strong

• Cultural differences: this can be very important for the negotiator in

• The personality of the negotiators: this can be very important where

• The progress of the negotiation: the style or approach of one of the

• Gender of the negotiator: this is controversial for obvious reasons. It

• Reputation: A major factor in a negotiation might be the reputation

Unless more specifically defined, conciliation in the commercial sense is

Provisional Decisions By A Third Party

‘Adjudication’ can have a wide meaning covering any decision-making

Adjudication is now enshrined in English statute as a mandatory process

evaluation. An adjudicator’s valid decision must be performed, but may

In general terms, Adjudication or Expert Determination or Independent

Shortcuts, Combinations & Specialities

Assisted Negotiation is a term used where disputing parties are assisted

c) Early Neutral Evaluation

This process gives disputants a quick valuation of their case by an expert

settlement is promoted in a more realistic view of the dispute. Many

This isn’t a locomotive racing out of control! It is ‘short-form’ arbitration

Med-Arb combines some of the features of mediation and arbitration.

Arb-Med similarly combines features of both arbitration and mediation,

Due to these concerns –about disclosing confidential information and the

Although parties in Asian jurisdictions will still commence formal

In this form of decision making, which is becoming more and more

One of the main advantages of expert determination is speed – the expert

where it is claimed he has exceeded his remit (decided something outwith

One of the disadvantages of expert determination is that a separate action

Mini-trial is where parties choose a third party to hear their dispute in a

A common mini-trial format for commercial entities is conducted by a third

work needed to participate can be used in a court trial if no settlement is

i) Summary Jury Trial

j) Moderated Settlement Conference

k) Rent-a-judge or Private Judging

In some jurisdictions, a court can, if parties request it, refer a pending

Court-annexed Arbitration is generally mandatory and non-binding. This