Arbitration is a procedure whereby parties appoint one or more persons called arbitrators to finally render a binding decision. A sole arbitrator or panel of arbitrators makes up what is known as an arbitral tribunal. A decision of the arbitral tribunal is called an award.
Using the familiar court system as a comparator, arbitrators fulfill the role of judges and an arbitral tribunal is akin to a court. Just as judges ascertain facts, scrutinise evidence and interpret the law to reach a decision (or judgment), arbitrators also ascertain facts, scrutinise evidence and interpret the law to reach an award. By agreeing to arbitrate, parties undertake to abide by the arbitrator’s award. Where a party does not voluntarily comply with the award, legislation exists to ensure that the party will not shirk its responsibility.
Since one of the purposes of using arbitration is to move away from the court system, the grounds to appeal arbitral awards is limited. For introductory purposes, it is useful to know that under Canadian legislation a great deal of deference is shown to arbitral awards and this includes awards that may contain errors of law.
While many reasons exist to opt for arbitration, some better-known reasons include allowing parties to tailor arbitral tribunals to fit their needs. Specifically, if parties believe that their arbitrators should possess certain skills, they are free to include such stipulations in their agreements or seek out arbitrators who possess these skills. This is not so for judges under the usual court system.
Despite certain Canadian courthouses that include specialised commercial courts, their dockets are often backlogged and parties are not guaranteed that a judge who specialises in the area of law on which the case centres will hear their case. What’s more, international business transactions feature multiple languages. Another advantage arbitration offers is it allows parties to select arbitrators fluent in the case’s languages. This allows the arbitrators to appreciate the sometimes subtle linguistic differences that colour certain business transactions.
Arbitrators are generally not bound by precedent or complex systems of law (e.g. conflicts of laws rules). Therefore, although arbitrators may look to how national laws handle a particular problem and may even adopt one of their solutions, they are not required to. This is important where a particular national law is inappropriate in the face of the trade practice or usage applicable to the dispute. While modern legislation attempts to defer to trade practices, the difference between an arbitrator who has actually laboured in and is familiar with a particular trade practice or usage, and a judge who possesses an academic understanding of the practice or usage, is measurable.
Arbitrations are private and parties may make them confidential. Privacy and confidentiality is often a significant concern to a company. Arbitration allows companies to resolve their disputes quickly by a panel of specialists while protecting their sensitive business information.
Arbitration – at least international arbitration – is principally a one-level system with limited rights of appeal. This is especially true in modern countries that have adopted the UNCITRAL Model Law on international commercial arbitration, or drafted legislation approximating it. Once an arbitral tribunal has rendered its award, setting it aside is not an easy task. For example, if a party shows that the arbitral tribunal was corrupted, or that one party was not treated equally and therefore could not present its case, then an award is susceptible to setting aside. Setting aside an award, effectively, nullifies it. However, absent such egregious grounds, courts often show deference to an award and enforce it as if it were a judgment of the court. It is perhaps the ease with which awards are enforced that make arbitration such an attractive option.