What is arbitration?
Arbitration is a private system of adjudication. Parties who arbitrate have decided to resolve their disputes outside any judicial system. As far as the arbitration conducted without the intervening of any governmental judiciary, it gives the parties substantial autonomy and control over the process.
Nowadays, international commercial arbitration has become the norm for dispute resolution in most international business transactions.
So, what exactly makes the arbitration so attractive to businesses?
Advantages of arbitration
1. Nongovernmental decision makers
Arbitrators are not public officers and do not belong to any governmental hierarchy. Compared to judges they do not interested in ensuring the public interest or policy, they are aimed at deciding the certain dispute submitted to them by the parties. Moreover, the arbitrators are chosen directly by the parties that brings the parties confidence in fairness and transparency of the decision.
2. The right to choose the governing law
The parties are free to choose the governing law of the contract as well as of the arbitration agreement or clause. There is no restriction or limitation for parties to apply to the arbitration agreement the law different from that governing the main contract.
3. A final and binding award
Generally, the arbitration reward cannot be appealed to a higher-level court. First of all, there is no higher-level institution, unlike the judicial system. Although, there are some narrow opportunities to appeal, namely, the defect in the procedure, the incompetency of arbitration to decide the case and some others, depending on the jurisdiction of the parties. However, the scope of opportunities to challenge the decision may vary from country to country, it is strictly limited and defined in the national laws.
The parties find this provision as one of the most substantial. Many companies want confidential procedures because they do not want information disclosed about the company and its business operations, or the kinds of disputes in which it is engaged, nor do they want a potentially negative outcome of a dispute to become public.
The arbitration process usually takes not more than 12 months. In comparison with the trial it is very fast. This period includes the submission of claims, discovery and arbitration award. In the general judicial system, the process of submission, hearings, disclosure, appellation and execution of the foreign court decision may take more than 2 years.
6. Specialization of arbitrators
As it was mentioned previously, the parties choose the arbitrators on the basis of the sphere in which the dispute arose. The arbitrators do not have to be lawyers. In some industries, the technical skills and professional knowledge of software engineers and developers cause them to be chosen as arbitrators.
Although, despite a bunch of the benefits, there is one major disadvantage of the arbitration- price. Unfortunately, the cost of the arbitration usually is sufficiently high, because the parties should pay not only for the legal assistance but also for the administration of the hearing and remuneration to the arbitrators. The administration fee may exceed $100,000 without including the arbitrators’ remuneration constituting approximately $2000 – $3000 plus the fixed percentage of the sum of the dispute.
At the same time, disputes concerning the domain names are much cheaper. Czech Arbitration Court (CAC) charges for the administration and arbitrator’s services no more than $6,000. Another institution -Asian Domain Dispute Resolution Centre (ADNRC) charges even less- maximum $3,800.
How to find the arbitration that suits you the best
Nowadays, there are more than one hundred arbitrational institutions all over the world working either offline or online. Therefore, not to get lost in such a variety you should consider the following issues.
Firstly, you should define the amount of the dispute. It is essentially, because as it was mentioned the arbitration is quite costly procedure, and in some cases, there is just no sense to submit the dispute to the arbitration. The minimum sum of the dispute may be not less than $50,000 for the offline disputes.
If you wish to submit the case to the online arbitration or dispute on the domain name, the reasonable amount of the dispute may be much smaller, approximately $10,000.
Secondly, you should check trough the price of the administrative fee and arbitrators’ remuneration, especially when you are not ready to pay more than you my win. The price list and other requirements allocated on the website of the majority of arbitral institutions.
Thirdly, if you are not capable to attend the hearing offline, then you should check if there is an opportunity to conduct it online. Otherwise, if you miss the hearing, you will bear the costs for the institution’s and arbitrators’ services.
Also, you should bear in mind the language in which you would like to arbitrate. It is enormously important while choosing the arbitrators as they must freely understand the claim and supporting evidences.
And the last but not the least, you should establish the subject-matter of the dispute. In general, the arbitration institutions consider disputes from different spheres, such as commercial, constructing issues, labour and employment, etc. However, some relatively new issues such as cybersecurity, technology and domain name disputes and intellectual property are decided by the specialized institutions.
For the disputes on the domain name, there is a special policy developed – Uniform Domain Name Dispute Resolution Policy. The given policy may be used in the accredited arbitral institution all around the globe. The most popular and authoritative institutions providers of the UDRP are Asian Domain Dispute Resolution Centre (ADNRC), World Intellectual Property Organization (WIPO) and Czech Arbitration Court (CAC).
What to choose: arbitration agreement or clause?
This issue is not vital, but in some cases, it might be crucial. The main difference lies in the level of validity and possibility to appeal. If you conclude a contract and add an arbitration clause, then, in case of contract’s invalidity the clause also shall be deemed invalid. Although, the parties may indicate the surveillance of the clause anyway.
An arbitration agreement concluded separately from the contract ensures direct regulation of the arbitration process in details. Although, while concluding it, the parties must be very attentive to the requirement to the form of the contract since any formal mistake may lead to its appeal and invalidity. Also, drafting an arbitration agreement takes more time than a clause.
In general, the arbitration clause is more efficient and practical than the agreement, and easier to enforce in case of the invalidity or termination of main contract.
To ensure the enforceability of the arbitration clause, it should be drafted precisely and clearly. The clause may use the wrong name for an arbitral institution or its rules, resulting in the choice of a nonexistent institution. Clauses may provide for choosing a specific arbitrator, who may be deceased by the time an arbitration commences and many other mistakes.
In order to avoid such misrepresentation, the arbitral institutions provide the specific clauses on their official sites.
For example, the JAMS (Judicial Arbitration and Mediation Services) specialized in cybersecurity, privacy and blockchain disputes, presents the following clause:
“Any dispute, controversy or claim arising out of or relating to this contract, including the formation, interpretation, breach or termination thereof, including whether the claims asserted are arbitrable, will be referred to and finally determined by arbitration in accordance with the JAMS International Arbitration Rules. The Tribunal will consist of [three arbitrators/one arbitrator]. The place of arbitration will be [location]. The language to be used in the arbitral proceedings will be [language]. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”
The form of the clause may not be modified, otherwise, the arbitration may not commence the case.
The problem may arise when the parties decide to submit the case to the ad hoc arbitration (conducted outside the existing institution).
How to govern the ad hoc arbitration?
In the majority of cases, the parties adopt the UNCITRAL Arbitration Rules. Those rules provide that if the parties have not agreed on the appointment of the arbitrator, and if they have not agreed on an appointing authority, either party may request the Secretary-General of the Permanent Court of Arbitration at the Hague to designate an appointing authority.
Also, the parties may just adopt the UNCITRAL Arbitration Rules and to appoint themselves the arbitrators.
In the domain name disputes the module law is a UDRP. The parties indicate the UDRP as governing law for the arbitration procedure. But do not forget to include a standard clause of the chosen arbitral institution.
So, arbitration is an effective way to solve the business-related dispute. It guarantees transparency and efficiency as well as the speed of the proceeding. If you are ready to pay for the fair result and confidentiality, then the arbitration will be the best choice.