The closing decades of the twentieth century saw arbitration gain worldwide acceptance as the normal means of resolving commercial disputes. National laws on arbitration have been modernized on all continents. The Arbitration & Conciliation Act, 1996 is one such step by India to make the arbitration law more responsive to contemporary requirements, taking into account the Model law and Rules adopted by the United Nations Commission on International Trade Law (UNCITRAL). International treaties on arbitration have been signed or adhered to with impressive success. With the gradual removal of political and trade barriers and the rapid globalization of the world economy, new challenges have been created for arbitration institutions in response to the growing demand of parties for certainty and predictability, greater rapidity and flexibility as well as neutrality and efficacy in the resolution of disputes.
Arbitration is a legal process, which takes place outside the courts, but still results in a final and legally binding decision similar to a court judgment. Arbitration is a flexible method of dispute resolution, which can give a quick, inexpensive, confidential, fair and final solution to a dispute. It involves the determination of the dispute by one or more independent third parties rather than by a court. The third parties, called arbitrators, are appointed by or on behalf of the parties in dispute. The arbitration is conducted in accordance with the terms of the parties' arbitration agreement, which is usually found in the provisions of a commercial contract between the parties.
For an arbitration to take place, the disputing parties must agree to take their dispute to arbitration. In practice, this agreement is often made before the dispute arises and is included as a clause in their commercial contract. In signing a contract with an arbitration clause, the parties are agreeing that their dispute will not be heard by a court but by a private individual or a panel of several private individuals. If parties have agreed to arbitration, they will generally have to go to arbitration rather than court as the courts will normally refuse to hear their case by staying it to force the reluctant party to honour their agreement to arbitrate.
Advantages
Among the available dispute resolution alternatives to the courts, arbitration is by far the most commonly used internationally. The reasons for this are clear:
Final, binding decisions
While several mechanisms can help parties reach an amicable settlement - for example through mediation or conciliation - all of them depend, ultimately, on the goodwill and cooperation of the parties. A final and enforceable decision can generally be obtained only by recourse to the courts or by arbitration. Because arbitral awards are not subject to appeal, they are much more likely to be final than the judgments of courts of first instance. Although arbitral awards may be subject to being challenged, the grounds of challenge available against arbitral awards are limited. The award given by the arbitrator is equivalent to a decree of a court of law and the same can be executed directly, without making it a decree of the court.
International recognition of arbitral awards
Arbitral awards enjoy much greater international recognition than judgments of national courts. About 120 countries have signed the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the "New York Convention". The Convention facilitates enforcement of awards in all contracting states. There are several other multilateral and bilateral arbitration conventions that may also help enforcement.
Neutrality
In arbitral proceedings, parties can place themselves on an equal footing in five key respects:
- Place of arbitration
- Language used
- Procedures or rules of law applied
- Nationality
- Legal representation
Arbitration may take place in any country, in any language and with arbitrators of any nationality. With this flexibility, it is generally possible to structure a neutral procedure offering no undue advantage to any party.
Specialized competence of arbitrators
Judicial systems do not allow the parties to a dispute to choose their own judges. In contrast, arbitration offers the parties the unique opportunity to designate persons of their choice as arbitrators, provided they are independent. This enables the parties to have their disputes resolved by people who have specialized competence in the relevant field.
Speed and economy
Arbitration is faster and less expensive than litigation in the courts. Although a complex international dispute may sometimes take a great deal of time and money to resolve, even by arbitration, the limited scope for challenge against arbitral awards, as compared with court judgments, offers a clear advantage. Above all, it helps to ensure that the parties will not subsequently be entangled in a prolonged and costly series of appeals. Furthermore, arbitration offers the parties the flexibility to set up proceedings that can be conducted as quickly and economically as the circumstances allow.
Confidentiality
Arbitration hearings are not public, and only the parties themselves receive copies of the awards.
