What is Arbitration?

HomeArbitrationWhat is Arbitration?

Arbitration is a consensual dispute resolution process based on the parties' agreement to submit their disputes for resolution to an arbitral tribunal usually composed, of one or three independent arbitrators appointed by or on behalf of the parties.

An arbitration is conducted in accordance with the terms of the parties' arbitration agreement which are often found in the provisions of a commercial contract or applicable investment treaty.

Arbitration is known for its procedural flexibility, which allows parties to engage in an efficient, confidential and fair process leading to a final, binding and enforceable award.

Arbitration awards are enforceable in over 150 countries around the world due to the application of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention)

Types of Arbitration

There are two different types of arbitration, institutional and ad hoc, the essential features of each are set out below:

Institutional Arbitration

Institutional arbitrations are administered by an arbitration institution, such as the HKIAC. Typically, proceedings are conducted under the arbitration rules selected by the parties which have been drafted by the chosen institution, for instance, the 2013 HKIAC Administered Arbitration Rules, which establish the parameters of the procedure, from the submission of the notice of arbitration to the issuance of the award.

Ad Hoc Arbitration

Ad hoc arbitrations are arranged solely between the arbitrators and the parties. The parties must envisage and advance the arbitration procedure themselves under the supervision of the tribunal. The parties may choose to adopt a ready-made set of arbitration rules (such as the UNCITRAL Rules of Arbitration) or the proceedings may be conducted in accordance with a set of bespoke rules, drawn up by the parties specifically for that particular case.

According to a 2008 study by the Queen Mary University and PricewaterhouseCoopers, 86% of arbitration awards rendered arose from institutional arbitration, in comparison with 14% made in ad hoc proceedings. 

The main advantages of arbitration can be summarized as follows:

Neutrality

Parties are free to choose a neutral arbitral venue when drafting their arbitration clause. Also, once a dispute has arisen, parties have the ability to appoint independent arbitrators of their choice to form a neutral tribunal.

Flexibility

Arbitration permits the parties to agree on the procedures they wish to apply to their arbitration.

Time and cost-efficiency

Due to the flexibility and finality of arbitration proceedings, resolving disputes through arbitration may often be quicker and cheaper than resoltuion through court litigation or other means of dispute resolution.

Confidentiality

Arbitration hearings are conducted in private and awards are, under normal circumstances, not published.  Therefore, disputes will not be revealed to the public and where possible business relationships can be maintained.

Enforceability

Enforcement of foreign court judgments can be difficult in the absence of an appropriate bilateral treaty. Under the New York Convention signed by more than 150 jurisdictions, each of the Convention parties undertake to recognise and enforce arbitral awards made in other signatory countries.

Final and Binding

Arbitration awards are usually final and not subject to review on the merits, meaning prolonged court appeal procedures can generally be avoided.

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