What is Arbitration?

emily gordon brown
Emily Gordon BrownLegal Assessment Specialist @ Lawhive
Updated on 13th December 2023

You will probably have heard of arbitration as a form of settling a dispute. But were you aware that you don’t need to go to court if you are involved in arbitration?

what-is-arbitration

This article is crafted for employees, small businesses and corporates seeking an understanding of arbitration, providing insights for those exploring alternative dispute resolution options.

We’ll explore:

  • Who appoints an arbitrator;

  • What their remit is;

  • How long the arbitration process takes;

  • What happens when you win or lose;

  • The differences between mediation and arbitration;

  • The pros and cons of arbitration;

  • How much is arbitration and who pays.

What is arbitration?

Arbitration is the most traditional form of private dispute resolution. ACAS, the advisory, conciliation and arbitration service puts it like this:

“Arbitration is when a third party makes a decision on a dispute to resolve it”. 

Like conciliation, arbitration is carried out by a neutral and unbiased professional known as an arbitrator. It removes the need or burden for both parties in dispute to meet and discuss the issue together for any longer than they already have.

Arbitration is legally binding - it can also be described as a contract-based form of binding dispute resolution

Before resorting to arbitration, it is better for both sides to attempt to resolve their dispute without bringing the law into it. Try reaching an agreement with the other party before deciding to proceed with an arbitration case.

Arbitration is an alternative to going to court, as it is legally binding.

Who appoints an arbitrator?

Arbitrators are usually appointed by a private organisation that will refer the disputing parties to a list of independent arbitrators who draw up the rules of the process which will need to be followed by both parties.

Some parties decide to appoint an institution such as the Chartered Institute of Arbitrators; others may ask The Law Society to choose them a suitable arbitrator. The organisation that appoints the arbitrator can partly or fully manage the process.

Both parties can have a say on who arbitrates their case in the following ways:

  • Request a list of arbitrators from an arbitration company and shortlist the professionals they prefer

  • Come together to agree on one arbitrator to preside over the case

  • Decide on a panel of arbitrators that are rotated 

  • Select a representative arbitrator each and ask a neutral agent to choose the presiding arbitrator

What does an arbitrator do?

An arbitrator does not take sides, their role is to listen to the arguments of both parties and help foster an environment of negotiation.

The meeting where issues are discussed is known as a hearing. The arbitrator will make a decision based on the evidence presented to them. 

The decision made by the arbitrator is binding, in the same way a judgement being handed down by a judge at the courts.

Arbitration is also known as alternative dispute resolution (ADR) because many disputes go to court and arbitration is alternative way of resolving an issue. 

ADR is often chosen over court proceedings as it is a cheaper and less lengthy form of dispute resolution.

How long does arbitration take?

You probably won’t be surprised to hear us preface an estimated time by saying every arbitration is different. The time it will take for a hearing to conclude will depend on the circumstances of your dispute. However, a typical arbitration process will take anywhere from between a few days up to a few weeks.

Some simpler cases may take only one day to conclude, but a more complex case could take a fortnight or longer to wrap up.

You’ll need to escalate your dispute to a legal matter before the arbitration begins. The discovery phase of building your case and deciding who you want to sit on it may take up to a few months. 

Fortunately, once an arbitrator is appointed your case can begin immediately. Unlike when taking a case to the courts, in arbitration there’s no need for a court date to be set. With arbitration the goal is to get the dispute resolved as soon as possible so both sides can move forward.

ACAS resolve disputes to the following schedule:

  • Individual disputes – 14 days

  • Collective disputes – 21 days

What happens if you win arbitration? 

The arbitrator’s final decision is known as the ‘award’. If you win your case, the arbitrator will issue you their award. The arbitrator will write the reward and issue it to both parties once it is ready.

Depending on the rules of your arbitration, the date when the arbitrator must send you the award differs, but it is usually between 14 and 30 days from the end of the hearing.

If you win the award, naturally you will want to follow the arbitrators’ decision. But how do you get the other side to follow the instructions in the award?  As mentioned, you do have protection against this, as arbitration is legally binding. 

If the other party refuses to accept the decision of the arbitrator, you may have to go to court to get their decision confirmed. In England and Wales, you can ask the courts to enforce the award if the other party ignores it. The court will usually give a judgment in line with the award which will mean it is then enforced against the other party.

What happens if you lose arbitration?

If on the other hand you lose arbitration, you’ll have two choices accept the award straightaway or take the issue to court and more times than not be forced to accept the award by the judge’s ruling.  

In most cases the losing party will accept the decision and follow it.

What is the difference between mediation and arbitration? 

Mediation, in contrast to arbitration, is non-binding. A mediator is a middleman between two sides that attempts to help them reach an agreement.

A mediator is there to facilitate negotiations between both sides and create an environment conducive to compromise. They will make their recommendations, however their decision is not legally enforceable, and an agreement being followed is dependent on both parties acting in good faith

Mediation can end without an agreement, whereas arbitration must always result in an enforceable award, and the inevitable ‘winners’ and ‘losers'.

Who pays for arbitration? 

Both parties will have to cover the set-up costs of arbitration, this includes the arbitrator’s fees, and their legal costs. The arbitrator’s fees are usually paid by the hour. How much this will set you back will depend on a few factors, including the complexity and length of the case, the number of witnesses you call and the level of experience the arbitrator has.

The Arbitration Act 1996 sets out that unless the parties make an alternative agreement, costs will be awarded on the principle that costs should follow the event. This means the side that wins is entitled to an order to recover their costs from the other party. Many arbitration cases, however, are entered into with an agreement that says the costs will be shared equally.

In some cases, the arbitrator will decide to use their power to order one side to pay the other’s legal costs and the arbitration costs. Arbitrators have wide ranging discretion in deciding who pays the costs of a hearing.

The advantages of arbitration

  • It’s faster than going through the courts

  • You can select an arbitrator with relevant experience

  • It’s more cost-effective than a court process

  • It’s flexible – you can agree costs with the other side

  • It’s confidential, so your business reputation won’t be damaged, and employees involved in a dispute won’t be in the limelight

  • It’s a less formal experience than court with fewer expectations

The disadvantages of arbitration

  • The arbitrator’s decision is legally binding

  • The courts generally enforce decisions made at arbitration

  • It’s one of the more cost-effective dispute resolution forms, however it may not be beneficial if money is tight

  • Burden of proof is high for employees, it can benefit employers

  • Witnesses cannot be cross-examined like in court

Get help with alternative dispute resolution from Lawhive

If you want to settle a dispute with your employer or employees, you can get legal support from the UK’s best solicitors and lawyers. Contact us today for a free case assessment.

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