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Arbitration
Disputes are sometimes referred not to the ordinary courts or
to tribunals, but to arbitration. This may arise from the fact
that certain statutes provide that disputes are to be referred
to arbitration rather than to the ordinary courts; but it is
more usual for arbitrations to arise from disputes under commercial
contracts, such as many insurance contracts, where the parties
have agreed that disputes shall be referred to arbitration rather
than normal litigation.
Typical of an arbitration clause in a contract is that in the
standard fire policy issued by insurance companies, namely:
If any difference shall arise as to the amount to be paid under
this Policy (liability being otherwise admitted) such difference
shall be referred to an Arbitrator to be appointed by the parties
in accordance with the statutory provisions in that behalf for
the time being in force. Where any difference is by this condition
to be referred to arbitration the making of an award shall be
a condition precedent to any right of action against the Company.
The statutory provisions referred to in the clause are the Arbitration
Act 1950-79. Before dealing with these, however, it must be
emphasised that the fact that the making of an award by an arbitrator
is a condition precedent to any right of action does not mean
that a person dissatisfied with an award can recommence proceedings
in the ordinary courts. All it means is that if the person against
whom the award is made does not comply with the arbitrator’s
ruling, legal proceedings can be brought to enforce the award.
It is only in the most rare circumstances that an arbitrator’s
award can be overruled by the courts. However, an arbitration
clause which prohibits the parties completely from having access
to the courts is invalid.
There are several reasons, apart from the fact that a statute
may so require, why people may prefer to refer disputes to arbitration
rather than to the ordinary courts:
Firstly, arbitration proceedings are comparatively private.
It is said, for example, that the publicity of an open court
is not liked by insurance companies, as newspaper reports are
always brief and may in consequence give the public a false
impression of the rights and wrongs of the case.
Secondly, arbitration proceedings are less formal that those
in open court and the dispute is usually dealt with more quickly.
These advantages should not, however, be exaggerated. An arbitration
is a ‘legal proceeding’ (Arbitration Act 1950,s.29
(i)) and differs from other legal proceedings only as to the
choice of tribunal. Commonly, counsel are briefed by both sides,
rules of evidence and procedure must be followed, and all the
normal defences in legal proceedings, for example, that the
case is statute-barred, are available.
Thirdly, arbitration proceedings are less expensive than normal
litigation. This is true, however, only because litigation is
extremely expensive rather than because arbitration is cheap.
The costs of arbitration are normally paid by the losing party,
and the amount is usually such as to deter people from entering
into arbitration proceedings lightly.
Finally, it is said that arbitrators are usually persons well-versed
in the technicalities of the matters on which they are asked
to adjudicate, and that their verdicts should therefore be fair.
This is undoubtedly true, but it must not be inferred from this
that the ordinary courts are staffed by judges without specialist
knowledge. The Commercial Court, in particular, includes judges
with a detailed knowledge of a wide variety of specialised subjects,
who are well able to deal with, for example, disputes arising
under insurance contracts. Indeed, judges of the Commercial
court often sit as arbitrators, rather than as High Court judges.
The advantage of this is that, with the consent of the parties,
they can depart from the normal rule of procedure and admissibility
of evidence where the interests of justice demand or where it
is necessary to expedite business. The hearing is in private
and is heard in any place convenient to the parties. The award
is also made privately to the parties and is not published like
a judgment.
The purpose of the Arbitration Acts 1950-1979 is to ensure that
arbitration proceedings are subject to proper statutory control.
If a question of law (but not a question of fact) arises out
of an award, there is a right of appeal to the High Court. The
appeal may be brought by agreement between the parties or with
the consent of the court, but the court will not grant leave
unless it considers that a ruling on the question of law could
substantially affect the rights of the parties. From the decision
of the High Court on a question of law a further appeal lies
to the Court of Appeal, but only if the High Court or the Court
of Appeal gives leave, and this will be given only if the High
Court certifies that the question of law is one of general public
importance or is one which for some other special reason should
be considered by the Court of Appeal.
Until the enactment of the Arbitration Act 1979, it had been
considered a matter of public policy that parties to an arbitration
agreement should not be permitted to exclude the possibility
of judicial review. Section 3 of the 1979 Act, however, does
not permit such exclusion in certain strictly limited circumstances.
The Act makes a distinction between domestic and international
arbitration agreements. Section 3(7) provides that a domestic
agreement is: ‘An arbitration agreement which does not
provide, expressly or by implication, for arbitration in a State
other than the UK and to which neither:
(a) an individual who is a national of or habitually resident
in, any State other than the UK, or
(b) a body corporate which is incorporated in, or whose central
management and control is exercised in, any State other than
the UK
is a party at the time the arbitration agreement is entered
into.’
International agreements are those which do not fall within
Section 3(7).
In domestic arbitration agreements, exclusion of the supervisory
jurisdiction of the courts can come about only if the parties
so agree after the commencement of the arbitration. International
arbitration agreements are treated differently in that the original
arbitration agreement, entered into before a question of actual
arbitration arises, may contain an exclusion agreement. Such
an agreement is not permitted, however, in connection with arbitrations
relating to maritime matters, insurance, and commodity broking.
Generally, arbitration clauses, such as that in the standard
fire policy, refer to the appointment of one arbitrator, though
sometimes reference is made to two, one to be appointed by each
party to the dispute. Even where the agreement is that one arbitrator
only shall be appointed, the parties may not be able to agree
as to who the arbitrator shall be, and in these circumstances
the Arbitration Acts provide that each party shall appoint an
arbitrator. Whenever there are two arbitrators, it also becomes
necessary to appoint an umpire, whose role is to deal with dispute
if the two arbitrators cannot agree. Needless to say, every
effort is make to agree upon the appointment of a single arbitrator,
as the appointment of two arbitrators and an umpire increases
the costs involved.
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