In the present day world international arbitration occupies centre stage in resolving a variety of disputes, like disputes involving the borders between neighbouring countries, construal of international agreements and claims for damage caused by wars. Approximately, eighty countries, which include the major commercial countries of the world, are signatories to the United Nations Convention on the Recognition of Foreign Arbitral Awards. The purpose of this convention is to implement arbitral awards that have been rendered.
These awards cannot, in general, be disputed in a court of law. The usual practise is to conduct the proceedings before three international arbitrators. Each of the parties to the dispute are represented by one arbitrator and the third arbitrator is chosen either by mutual agreement between the disputing parties or by the administering authority. Some of the venues of such arbitration activities are located in London, Zurich, Geneva, New York, Tokyo and Stockholm (Lowenfeld and Collins).
The majority of the disputes that have resorted to the process of arbitration in the US are in the areas of labor and commerce. The recent trend has seen the entry of disputes in medical practice and insurance into the arbitration process for resolving disputes. Furthermore, the expanding worldwide trade and investment has engendered an enormous increase in international arbitration (Lowenfeld and Collins). The process of resolving a dispute between parties by referral to unbiased and unprejudiced persons or person is termed as arbitration.
This process is resorted to by the mutual consent of parties, who want to avoid court proceedings. However, in some labor disputes arbitration may be made mandatory by the judiciary, if public interest is involved. This usually transpires in respect of power supply, domestic gas supply and railroads, etc (Lowenfeld and Collins). In general both the management as well the representatives of the labor union do not object to the persons who are designated as arbitrators.
Many of these arbitrators are eminent economists, educators, lawyers or experts in industrial relations. Moreover, there exist a number of agreements in the field of collective bargaining, wherein arbitrators can be selected in accordance with the guidelines set out in the Federation Mediation and Conciliation Service, the American Arbitration Association or public – sector labor agencies pertaining to the state or municipality (Lowenfeld and Collins).
As already mentioned, arbitration takes on different hues and disputes between employers and employees fall within the domain of labor arbitration. The main focus is on resolving disputes that arise in respect of agreements arrived at after a collective bargaining process or on the introduction of new terms of employment. The Taft – Hartley Act was passed in 1947, wherein it was stated that disputes relating to collective bargaining agreements were best resolved by the process of arbitration.
The US Supreme Court has encouraged arbitration, while curtailing the power of the judiciary to review decisions taken by arbitrators (Lowenfeld and Collins). Another form of arbitration is commercial arbitration, which is often resorted to in disputes in the construction and textile industries; insurance and negligence; shipping of goods by sea and stock exchanges. The extant law is such that many a court does not permit cases to be filed before them if there is a valid dispute resolution agreement based on the arbitration process.
The decision of the arbitrator is in general binding unless it can be established that the arbitrator had indulged in misconduct, like concealing the fact that there is a clash of interests regarding the agreement under dispute. Depending on the complexity of the issue on hand, the number of arbitrators may vary from one to three. The main controlling body for this process of arbitration is the American Arbitration Association (Lowenfeld and Collins).
The arbitration process brings about equality in the obtention of justice between the strong and the weak parties. The promotion of fair arbitration is possible only if arbitrators continue to be unbiased, maintain high standard of ethics, ensure speedy dispute resolution, peg down cost of arbitration at a much lower level than conventional litigation, make available facilities that are convenient and exhort the parties to the dispute to arrive at a rapprochement of their own accord (Quade).
Increase in technological advances in transportation and communication has rendered the world a smaller place. Consequently, trade between nations has increased tremendously, with the result that international trade disputes have reached an all time high. As such, international arbitration is defined as the resolution of disputes between sovereign states by some third party that is acceptable to both parties to the dispute (Lowenfeld and Collins). Contemporary international arbitration was initiated due to the Jay’s treaty between the UK and the USA in 1794.
A number of major disputes were resolved by the 1814 Treaty of Ghent and the 1871 Treat of Washington. The former dealt with disputes arising from fishing rights, whereas the latter dealt with claims consequent to the American Civil War. One of the most important advances in international arbitration was the 1899 Hague Conference, which established the Permanent Court of Arbitration (Lowenfeld and Collins). Arbitration has several benefits and amongst them the principal ones are set out in the sequel.
First, the person taking decision in these dispute resolutions is usually an authority on the subject and this circumvents the arrival at of a decision by a jury, which in many instances is not adequately conversant with the issues involved. Second, the process of dispute resolution can be held in private among the parties to the dispute and this prevents the publicizing of the facts of the dispute, thereby avoiding the attraction of unwanted publicity. Third, the dispute resolution process in arbitration is much faster than that of a prosecution in court litigation.
Fourth, the arbitration process is cost – effective, because the entire process of arbitration can be less expensive when compared to litigation in a court (Bledsoe). Arbitration is a much faster process, since the process of arbitration is unconventional and informal, in comparison to a traditional law suit in a court of law, which involves a protracted process. Further, the number of legal papers involved in arbitration is much less than in a court case. Moreover, there are fewer appearances of the parties before the arbitrating tribunal, a much less written motion practice and discovery.
The non – traditional nature of arbitration hearing is always faster than that of a court where the jury examines the issues of the dispute and where a thorough investigation into the matters under dispute is necessary (Bledsoe). Despite the speedy nature of dispute resolution and the relatively lesser cost involved, the process of arbitration is beset with some shortcomings. Sometimes the decisions of arbitrator would be unfavorable to both parties to the dispute, for instance in decisions pertaining to business firms there would be nothing awarded to the business firm or company.
It could be frustrating when a valid claim of a party is reduced or unfairly awarded to a party. Arbitration is less formal and this could result in ignoring some valid defense of one party, while evidence that lacks credence could be permitted in the hearings on the dispute. Moreover, such evidence may be inadmissible in court proceedings (Bledsoe). In addition, the arbitrator can refuse to consider reimbursement of the cost of arbitration proceedings in the award thus there would be no reduction in the expenditure incurred.
Another reason for erosion of cost benefits is that some arbitration services collect a fee towards administrative and case service costs. Furthermore, the parties to a dispute are required to pay a fee for the services of the arbitrator. These fees are charged by the hour if the arbitrator is experienced and well qualified. Moreover, these fees could range from two hundred to four hundred dollars per hour or even more. The cost of arbitration escalates tremendously if the matter under dispute requires the participation of three arbitrators.
In addition, there can be no further appeal against the award of an arbitrator, since the decision of the arbitrator is final and binding. This effectively, rescinds the right to appeal and an arbitration award can be challenged in a court of law, only under a few circumstances, like the involvement of corruption (Bledsoe). Arbitration agreements are not common in matters pertaining to medical and health care. Generally arbitrations take place in business and organizations of business.
In a survey conducted by the Institute of Civil Justice it was revealed that doctors and hospitals do not compel their patients to sign arbitration agreements. A majority of Health Maintenance Organizations’ or HMO insurance plans require the patients to sign arbitration agreements. These agreements involve disputes between these insurance plans and the patients (Binding Arbitration Is Not Frequently Used to Resolve Health Care Disputes). Although, the disputes in respect of benefits are less, the disputes are significantly more in number, in respect of malpractices committed by hospital staff.
For instance, the Institute of Civil Justice had studied the disputes involving HMOs and detected that only four disputes had arisen per one million enrollees per year. A majority of doctors had ensured that they had insisted upon their patients to sign arbitration agreements only on the recommendation of their insurers. Arbitration is cheaper than court proceedings and some medical practitioners have used it in order to avoid the more expensive courts of law (Binding Arbitration Is Not Frequently Used to Resolve Health Care Disputes).
Initially arbitration was not favored to any significant extent; however, with the passage of time it has become a highly favored mode of dispute resolution. On many a occasion, judges have been successful to make the parties to a dispute to resort to arbitration, in order to arrive at a reconciliation. In the days ahead, several states may make it mandatory for labor disputes to be settled by arbitration. Several insurance companies have specified in their contracts that disputes are to be resolved by arbitration and not in a court of law (Quade).
In the future, arbitration will be applied to a much greater extent to consumer transactions. Disputes in such transactions, due to the small amounts involved, are better dealt with by the arbitration process than by litigation. At present, merchants tend to bestow less attention on customer complaints arising from such transactions, because of the huge volume of such transactions, which ensures that they do not suffer a reduction in their profits.
The extant practise is to deprive a disgruntled customer from a reasonable resolution of their complaints (Quade). There is a growing interest in the system of resolving disputes in alternative ways such as mediation or arbitration. In mediation the settlement decisions are not binding on the parties to the dispute whereas in arbitration the process of resolving the dispute is done under the supervision of a paid arbitrator or a panel of three arbitrators. Furthermore, the decision taken in arbitration is binding on the parties to the dispute.
Since the 1980s companies and business firms began to avoid court proceedings and resolved their disputes through the process of alternative dispute resolution. A large number of Americans are seeking arbitration and rescinding their right to go to court. For instance, cell phone operators, brokerage firms, and employers require individuals to submit their disputes to arbitration and sign agreements of arbitration (Orey). Arbitration is often called private justice and it has become popular since it provides a measure of confidentiality.
In Seattle and King County, Wash. private justice has been a cottage industry where retired judges are acting as arbitrators and resolving disputes relating to commerce, divorce, child custody and rich and wealthy people in proceedings that are fast and secret. Many states have passed changes to liability laws, with the result that the courts cannot be approached for personal injury claims. These changes have imposed limits on damage claims, with the result that there has been a steep reduction in medical malpractice petitions. Moreover, judges are advising the parties to adopt alternative dispute resolution to settle their disagreements (Orey).
Arbitration can be classified into voluntary arbitration and compulsory arbitration. The decision arrived at in both these types of arbitration are binding on the parties to the dispute. Voluntary arbitration is prevalent to a greater extent in comparison to compulsory arbitration, which can be also be termed as private arbitration, because there is no intervention by the state. This process is based on the mutual agreement between the parties to the dispute and can also be termed as contractual arbitration.
The agreement to arbitrate is not negotiable and consequently it has also been referred to as mandatory arbitration (Arbitration. In Dictionary of Conflict Resolution, Wiley). Labor arbitration resolves disputes between management and labor over issues pertaining to the workplace or employment. In some labor related matters, arbitration is imposed by a statute, which is termed as compulsory arbitration. Commercial arbitration deals with issues relating to business relationships and the contracts contain the agreement pertaining to arbitration.
Arbitration dealing with business relationships that are transnational and wherein the business entities of different nations resolve their disputes is termed as international commercial arbitration. Moreover, nations generally agree to resolve their disputes through international arbitration, which is recognized by the international laws on account of their preexistent obligations (Arbitration. In Dictionary of Conflict Resolution, Wiley). Sometimes the courts direct the parties to go in for arbitration.
This form of arbitration is usually known as court – connected, court – referred or court – annexed arbitration. The agreements in this form of arbitration are not binding and usually constitute a precondition to formal trial before a judge. When a court directly supervises the arbitration, it can be called court – administered arbitration. The common form of compulsory arbitration in the US is mandatory nonbinding arbitration, which is used to settle civil cases. Another form of arbitration is Juvenile arbitration, which is relatively rare in the US.
It is used in lieu of formal judicial proceedings, while dealing with juvenile criminal matters. In addition, medical malpractice arbitration entails a referral to an arbitrator of disputes regarding the negligence of health care professionals (Arbitration. In Dictionary of Conflict Resolution, Wiley). Alternative dispute resolution is a process of litigation and the arbitration involved is similar to court proceeding with formal adversary presentations and application of rules of law. The judgment in arbitration is usually binding on the parties to the dispute.
The expenditure incurred is less and speedier in comparison to court proceedings. The alternative dispute resolution process takes into consideration customs along with principles of fairness and equity in reaching a judgment that is final and which does not permit any further appeal. The judges who participate in the Alternate Dispute Resolution are neutral and are not appointed by the state or elected by the public. They exercise authority over disputes in a manner that is akin to judges and administrative officials of government agencies (Arbitration. In Dictionary of Conflict Resolution, Wiley).