This article seeks to explain the debate on the application of law in the same strict manner by arbitrators and a judge that considers procedures and rules of evidence. It first attempts to identity the place of arbitration within the theoretical framework of alternative dispute resolution (ADR) by outlining the arguments that have been made regarding the possible advantages of seeking arbitrators and how they correspond with the broad theories of alternate dispute resolution. Furthermore, arbitrator is concerned about its enforceability compared to a judge regarding procedures and rules of evidence. In the area of international commercial arbitration, there are a number of leading international arbitration institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the Swiss Chambers of Commerce and Industry, the Deutsche Institution für Schiedsgerichtsbarkeit (DIS) and others. In addition, most countries have their own commercial arbitration institutions which deal both with domestic and international arbitrations. Ultimately, from the argument, it is explained that the power of an arbitrator or panel of arbitrators is granted directly by the parties. By including contractual arbitration clauses, parties are agreeing to the resolution of their disputes through a process that consists of very simple proceedings, which are similar, but not equal to the traditional route of litigated settlements.
TABLE OF CONTENT
PROCEDURES IN ARBITRATION …………………………………………………………………5
RULES OF EVIDENCE …………………………………………………………………6
THE ARBITRATOR AND THE COURT ……………………………………………………………7
Historically, methods used to settle disputes have ranged from negotiation, to courtroom litigation, and even to physical combat. The legal needs of countries, multinational companies, and ordinary people have changed over the last decade. When faced with a dispute, business people are learning that, whenever possible, it is more advantageous to reach practical and private agreements than to fight for years and spend huge amounts of money in courtroom battles. Due to the vast amounts of time and money involved in the trial process, the American and Italian business communities have increasingly turned to legal alternatives that are more prompt, private and economical than the courtroom. Alternative Dispute Resolution (ADR) refers to the wide spectrum of legal avenues that use means other than trial to settle disputes. The main ADR alternatives to civil litigation are negotiation, arbitration, conciliation and mediation. Other, more particular ADR processes available are early neutral evaluation, mini-trial, summary jury trial, and the judicial settlement conference. Disputing parties use these ADR methods because they are expeditious, private, and generally much less expensive than a trial. Although arbitration and mediation have existed as dispute resolution mechanisms for well over 200 years, it was not until the decision of the United States Supreme Court, in Shearson v. MacMahon, 482 U.S. 220 (1987) that arbitration became the most widely used means of resolving disputes in the securities industry. Arbitration of broker-dealer disputes has long been used as an alternative to the courts because it is a prompt and inexpensive means of resolving complicated issues. There are specific laws which govern the conduct of an arbitration proceeding from both the federal government and the various states.
The essence of arbitration is that it is an agreement between two or more parties to try to resolve a dispute outside of the court system. The parties agree upon a third party as an arbitrator who will act as a judge and jury. After giving the parties the opportunity to present their side of the story and to present any relevant documents or other evidence, the arbitrator will act as King Solomon to decide who wins and who loses.
There are usually no set rules as to how arbitration is conducted. It is typically left to the agreement of the parties. There can be binding and non-binding arbitration. A “binding” arbitration generally means that the winning party can take an arbitration award to a court of law and enforce it if the losing party does not comply with the terms of the decision.
“Non-binding” arbitration refers to a situation where the parties agree to use arbitration as a forum to try to resolve their differences, but neither party is bound to comply with any decision by the arbitrator.
PROCEDURES IN ARBITRATION
The arbitration process is governed by the rules to which the parties refer in the agreement. In the absence of specific legal rules, the procedure will be determined by the arbitrators. The arbitration proceeding must be so conducted as to afford the parties a fair hearing on the basis of equality. The arbitrator generally has the authority to request the parties and third persons to produce documents and books and to enforce such a request by issuing subpoenas through court. If a party fails to appear at a properly convened hearing, without showing a legitimate cause, the arbitrator in most instances will proceed in the absence of the party and then render an award after investigation of the matter in dispute. The technical rules of evidence do not apply to arbitrations. “See section 1, read with section 3, Indian Evidence Act, 1872” as in force in Bangladesh.
The Arbitration Act adopts the approach, that in the working of an arbitration agreement, the parties are free to lay down provisions regarding various matters of procedure. But in the absence of an agreement, the rules contained in the First Schedule to the Arbitration Act, 1940, apply.
An arbitrator can be removed for misconduct. In applying this provision courts generally follow the wide construction adopted in most commonwealth countries, so that, it is not merely misconduct involving moral turpitude that attracts this power, but also misconduct of a technical nature, for example, a breach of the rules of natural justice.
Detailed provisions exist for settling the problems that might arise where two or more arbitrators are contemplated by the arbitration agreement and a difference of opinion arises between them.
RULES OF EVIDENCE
It is often said that the rules of evidence do not apply in arbitrations, and this statement, while true, is, standing alone, misleading. Rules of evidence do apply in arbitrations, they are just not as strictly applied as they would be in a court proceeding. Participants in arbitration are well advised to keep this in mind, for many arbitration participants have been surprised that rules of evidence were applied to their cases. While the application of a particular rule of evidence to a particular fact pattern will vary with the rule, the evidence, and the arbitrator, a few general observations may be in order:
- The more significant the evidence, the more likely the rules will be strictly applied;
- Double and triple hearsay are rarely admitted into evidence;
- While the rules relating to authenticity are not strictly enforced, the arbitrators will often permit an attorney to “testify” as to the source of a document, and third parties are rarely forced to appear solely to authenticate documents; and
- No arbitrator will exclude evidence based on the Best Evidence Rule.
THE ARBITRATOR AND THE COURT
One of the disadvantages of arbitration is that, Arbitrators are given tremendous latitude in their procedures and judgments and absent outrageous conduct or judgments on their part, the Courts will not review their actions. While in civil courts the judges are held to strict application of the law and the complex procedures and rules of evidence, the courts have consistently held that such strict compliance is NOT required of arbitrators who may use any and all equitable procedures or common sense and fairness to determine how to hear a matter. This gives the typical arbitrator far more power than the average judge.
On the hand, the typical arbitration hearing is far more informal than a trial. Generally, Rules of Evidence and Procedure are tremendously relaxed —another reason it often does not work. It was usually believed relaxation was a positive not a negative, but experience indicates that arbitrators often apply the Rules of Evidence arbitrarily. Ultimately, that does not benefit either party. Unlike courts, arbitration tribunals are not required to apply court-established procedural or evidentiary rules, unless the parties specifically agree otherwise or unless the arbitrator takes it upon himself to adhere to such rules. Thus, because the evidentiary rules are applied randomly, documents or testimony containing hearsay or incompetent, irrelevant or prejudicial testimony may be admitted. Supposedly, this evidence is given less weight — but once heard it is part of the “collective conscience” and reality of the arbitration panel. The evidentiary rules are important in any proceeding because they exist to protect the reliability of the decision-making. Further, the Rules of Procedure are designed to ensure fairness, prevent surprise and compel disclosure of critical information. In arbitration there is no tried-and-true consistent mechanism to keep the parties on track. Moreover, because arbitrators are not usually bound by the intricate and exhaustive legal rules governing procedural and evidentiary matters, arbitration may lack the legitimacy associated with judicial forums.
The various arbitration associations do have rules which are to be adhered to and most arbitrators are lawyers or judges and instinctively apply, albeit in more informal ways, the standard rules of procedure and evidence. Nevertheless, assuming an arbitrator is incompetent or unfair, there is little that can be done about it unless the arbitrators’ conduct is completely unreasonable. Indeed, the Courts have even held that an error of law by the arbitrator will NOT result in the court overturning the arbitrator’s decision.
Besides, Arbitrators are given tremendous latitude in their procedures and judgments and absent outrageous conduct, the courts will not review their actions. While in civil courts the judges are held to strict application of the law as well as the complex procedures and rules of evidence, such strict compliance is not required of arbitrators who may use any and all equitable procedures or common sense and fairness to determine how they will hear a matter. This gives the typical arbitrator far more power than the average judge. Once a panel is selected, the arbitration association has little control or oversight over the panel. Therefore, it is imperative that the parties carefully select the arbitrators who will hear the case. One must carefully check the potential arbitrator’s background and reputation because once chosen, arbitrators are nearly impossible to remove.
Further, important rights are relinquished when parties waive access to the courts, such as the presence of a reviewing court to keep the adjudicator on the straight and narrow. Judges normally are more experienced in acting in an objective and equitable manner, and are more familiar with prevailing law. Arbitrators are allowed to exercise much more discretion than a judge or jury, and thus may be subject to more outside influences and bias. They often take too much personal knowledge and experience into account without fully knowing if it applies to the dispute. Arbitrators generally are not accountable to any supervisory authority. Unlike judges, arbitrators do not have to follow the law and are not required to give findings of fact and legal conclusions, unless both parties request same. Arbitrators may generally make any award that is “just and equitable.” Thus, they frequently disregard the law or contract if they believe it is appropriate to do so because of industry standards or otherwise. So, arbitrators should not apply the law in the same strict manner that a judge does that goes for procedures and evidence as well.
Few businesses elect the expense of litigation if arbitration is available. Put simply, arbitration is a business like forum for resolution of business disputes and while the elaborate safeguards of the legal system are often not available, the need for prompt and private resolution of disputes seems to convince most of the business clients to elect to insert arbitration clauses in most of their contracts. Indeed, some of the clients consider a refusal to agree to an arbitration clause on the part of the other party negotiating a contract as sufficient cause to reconsider the entire transaction, feeling that rejection of such an efficient system of dispute resolution displays too aggressive an attitude. A successful arbitration hearing however, requires careful preparation and thought, and the process should not be taken lightly, or thought of as being insignificant or unimportant because it is not “in court.”
(Books and articles)
AAA 2007 r.21(b).
AAA Commercial Rules r.21(c).
Arbitration, November 2011, retrieved from http://en.wikipedia.org/wiki/Arbitration.
Christian Buhring-Uhle and Gabriele Lars Kirchhof. Arbitration and Mediation in International Business, 2nd Edition (2006)
D.W. Rivkin and D.F. Donovan, Arbitration World: Jurisdictional Comparisons, United States,Evidence Gathering (London: The European Lawyer, 2006), p.403.
IBA Rules on the Taking of Evidence in International Commercial Arbitration 2007Art.3(1).
L.W. Newman and R.D. Hill, The Leading Arbitrators’ Guide to International Arbitration (Huntington: Juris Publishing, 2004), p.271.
Mark J., (2008), Overview of the Securities Arbitration Process, SECLAW.COM, available at, http://www.seclaw.com/arbover.htm.
R David. Arbitration in international trade (1985)
Snider, “The Discovery Powers of Arbitrators and Federal Courts under the Federal Arbitration Act” (1998) 35 Tort & Ins. L.J. 9.