Arbitration is a process by which the parties submit their dispute differences to the judgment to a neutral person to a mutual consent or statutory provision.
The process by which the parties to a dispute submit their differences to the judgment of an impartial person or group appointed by mutual consent or statutory provision.
Arbitration n. a mini-trial, which may be for a lawsuit ready to go to trial, held in an attempt to avoid a court trial and conducted by a person or a panel of people who are not judges.
The arbitration may be agreed to by the parties, may be required by a provision in a contract for settling disputes, or may be provided for under statute. To avoid clogged court calendars the parties often agree to have the matter determined by a panel such as one provided by the American Arbitration Association (which has a specific set of rules), a retired judge, some other respected lawyer, or some organization that provides these services. Usually contract-required arbitration may be converted into a legal judgment on petition to the court, unless some party has protested that there has been a gross injustice, collusion or fraud. Many states provide for mandatory arbitration of cases on a non-binding basis in the hope that these “mini-trials” (proceedings) conducted by experienced attorneys will give the parties a clearer picture of the probable result and lead to acceptance of the arbitrator’s decision.[A]
So we can say that arbitration is process of judgment by a neutral person of the disputes of the parties. Through an arbitration process they can come up with a mutual agreement. Without arbitration court does not help the parties. If arbitration process is unable to solve their dispute then the parties can ask help to the court.
Characteristics of Arbitration:
ü Can be used voluntarily
ü Private (unless the limited court appeal is made)
ü Maybe less formal and structured than going to court, depending on applicable arbitration rules
ü Usually quicker and less expensive than going to court, Depending on applicable arbitration rules
ü Each party will have the opportunity to present evidence and make arguments
ü May have a right to choose an arbitrator with specialized expertise
ü A decision will be made by the arbitrator which may resolve the dispute and be final
ü Arbitrator’s award can be enforced in a court
ü If non-binding, you still have the right to a trial[B]
Different types of arbitration:
In the arbitration act there are three types of arbitration:
- 1. Arbitration without the intervention of the court
Section 3 to 25 of the act describe about this arbitration. In this case the arbitration process occurs outside the court.
- 2. Arbitration through court when no suit is pending:
Where there is an arbitration agreement, the parties may proceed with the arbitration independently of any court. Section 20 of the Act, however lays down an alternative procedure which the parties may follow.
- 3. Arbitration a suits: after a suit is field, the parties may decide to settle the matter by arbitration. The procedure for doing so is laid down in section 21 to 25.[C]
In general, the arbitration agreement provides the basis for arbitration. It is defined as an agreement to submit present or future disputes to arbitration.
This generic concept comprises two basic types:
a) A clause in a contract, by which the parties to a contract undertake to submit to arbitration the disputes that may arise in relation to that contract (arbitration clause); or
b) An agreement by which the parties to a dispute that has already arisen submit the dispute to arbitration (submission agreement).
The arbitration clause therefore refers to disputes not existing when the agreement is executed. Such disputes, it must be noted, might never arise.
That is why the parties may define the subject matter of the arbitration by reference to the relationship out of which it derives.
The submission agreement refers to conflicts that have already arisen. Hence, it can include an accurate description of the subject matters to be arbitrated.[D]
Essentials terms of Arbitration:
- Arbitration agreement should be written to be valid and binding. Such an agreement must satisfy all the essential elements of a valid contract.
- Signatures of the parties are not necessary but it must be shown that they agreed to the settlement of disputes by arbitration. It is not necessary that the agreement should be contained in a formal document. The record of such an agreement in a clause in the contract or in a letter or memorandum is enough.
- Arbitrator name is not important. So it is not necessary that arbitrator’s name should be mentioned in the agreement.
- The agreement may be to refer present differences to arbitration.
- When there is an arbitration clause in a contract and the contract comes to an end owing to frustration or is avoided on the ground of fraud or misrepresentation. The arbitration clause may continue to be binding. If there was no contract at all, the arbitration clause is not binding.That means if there is two people involve in a contract and one of them proved fraud clause may continue to be biding and if there was no contract arbitration clause is not binding.
- The agreement to refer disputes to arbitration is not valid. Such as if the essential elements are not available of a contract it can be fraud or coercion.
- The construction of an arbitration agreement is not to be thwarted by narrow pedantic interpretation. Meaning that agreement will not be disillusioned by any obscure interpretation.[E]
Essential terms for a valid Arbitrator Clause:
Insist on a Single Arbitrator. Three member panels are, indeed, expensive. While the average case cannot support the arbitration fees for a full arbitration panel, some construction disputes are of such a magnitude that a panel is necessary. In other words, do you want one arbitrator deciding your $10 million claim? There are ways to structure your dispute provision to have a single arbitrator for claims under $1 million and a three-member panel for claims over $1 million.
Limit the Time to the Hearing, the Length of the Hearing, and Time to Decision. I wholeheartedly agree with this recommendation, as arbitration should achieve two of its primary intended purposes … cheaper and quicker. The problem is that parties rarely (if ever) spell out these deadlines in the contract and wait until the dispute arises to then argue about the time and length issues.
Adopt a Notice Pleading Standard for the Notice of Arbitration. Most arbitration disputes begin with a Demand for Arbitration, which is usually no more than a one-page form that provides the name of the parties, the nature of the dispute and the amount in controversy. As a construction attorney, I generally will include a multi-page complaint attached to the demand for arbitration. (Side bar: I include a similar complaint with contractor claims against the State of Tennessee even though the initial form does not require it.) By requiring a “notice pleading” standard in your dispute provision, you are required to describe the basis of your claims or you have more information to review the claim, depending on whether you are the party seeking or defending arbitration.[F]
Limit Discovery. Again, depending on the nature and size of dispute, you may want full discovery just as you would have in the litigation process. The point here is to decide the extent of discovery the parties want at the “contracting stage” as opposed to waiting for the dispute to arise and then be subject to either an arbitration rule of AAA or JAMS or no rule at all.
Authorize Arbitral Sanctions. I agree that the decision-maker should have authority to resolve preliminary disputes, grant interim relief, and award sanctions. Again, the key is to include this power in the dispute resolution provisions.
Ease the Confirmation Process. Since arbitration is a creature of contract, the parties can contractually agree on its binding nature. As O’Neil points out, arbitration is “wasted if there is a delay in confirming and enforcing a favorable judgment.” The problem is remedied by simply including a clause in your arbitration provision that vests jurisdiction in every district court in the United States to confirm and enforce the award.[G]
Refer disputes to arbitration:
- Lunatic and minor cannot be able to involve in arbitration. But on a behalf of a guardian they are allowed to do so.
- Without the permission of court the guardian cannot enter into any compromise of the minor.
- A partner can refer disputes relating to the firm to arbitration provided such power is given to him by the agreement of partnership.
- An agent can be only referred to disputes to arbitration when especially authorized.
- The manager of a joint Hindu family can submit arbitration for the petition of the joint family property.
- A trustee may refer disputes of arbitration.
- Solicitors and advocates have no implied authority to submit arbitration on behalf of the clients.
- The official receiver or assignee may submit the arbitrators with the permission of court whether an insolvent cannot do so.
These are the requirement of a contract of arbitration clause. Those people are only capable of entering into contracts they can disputes to arbitration.
Some of the benefits of arbitration
The number-one benefit of arbitration is that it serves as a forum to resolve disputes outside of the judicial system. Arbitration can be fast, quick and easy, whereas lawsuits can drag on for years and years. Since the rules of evidence and procedure are usually relaxed in arbitration proceedings, the parties are also in a better position to represent themselves without having to get lawyers involved.
It naturally follows that arbitration also tends to be less expensive than pursuing a lawsuit. While the parties will usually end up having to pay the arbitrator, his or her fees will inevitably be less than the attorneys’ fees that they may have to pay to take the same case to trial.
Even in non-binding arbitration, a benefit can be that it serves to bridge the gap in an adversarial proceeding so that the parties can get a better glimpse of where things are headed if they are unable to resolve their differences. Most cases settle, but many times it is not until the parties are “on the courthouse steps.” Non-binding arbitration may help to facilitate a settlement sooner rather than later.
Another good thing about arbitration is that an arbitrator is typically not bound by the strict rules of procedure in reaching a decision. He or she can consider a lot more facts and circumstances than a judge or jury. Arbitrators typically try to be practical and oftentimes look at compromise as being inherently fair. Thus, the likelihood is that an arbitrator’s decision will award something to at least one of the parties. However, you would not expect that damages would be awarded that were anywhere near what a jury might have awarded if (and that is a big if) the matter were to have been tried before a jury.[H]
Arbitration can also bring finality. Sometimes for the better, a decision on a binding arbitration cannot be appealed or overturned in the absence of a showing of extraordinary circumstances (for example, fraud, bias or other inappropriate actions on the part of the arbitrator). Thus, once a decision is rendered, the case is over. The losing party will typically not be able to appeal (which can make the matter drag on for years and years).[I]
The drawbacks of arbitration
There are no guarantees that arbitration will be a fair process. As noted, once a decision is rendered in a binding arbitration, the parties are generally stuck with that decision. Without the right to appeal, there is always the risk of being subject to the whims and prejudices of the arbitrator. Overall, this is probably the biggest drawback to the arbitration process. [J]
Illustration of the statement:
Arbitration is typically an out-of-court method for resolving a dispute. The arbitrator controls the process, will listen to both sides and make a decision. Like a trial, only one side will prevail. Unlike a trial, appeal rights are limited. The situation is, the parties to arbitrate with each other in case of any dispute out of the contract and no party can seed remedy without exhausting the Arbitration Procedure embedded in the contract.[K] So in this situation The binding resolution of disputes by one or more neutral persons (usually called “arbitrators”), as a substitute for judicial proceedings; may be invoked only by agreement of the parties to the dispute, but such agreement may be arrived at before there is an actual dispute, as, for example, through a clause in a contract between them, or after a dispute has arisen. Arbitration proceedings characteristically are less formal than those in court, and the rules of evidence and most rules of substantive law that would be invoked by a court are not applied.[L]
In a more formal setting, the arbitrator will conduct a hearing where all of the parties present evidence through documents, exhibits and testimony. The parties may agree to, in some instances establish their own procedure, or an administrating organization may provide procedures. The result can be binding if all parties have previously agreed to be bound by the decision. In that case, the right to appeal the arbitrator’s decision is very limited. An arbitrator’s award can be reduced to judgment in a court and thus be enforceable. In non-binding arbitration, a decision may become final if all parties agree to accept it or it may serve to help you evaluate the case and be a starting point for settlement talks.[M]
Many contracts have clauses which require that disputes arising out of that contract be arbitrated. You may have seen such a provision when you applied for a credit card or opened a retirement account or other account with a stock broker. You may want to explore using this process if you and the other side agree that the problem needs to have someone make a decision but you do not want the expense of going through the court process. If you agree to arbitrate or sign a contract with an arbitration clause, you should understand that the arbitrator may make the final decision and that you may be waiving your right to a trial in court.[N]
Finally after discussing above all those factors it can be expressed that Arbitration is the submission of a disputed matter to an impartial person (the arbitrator) for decision. So arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party. Arbitrators can be biased by personally, politically etc. So before making any contract we parties should conscious about the terms and arbitrators. Therefore commercial contract frequently contain a clause providing for a reference to arbitration in case a dispute breaks out concerning any matter relating to the contract.[O]
- (The Arbitration Agreement, 2006)
- (DeVries, 2010)
- District Court of Appeal of California, (1931). US 359. Stromberg. 283
- (International Commercial Arbitration, 2002)
- (Jhabvala, 1990)
- Law.com Dictionary, Second Edn.,Erin Mckean(editor),2051pages, May 2005
- (McGraw-Hill Dictionary of Architecture & Construction: Arbitration, 2006)
- (Methods for Resolving Conflicts and Disputes, 2006)
- (Mullah, 1997)
- (Pedreira )
- [A]See Gales J. & Seaton W., Register of debates in Congress, Volume 3, pp.486, “It is the people’s constitution, the people’s government; made for the people; by the people: and answerable to the people; But the state legislatures, as political bodies, however sovereign, are yet not sovereign over the people.
- (Sen , Arun Kumar ; Mitra, Jitendra Kumar;, 2006)
- The New Oxford American Dictionary, Second Edn.,Erin Mckean(editor),2051pages, May 2005, Oxford university Press, ISBN 0-19-517077-6
[A]Law.com Dictionary, Second Edn.,Erin Mckean(editor),2051pages, May 2005
[B] (Mullah, 1997)
[C] (Sen , Arun Kumar ; Mitra, Jitendra Kumar;, 2006)
[D] (The Arbitration Agreement, 2006)
(International Commercial Arbitration, 2002)
[G] (DeVries, 2010)
[J] The New Oxford American Dictionary, Second Edn.,Erin Mckean(editor),2051pages, May 2005, Oxford university Press, ISBN 0-19-517077-6
[K] (Methods for Resolving Conflicts and Disputes, 2006)
[L] (McGraw-Hill Dictionary of Architecture & Construction: Arbitration, 2006)
[M] (Methods for Resolving Conflicts and Disputes, 2006)
[N] See Gales J. & Seaton W., Register of debates in Congress, Volume 3, pp.486, “It is the people’s constitution, the people’s government; made for the people; by the people: and answerable to the people; But the state legislatures, as political bodies, however sovereign, are yet not sovereign over the people.
[O] (Sen , Arun Kumar ; Mitra, Jitendra Kumar;, 2006)