Arbitration: the commercial world’s new mistress

There has been a global surge in the popularity and use of arbitration among commercial entities, making it the preferred method for the resolution of commercial disputes. This has largely been driven by growing public awareness of the perceived benefits of arbitration. In fact, many Jamaican businesses engaged in cross-border transactions will encounter foreign companies insisting on the inclusion of arbitration clauses within contracts governing their dealings. Additionally, many ordinary Jamaicans conducting sale transactions online, for example, do so unwittingly entering into arbitration agreements with the vendors, though mandatory arbitration clauses in consumer contracts have faced strong opposition in the United States and elsewhere. It is therefore important for us all to have an appreciation of what arbitration is and the benefits it may provide, both of which are discussed in this article.

Arbitration is a private and consensual procedure for the settlement of legal disputes before a neutral third party (an arbitrator or a panel of arbitrators) that have been selected by the parties to resolve their dispute in a final and binding manner. This definition highlights several of arbitration’s key features. First, it is private, as it operates outside of the public court system. Second, it is consensual as it is founded on the agreement of the parties. Third, like litigation, it results in a decision that is final and binding. Additionally, arbitration may be domestic or international (based on the nationality of the parties and/or the nature of the underlying transaction) and it may be ad hoc or institutional (based on whether it is governed by the rules of an arbitral institution, such as the International Court of Arbitration of the International Chamber of Commerce, or the American Arbitration Association).

Arbitration provides a myriad of advantages over other methods of dispute settlement; some of those benefits include:

Finality: Arbitration culminates with an award that is final and binding on the parties. In fact, arbitral awards have a greater level of finality than court judgments since generally there can be no appeal on the merits of an award. The rules of most commercial arbitration institutions, reinforced by the arbitration statutes of most countries, provide for awards to be challenged or set aside on very limited grounds, including that there was no valid arbitration agreement, or that the award violates public policy.

Enforceability: An award that is final and binding but cannot be enforced may result in a mere pyrrhic victory for the winning party. Jamaica is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), which means that an arbitral award rendered in Jamaica is entitled to recognition and enforcement in the other 147 countries that are also parties to the New York Convention. On the other hand, in order for a local court judgment to be enforced abroad, Jamaica must have entered into a bilateral treaty for the reciprocal enforcement of judgments with that country (of which not many exist) and the party will still have to make an application to the foreign court for recognition and enforcement, which may be denied. Arbitration therefore provides far greater ease and likelihood of enforcement in foreign jurisdictions.

Ability to choose arbitrators: In litigation, the idea that parties may choose their judges would be considered obscene. However, arbitration provides just that. This is particularly beneficial in disputes that require industry-specific knowledge, as the parties may choose adjudicators with the technical expertise, who may have a more sophisticated understanding of the complexities and peculiarities of the dispute. For example, in a construction dispute, an architect, engineer, and lawyer may compose the tribunal and in their deliberations assist each other with understanding the issues related to their area of expertise.

Flexibility: Arbitration not only allows parties to choose their arbitrators, but also the number of arbitrators, the language, place and law applicable to the arbitration.

Neutrality: An added benefit of the flexibility of the procedure is that it allows parties to tailor the process to ensure that no party will have home-court advantage. This can be achieved, for example, by ensuring that the place of the arbitration, the nationality of the arbitrators and the language of the arbitration does not provide an advantage to a particular party. This neutrality accounts for the growing trend to include arbitration clauses within international contracts, which involve cross-border transactions between parties of different nationalities, since opting for litigation within the home-state of one of the parties will invariably lead to advantages for that party, such as familiarity, convenience and the fear of bias.

Speed: In many respects, the pace of the arbitration can be determined by the parties. For example, the parties may agree that an award must be rendered within a specific time-frame. Additionally, many commercial arbitral institutions provide “fast-track” or expedited arbitrations, especially for claims below a certain value. However, it can no longer be taken for granted that arbitration is faster than litigation, but certainly, the removal of several levels of appeal means that a final determination of the dispute is reached much earlier.

Cost-efficiency: Arbitration is no longer widely touted as being cheaper than litigation. In fact, where the arbitration is international, the cost of instructing foreign counsel and travelling to attend foreign hearings may result in the process being more expensive than domestic litigation. However, the power that the parties have over the process also means that they are in a position to control costs.

Confidentiality: The private nature of arbitration means that it can be kept from the prying eyes of the public. Many arbitral rules oblige the parties, arbitrators, witnesses, experts and support staff to keep the existence of the arbitration and its proceedings secret, allowing disclosure in very limited circumstances. This is beneficial to businesses that may not want to reveal their private dealings to the public. However, as this attribute is increasingly being eroded by calls for greater transparency, in order to guarantee that the process remains confidential, this should be expressly provided for in the arbitration clause within the contract.

Based on the benefits of arbitration outlined, one may wonder why arbitration is not more popular within Jamaica. However, its local use is significantly curtailed by the antiquity of our Arbitration Act, which it was reported in 2011, would be updated soon. A review of this legislation and a consequent increase in the domestic use of arbitration may go a long way in assisting with relieving Jamaica’s burgeoning court dockets and over-burdened courts, expanding our dispute resolution capacity, improving our business efficiency and increasing our attractiveness to foreign investors.

This article is for general information purposes only and does not constitute legal advice.

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