by Melanie Holmes, Commercial Litigation Unit
Commercial Arbitration – The Pros & Cons
If you are a party to a commercial contract, you may have had the misfortune of being involved in a dispute. With a speedy resolution in mind, a drawn-out and expensive legal action may not be very palatable. You may perceive the inclusion of a binding arbitration clause in your contract as an advantage but it is vital to weigh up the advantages and disadvantages of arbitration in light of all of the circumstances surrounding your dispute. In light of the increased inclusion of such clauses and the frequency with which parties to disputes are opting for arbitration, it is interesting to re-examine these pros and cons.
The Arbitrator nominated is very often chosen by the parties themselves and therefore has specialist knowledge of the subject matter of the dispute. In addition, at the core of the arbitration process is the ethos of greater control by the commercial parties in contrast to the Court system. Owing to these two factors an arbitration can proceed in a much speedier manner than a court action. As a result of this savings can be made.
If the dispute is of a sensitive nature, the assurance of confidentiality (arbitrations are held in private) can be an enormous advantage as opposed to a legal action held in public that may be taken up by the press.
An Arbitrators award is final and binding on the parties and can only be the subject of an appeal in very limited circumstances.
Arbitrations can be expensive. In a legal action, the costs incurred by the Judge are not borne by the parties to the dispute. In arbitrations however, the arbitrators costs have to be paid by one or both of the parties. Whilst costs in an Arbitration will generally (like a court case) follow the event, before each party signs up to an Arbitration they will have to sign an agreement in which it is usual that the parties are jointly liable for same. This means that if the Arbitrator directs your opposing party to pay his costs and he/she defaults, you may well have to ‘carry the can’.
Furthermore, while the finality of an arbitrator’s decision may well appeal to some, others may consider it to be a disadvantage if they do not feel that the Arbitrator’s decision is the right one. Finally, under the rules of court, Judges have various powers they may exercise in the course of a legal action. For example, on the Defendants application, a Judge may strike out the Plaintiff’s case for want of prosecution.
Powers such as this are not enjoyed by an Arbitrator.
It is certainly true that taking a legal action in Ireland can be a slow and costly process and there are advantages to partaking in alternative dispute resolution including arbitration. However, the disadvantages to this course of action should also be borne in mind. Advice should be sought from your legal advisors as to what form of dispute resolution would be most suitable for the particular dispute and indeed one may be bound by the terms of the relevant contract.
To find out more about this clause in Ireland, read our article on what is arbitration.