Legal Advisory – Ordinary Courts or Arbitration – ADR Alternative Dispute Resolution
What is Arbitration
Arbitration may be defined as a “private trial”
- It is a “trial” since it ends with a ruling called the arbitral award which is final, as the possibilities for an appeal are limited and vary from country to country; and they are enforceable. Please bear in mind, however, that in Italy, for example, arbitral awards become enforceable following approval by an Italian Court.
- It is “private” since the arbitrators are not judges but they operate as such, on the basis of powers which have been given to them contractually by the parties.
What to choose in the case of a dispute? Arbitration or ordinary courts? strong>
In the case of disputes arising out of the contract, parties may choose between ordinary court and arbitration.
The parties of an international contract may refer to one or more ARBITRATORS to decide upon one or more disputes, by inserting an arbitration clause in the contract. Disputes must concern disposable rights.
This choice may be made when signing the contract or at a later stage, after the dispute has already arisen.
The principle that the competent judge is the one appointed by the parties is internationally recognised. The choice depends upon the parties, and, if they have not written anything on the matter on the contract, all disputes arising out of the contract will be resolved by an ordinary court. However, the validity of the choice and the rules for its implementation also depend upon the international private law of the state where the appointed judge is based.
What are the advantages of arbitration?
Neutrality: in international contracts, the parties are usually from different legal cultures (e.g. Italy – China); therefore, the choice of a national court would bring an advantage for one or the other party;
Confidentiality: arbitration is confidential not only with respect to the documents, but also with regards to the existence of the case;
Duration: on average, arbitration is usually faster than litigation in the courts, also because the possibilities of an appeal are limited and vary from State to State;
Specialisation: provided that they are appointed by the parties, arbitrators are usually professionals with an expertise in international commercial law or international corporate law.
What are the disadvantages?
– Costs: arbitration may be very expensive. Costs vary depending on whether the parties opt for ad hoc or institutional arbitration; in the latter case, the costs depend upon the institution chosen. Please bear in mind, however, that the courts’ timescales entail indirect costs that may be higher.
– Interim measures of protection: In accordance with the Rules set out by the Chamber of Arbitration of Milan, arbitrators do not have the power to issue interim measures of protection.
– Enforcement: arbitrators do not have enforcement powers, therefore, on the basis of the arbitral award, the parties will have to refer to the competent judicial authority of the place where they want to ask for the enforcement of the arbitral award (should the losing party not comply autonomously).
In how many countries is the arbitration award recognised?
The New York Convention of 10 June 1958 on the recognition and enforcement of foreign arbitral awards and of the various types of arbitration has been ratified by 143 countries so far.
Example of an arbitration clause, the Chamber of Arbitration of Milan:
Any dispute arising out of, or relating to this contract shall be resolved under the Rules of the Chamber of Arbitration of Milan, by a sole arbitrator/three arbitrators, in compliance with the aforementioned Rules. The arbitration shall be held in……. The language of the arbitration shall be:
What is Alternative Dispute Resolution (ADR)?
Lengthy timescales and the high costs of litigation in courts and of international arbitration have led to the spread of Alternative Dispute Resolution methods in international trade. ADR has its origin in the British and North-American practices.
Main forms of ADR
- Conciliation: the parties appoint an impartial and independent third party who has the role of assisting the parties and, if necessary, once he has heard the positions of both parties, both together and separately, he may express his opinion and propose a solution. The suggested solution is not binding and must be accepted and signed by both parties.
- Mediation: the parties ask a third party, called the Mediator, to assist them in the resolution of the dispute or in avoiding future controversies. The Mediator is independent and impartial. The aim of the mediation is to facilitate the exchange of views between the parties and encourage them to find solutions which are acceptable for both of them.
NB: the mediator does not express his opinion, nor does he propose solutions.
Positive aspects of ADR
Unlike arbitration, the aim of ADR is not to “say that one of the parties is right”, but to “weigh up” the arguments of both parties and then, help them to find a compromise which represents a fair balance between the interests of the parties.
ADR leads to a reasonable and out-of-court resolution and avoids any reputational risk that may result from losing a lawsuit or an arbitration award.
Business reasons prevail on the solutions offered by the law in the specific case; the costs are insignificant if compared to those of arbitration and litigation in court. Finally, ADR is carried out privately and is strictly confidential.
Example of an ADR clause
If any dispute arises out of, or relates to this contract, the parties agree to try to settle the dispute in an amicable manner by mediation to be carried out under the ICC ADR Rules. If the dispute is not settled within 45 days or a further term agreed in writing by the parties, the dispute shall be resolved by arbitration and the arbitration award shall be final and binding on the parties.
FOR FURTHER INFORMATION ON DISPUTES RESOLVED IN ORDINARY COURTS/BY ARBITRATION/ADR, OR FOR A FREE CONSULTATION, PLEASE POST A QUESTION ON “THE EXPERT ANSWERS” SECTION, OR CONTACT US VIA E-MAIL BY CLICKING ON THE LINK BELOW