Commercial arbitration – what is it?
Commercial arbitration is a form of dispute resolution. When parties enter into a commercial contract, it is a common practice to agree in writing that, should a dispute arise, the parties agree to seek a commercial arbitration to resolve the dispute. Alternatively, where no such clause has been included in the original contract, an arbitration agreement may be entered into after a dispute has arisen between the parties where they both desire to seek resolution of their dispute by arbitration rather than by a court process or other alternative dispute resolution process.
Arbitration – what is it?
Arbitration is an alternative to litigation where parties agree in an arbitration agreement to be bound by the decision of an arbitrator. The agreement to arbitrate may be contained in the substantive contract between the parties, or it may be in a separate agreement between the parties made at any time. An agreement to arbitrate must be in writing. An arbitration conducted under an arbitration agreement has contractual force on the parties and is conducted subject to either the Commercial Arbitration Act 2011 (Vic) or the International Arbitration Act 1974 (Cth).
Arbitration, unlike mediation, is a determinative process meaning that the decision of the arbitrator, known as an award, is final and binding. An award is enforced by registering it as a judgment of a court. It is then enforced in the same way as a judgment of the court.
What are the advantages of arbitration?
Arbitration has many advantages over a court process.
- It allows the parties to agree who the arbitrator is or who should appoint the arbitrator if they cannot agree.
- The parties can agree either in the arbitration agreement or during the arbitration on cost efficient ways to achieve an award.
- Arbitrations are not bound by formal court procedures. The parties may agree on the procedure to be adopted and thereby achieve a more flexible and efficient process compared to a court. For example, the parties may agree to conduct the arbitration with a limited time for the presentation of oral evidence, or even with no oral evidence at all.
- Unlike court, arbitration is both confidential and private – the general public cannot come in and watch an arbitration hearing and neither the parties nor the arbitrator can (generally) disclose confidential information.
- Arbitrators are not usually bound by the rules of evidence but are bound by the rules of natural justice.
- Arbitration is final; the appeal rights from an arbitrator are more limited than from a decision of a court.
Once the parties have agreed to arbitration, a court cannot hear litigation of the dispute.
What arbitration agreement should be agreed?
If the parties are not already bound by an arbitration agreement as part of the substantive contract they can agree a separate arbitration agreement.
There are three major institutions in Australia concerned with arbitration that provide information on the process:
- Institute of Arbitrators and Mediators Australia (IAMA)
- Chartered Institute of Arbitrators (CIArb) Australia Branch
- Australian Centre for International Commercial Arbitration (ACICA)
Sample Arbitration agreements
IAMA and ACICA publish suggested arbitration agreements that incorporate by reference sets of rules that, if adopted by the parties, provide a framework for an arbitration.
For arbitration agreements go to:
For arbitration rules go to:
The parties may adopt their own arbitration agreement, with or without incorporating rules, so long as it is in writing in compliance with Section 7 of the Commercial Arbitration Act 2011.
What happens if the parties cannot agree on the appointment of an arbitrator?
The parties are free to agree on any arbitrator, even if the arbitration clause names a particular person or a particular nominating authority. By a subsequent agreement, a reference to a particular person or a nominating authority in an arbitration agreement made at an earlier time can be changed.
Parties are advised to appoint as their arbitrator a person who has qualifications as an arbitrator and who is subject to ongoing institutional professional development requirements. It may be beneficial to appoint an arbitrator with expertise in the subject of the dispute or law or both. Each of IAMA, CIArb and ACICA have a list of members with a variety of professional backgrounds and with qualifications in arbitration. Each organisation offers an appointment service so that if the parties can not agree a particular arbitrator, they can submit to an appointment by one of these organisations.
The Victorian Bar website provides a list of barristers who practise as arbitrators. Arbitrators on the Victorian Bar website who are qualified arbitrators and members of one or more of IAMA, CIArb or ACICA are listed and the profile of each barrister arbitrator can be examined. If the parties agree to the appointment of a barrister but cannot agree on a particular person, the Victorian Bar offers an appointment service.
Domestic Arbitration and International Arbitration, what’s the difference?
An arbitration is either a domestic arbitration or an international arbitration. Domestic arbitrations are all arbitrations that are not an international arbitration. On a practical level they can be considered to be an arbitration between two Australians or two Australian companies. Domestic arbitration in Victoria attracts the operation of the Commercial Arbitration Act 2011 (Vic)
An international arbitration might also take place in Australia but has an international element to it, such as one of the parties is not Australian. International arbitration is conducted under the International Arbitration Act 1974 (Cth) and the state arbitration Acts have no role to play. An international arbitration award is often much easier to enforce in a foreign country than a judgment of an Australian court.