Arbitration is a final and binding dispute resolution process. In practice arbitration is generally used as a substitute for judicial systems, particularly when the judicial processes are viewed as too slow, expensive or biased. Arbitration is also used by communities which lack formal law, as a substitute for formal law. Arbitration, in the context of United States law, is a form of alternative dispute resolution — specifically, a legal alternative to litigation whereby the parties to a dispute agree to submit their respective positions (through agreement or hearing) to a neutral third party (the arbitrator(s) or arbiter(s)) for resolution.

Arbitration may also serve a distinct purpose: as an alternative to strikes and lockouts
as a means of resolving labor disputes. Labor arbitration comes in two varieties: interest arbitration, which provides a method for resolving disputes about the terms to be
included in a new contract when the parties are unable to agree, and grievance arbitration, which provides a method for resolving disputes over the interpretation and application of a collective bargaining agreement.
Agreements to arbitrate were not enforceable at common law ,though an arbitrator's judgment was usually enforceable (once the parties had already submitted the case to
him or her). During the Industrial Revolution, this situation became intolerable for large corporations. They argued that too many valuable business relationships were being destroyed through years of expensive adversarial litigation, in courts whose strange
rules differed significantly from the informal norms and conventions of businesspeople (the private law of commerce, or jus merchant). Arbitration appeared to be faster, less adversarial, and cheaper.

The result was the New York Arbitration Act of 1920, followed by the United States Arbitration Act of 1925. The USAA is now known as the Federal Arbitration Act. Thanks
to the subsequent judicial expansion of the meaning of interstate commerce, the U.S. Supreme Court reinterpreted the FAA in a series of cases in the 1980s and 1990s to cover the full scope of interstate commerce. In the process, the Court held that the FAA preempted many state laws covering arbitration, some of which had been passed by state legislatures to protect their consumers against powerful corporations.

Since commercial arbitration is based upon either contract law or the law of treaties, the agreement between the parties to submit their dispute to arbitration is a legally binding contract. All arbitral decisions are considered to be "final and binding." This does not, however, void the requirements of law. Any dispute not excluded from arbitration by
virtue of law (e.g. criminal proceedings) may be submitted to arbitration.
Arbitrators have wide latitude in crafting remedies in the arbitral decision, with the only real limitation being that they may not exceed the limits of their authority in their award. An example of exceeding arbitral authority might be awarding one party to a dispute the personal automobile of the other party when the dispute concerns the specific
performance of a business-related contract.

It is open to the parties to restrict the possible awards that the arbitrator can make.
If this restriction requires a straight choice between the position of one party or the position of the other, then it is known as pendulum arbitration or final offer arbitration.
It is designed to encourage the parties to moderate their initial positions so as to make it more likely they receive a favorable decision.

No definitive statement can be made concerning the credentials or experience levels of arbitrators, although some jurisdictions have elected to establish standards for arbitrators in certain fields. Several independent organizations, such as the American Arbitration Association, offer arbitrator training programs and thus in effect, credentials. Generally speaking, however, the credibility of an arbitrator rests upon reputation, experience level in arbitrating particular issues, or expertise/experience in a particular field. Arbitrators are generally not required to be members of the legal profession.

To ensure effective arbitration and to increase the general credibility of the arbitral process, arbitrators will sometimes sit as a panel, usually consisting of three arbitrators. Often the three consist of an expert in the legal area within which the dispute falls (such as contract law in the case of a dispute over the terms and conditions of a contract), an expert in the industry within which the dispute falls (such as the construction industry,
in the case of a dispute between a homeowner and his general contractor), and an experienced arbitrator.

Sources for more information on Arbitration:

International:
http://www.arbitration-icca.org/directory_of_arbitration_website.htm

Hong Kong:
http://www.hkiac.org/HKIAC/HKIAC_English/main.html

London:
http://www.arbitrators.org/index.asp

The first and foremost important step in the arbitration is process is to design the clause you will insert in your contract properly. Generally speaking, little thought is given to the arbitration clause when it comes to signing contracts. But when the clause is vague, unsuitable for the contract or biased you can expect nothing but problems when you have to settle your dispute. Clauses can be tailor made to the interests of all parties involved. Get expert advice from a professional arbitrator on how to design the clause.
Are you looking for an arbitrator to represent you? Call us.

Contact us for more information:

michael.sinjorgo@insurance-shop-intl.com
Telephone: (62-21) 515-7750

Michael Sinjorgo ACIArb
Member of the Chartered Institute of Arbitration
Member of BANI (Badan Arbitrase Nasional Indonesia)

Home  I  Information  I  Products  I  Quote Request  I  Feedback  I  Content
About Us  I  Contact Us