Finality of the proceedings
Advantages of Arbitration
Business to consumer
How is an arbitration conducted

 If the contract specifies that disputes arising are to be settled by arbitration then arbitration could be your only way to go. If a dispute about a contract, which contains an arbitration clause, is referred to the Courts, then the Court will grant a stay of any proceedings 1 until such time as the arbitration has been completed. Of course if both parties agree that they will use the Courts to settle the dispute then that is their prerogative. However, once battle is joined the parties will hardly agree about the time of day let alone the venue for deciding the issue between them.

If there is no arbitration clause, the parties can agree to make an ad hoc appointment by a contractual agreement. If this is done, then the parties can at the same time resolve any procedural difficulties that might arise. For example, a software system dispute can involve a supplier of operating systems or software as well as the major contractor and the client. If the parties can agree about it, then the dispute between the software supplier and the contractor can be heard at the same time as the dispute between the contractor and the client - the disputes are 'consolidated' 2.

Appointment of the arbitrator

The contract will frequently specify the manner in which the arbitrator should be appointed, if the parties have not agreed on the appointment between themselves. This would usually involve reference to an appointing body such as the British Computer Society, the Institute of Electrical Engineers or the Chartered Institute of Arbitrators. The appointing body will usually charge an appointment fee of about 200 for making the appointment - for this fee they will usually ensure that the appointee is available to deal with the matter reasonably expeditiously, that it falls within his area of expertise and that there are no conflicts of commercial interest that would invalidate such an appointment.

If the parties cannot agree on the appointment of the arbitrator and if the contract does not provide for an appointing authority then the parties can apply to the Court for an arbitrator to be appointed 3. This would usually be done by a judge of the Technology and Construction Court being appointed to sit as an arbitrator rather than as a judge.

The arbitrator will usually notify the parties of his terms and conditions before accepting such an appointment but he does not have to do so. The parties do not have to agree these terms as such - there is a procedure whereby parties can later challenge such charges if they believe them to be excessive 4. The appointment is personal to the arbitrator. If he dies before completing the job 5, then the parties will have to recommence the proceedings before another arbitrator. An arbitrator, once appointed, cannot be removed except by order of the Court 6 or with the agreement in writing of both parties 7.

Finality of the proceedings

Arbitration awards cannot usually be appealed 8. This is fine if you win the arbitration but not so good if you lose. A judgment of the Courts can be appealed through to the Court of Appeal, the House of Lords and the European Courts. Winning the action can therefore be only a preliminary to a very expensive sequence of events. Before the 1996 Arbitration Act parties frequently sought to impugn the integrity of the arbitrator by an action in the Courts to set aside the award on the grounds of 'misconduct' of the arbitrator 9. Misconduct is a technical term which means incorrect findings of law or incorrect use of procedure. The 1996 Arbitration Act greatly strengthened the hand of arbitrators 10 allowing them to proceed more robustly and in an interventionist manner. In many cases this can provide cheaper and less time-wasting proceedings which are more quickly resolved. Hopefully 'misconduct' appeals will in future be considerably less successful and less resorted to.

This finality of proceedings is the great advantage of arbitration. It is the 'sudden death play-off' which allows business men to get back to doing business. Conciliation and mediation proceedings need not course produce any result at all unless the parties agree to accept the findings. This means that often such proceedings are merely a preliminary to full scale litigation.

Advantages of Arbitration

An arbitrator will often be an expert in the subject matter of the dispute. This is not a necessary qualification for an appointment and often a QC or senior counsel with experience of contract law may be the candidate chosen by the parties. If the arbitrator is an expert then there will be far less need for expert evidence and hopefully a great saving in costs.

The proceedings in an arbitration are confidential and cannot be referred to in any other proceedings. The 1996 Arbitration Act was widely criticised for not enshrining this principle in Statute. However the Court of Appeal have ruled on this principle in the case of Ali (CA [1997]) 11. This means that there is no public right of access to the proceedings (competitors and reporters are therefore barred) and the award will not be made public unless the parties wish it.

Very frequently IT disputes have an international dimension with suppliers or customers resident in overseas jurisdictions. An arbitration award can, by the New York Convention 12, be enforced in foreign jurisdictions simply by production of the award. A judgment of the English Courts can be similarly enforced in foreign jurisdictions but new proceedings would have to be commenced. Similarly the Arbitration Act allows foreign systems of law 13 to be used as the basis of the proceedings, if this is agreed, even if the case is being heard in England.

Business to consumer

In business to consumer proceedings such as the sale of domestic PCs or systems then the consumer has the option to decide whether he will use the arbitration procedure provided for in the contract or whether he wishes to use the County Court procedure for small claims. This right is given to consumers 14 because frequently the cost of determining such a dispute by appointment of an arbitrator could lead to costs exceeding the amount in dispute being incurred by the consumer. Such costs would normally follow the event and therefore the consumer if he lost the dispute could face very substantial bills for costs whereas he would not do so with the small claims jurisdiction of the County Courts.

There are however a large number of small claims schemes sponsored by various trade and professional bodies which are designed for the consumer. The best known is perhaps the ABTA (Association of British Travel Agents) scheme. This provides the consumer with a settlement of his holiday dispute with a travel company for a fixed fee (usually about 50). This allows him to submit evidence in written form with photographs and video evidence as appropriate and to receive a written award concerning his dispute. Similar schemes exist for BT users and customers of the Double Glazing Suppliers Association and many other associations. There are none at present governing PC systems. These procedures are usually based on 'documents only'. This permits the costs to be kept to a minimum, although they are usually heavily subsidised by much higher fees paid by the companies defending these actions.

How is an arbitration conducted?

Normally an arbitrator will want to see the contract document and brief particulars of the dispute first to satisfy himself that it provides appropriate jurisdiction to hear the dispute.

He will next convene a preliminary meeting to discuss the dispute and the procedure that will be used. This can vary widely according to the nature of the dispute. In an IT dispute if the machine which is the subject of the dispute has been preserved (and often it has not) then an inspection of that system will normally be an early preliminary. Orders for the preservation of systems might be made at this stage to prevent evidence from being destroyed 15.

The parties might, if they are professionally represented, agree before the meeting on a timetable for the exchange of documents. It is not however necessary for parties to be so represented. A project manager or company secretary can quite easily act in these proceedings to present the case. Heed, however, the saying that "a man who acts as his own lawyer has a fool for a lawyer and an ass for a client". It is possible to be too closely involved in proceedings to be able to regard evidence dispassionately or to know when to settle and when to fight on.

Usually arguments are reduced to writing. The claimant sets out what he is claiming and why. The defendant sets out why he does not agree. Both parties list and exchange the documents on which they seek to rely and statements made by participants in the proceedings regarding their rôles in the dispute. Finally if the matter is not resolved then the matter proceeds to a hearing.

At the hearing the arbitrator will decide the procedure but usually he will hear the plaintiff first and then what the defendant has to say. He may ask questions of his own. If he is an expert and has a view or interpretation of the documents which the parties have not put forward then he might advance that view and seek their opinions about it 16.

After the hearing the arbitrator will write an award document detailing his findings and the amounts awarded in respect of damages and costs and any orders that form part of the award. He would usually also detail the reasoning behind that award.

The award would not be released until one party or the other had paid the arbitrator's costs 17- there would otherwise be a practical difficulty in collecting the costs of the award from the loser. If the sum demanded is felt to be excessive then it can be challenged later before the taxing master at the Courts 4. If the party paying for the award is not liable for the costs in that award then it will provide for him to be repaid by the other party.


Section references are to the Arbitration Act 1996 unless otherwise specified

1 Section 9(1) Stay of proceedings

2 Section 35 consolidation of proceedings

3 Section 18(3)(d) Appointment of Arbitrator by Court

4 Section 64(2) questioning the expenses of arbitrators

5 Section 26 authority of arbitrator ceases on death

6 Section 24 removal of arbitrator by Court

7 Section 23(3)(a) removal of arbitrator by parties acting jointly

8 Section 69(3) limitation of rights of appeal on questions of law

9 Section 68 Misconduct

10 Section 34 Right to determine procedure and act inquisitorially

11 Ali Shipping Corporation v Shipyard Trogir [1997] EWCA 4381 1 Dec 1997

12 Section 100,101 New York Convention on enforcement of Arbitral awards

13 Section 4(6) choice of foreign law as the basis of the arbitration

14 Section 91 and Unfair Terms in Consumer Contracts Regulations 1999

15 Section 38(4)(a) preservation of property

16 Fox v PG Wellfair Ltd [1981] 125 SJ 413 2 Lloyds Reports 514

17 Section 56 power to withhold award in case of non-payment