When and When Not to Opt for Arbitration

When and When Not to Opt for Arbitration

When a dispute arises between parties, they want to have the dispute resolved in a way that favours their respective interests.

Now, when it comes to solving a dispute, there are two options:

  • One can opt for arbitration.
  • One can opt for litigation in the court.

The final decision regarding the resolution method of the dispute comes down to the circumstances. That said, before you proceed to opt for arbitration, you will want to consult the matter with an Arbitration Clause expert so that you know that you are making the right choice.

Some contracts favour arbitration as the favourable method of resolving a dispute, such as construction and engineering contracts. However, other contracts, such as loan-related contracts, favour the option of litigation in the court as the simplest and quickest way to resolve the problem.

Here are a few situations in which you will want to opt for arbitration.

Establishing a Neutral Forum

In a situation where the involved parties cannot form an agreement about the respective courts having jurisdiction, they will want to look for a neutral form. Arbitration is in the perfect position to provide a neutral forum.

Usually, the need to establish a neutral form arises when one of the involved parties feels that the courts are developed inadequately, logistically inconvenient, or not fully independent of the other party. Another simple reason that could demand the establishment of a neutral forum is that a party might feel discomfort in the culture and legal system of the respective jurisdiction.

Usually, this kind of discomfort occurs where State entities/ parties are involved.

Establish Enforceability

If you aren’t familiar with legal terms, you should know that enforceability is all about compelling someone to obey an order. For instance, when it comes to the enforceability of a contract, the written obligations and rights are things that one party is obliged to follow, and hence it can be compelled by law.

Various regimes deal with the enforcement of arbitral awards. Regarding enforceability, arbitration can be used to integrate an effective scheme of foreign judgments. This way, arbitration diminishes the potential grounds for refusing to accept and enforce an award.

Situations that Are Not Suitable for Arbitration

Arbitration isn’t appropriate in the following circumstances:

Future Disputes

The legal systems of some states have restrictions on certain types of disputes regarding having them arbitrated. For instance, some jurisdictions will rule out arbitration agreements for potential disputes that might occur in the future.

That said, you will want to get in touch with a professional lawyer to assess the situation and assess whether a potential dispute is “arbitrable” or not.

One Party Can Not Participate in an Arbitration

Another situation that doesn’t favour arbitration is when one party can’t become part of an arbitration agreement. For instance, some states only allow parties with certain authorization to participate in an arbitration agreement.

Another potential situation that doesn’t call for arbitration is when one party is being deliberately obstructive. Also, when both parties want to have the right to appeal, it doesn’t allow them to participate in an arbitration.



Leave A Reply