Arbitration

2.Main Content

This page has the following information about arbitration:
What it is
When it is used
How it works
The arbitration award
Cost

What it is
In arbitration an independent third party considers both sides in a dispute, and makes a decision to resolve it. The arbitrator is impartial; this means he or she does not take sides. In most cases the arbitrator's decision is legally binding on both sides, so it is not possible to go to court if you are unhappy with the decision.

Most types of arbitration have the following in common:

Both parties must agree to use the process
It is private
The decision is made by a third party, not the people involved
The arbitrator often decides on the basis of written information
If there is a hearing, it is likely to be less formal than court
The process is final and legally binding
There are limited grounds for challenging the decision

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When it is used
Arbitration is used widely for international disputes, disputes between major corporations, employment rights disputes, and consumer disputes. Arbitration is defined, and the rules set out, in the Arbitration Act 1996, which applies to disputes in England and Wales and in Northern Ireland. Only the parts of the Act relating to consumer disputes currently apply in Scotland.

Contracts often have a clause stating that arbitration will be used to resolve any dispute between the parties. This will be agreed at the time the contract is signed, and the clause is intended to prevent expensive and time-consuming disputes ending up in court. If you sign a contract with an arbitration clause, it is usually binding – you can’t change your mind later. And arbitration is also binding – if you don’t like the arbitrator’s decision, you can’t go to court afterwards. The only exception is in a consumer contract: if the amount in dispute is less than the small claims limit (usually £5,000 in England and Wales) then an arbitration clause is not binding on the consumer.

The parties to the contract can usually choose an arbitrator, providing they can agree on one! IDRS, an independent body run by the Chartered Institute of Arbitrators, provides arbitration for consumer and business disputes. IDRS also runs tailor-made schemes for particular consumer sectors, such as the ABTA arbitration scheme for travel and holiday disputes.

The other well-known use of arbitration is in employment disputes. The Advisory, Conciliation and Arbitration Service (Acas arbitration) is often used in collective disputes between unions and employers in large businesses. Acas also offers an arbitration scheme to handle individual unfair dismissal claims and claims related to flexible working requests, though this is not used very often.

Click on the green box on the right to see profiles of some commonly used arbitration schemes, such as Acas arbitration and ABTA arbitration.
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How it works
The Arbitration Act 1996 lays down strict rules for how arbitration should work. However, arbitration is intended to be less expensive, less formal, and more flexible than court, so the rules of evidence are not as strict, and parties can usually have a say in how they want the hearing to be conducted. Parties can choose a single arbitrator with relevant experience, or select an arbitral panel of three or five arbitrators. Obviously, the larger the panel, the more expensive the process is going to be, and this model is likely to be used in high value commercial disputes.

When arbitration is used in lower value consumer disputes, the arbitrator often makes a decision based on the written evidence which the parties send in, and doesn’t hold a hearing. This is a much quicker, cheaper process. Many arbitration schemes are run on behalf of a consumer sector such as the travel industry, and the organisation that runs the scheme will appoint an independent arbitrator. In employment disputes the arbitrator is appointed by Acas from its panel of independent arbitrators.

Once the parties have decided to use arbitration and the process has begun, they usually give up their right to seek a resolution of the matter elsewhere, such as in court or tribunal.

Some providers offer an internet-based arbitration service for money and consumer claims. Others, such as The Association of British Travel Agents (ABTA) make their arbitration service available online, so that all documents can be submitted by email.
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The arbitration award
After considering the parties' submissions, the arbitrator issues a final and binding 'award', which can be based on good practice and reasonableness as well as on the law. The award usually includes reasons for the decision.

Under the1996 Act there is very limited scope for appeal against an arbitrator's award. Usually, appeals can only be based on a claim that the arbitrator behaved unfairly. The ABTA arbitration scheme does have an appeal process, but there is a substantial fee which is not refunded even if you win your appeal.

In most schemes the arbitrator's decision is binding on both parties. Arbitration awards can be enforced in court if necessary.
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Cost
The cost of arbitration varies. Acas arbitration is free to employers and employees. IDRS schemes run for trade associations or professional bodies, such as ABTA, are subsidised by the industry. They are either free to the consumer, or they require a proportionate registration fee based on the amount of the claim. The fees for private arbitration tend to be significantly higher.
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March 2008