June 14, 2024
Where parties are unable to resolve disputes at a project level and other processes may not have yielded a final and binding resolution (e.g. meditation), parties may be forced to escalate matters to either litigation or arbitration.
Where a contract or agreement does not specifically provides that disputes are to be referred to arbitration, parties will be bound by this agreement, and unable to refer the matter to litigation (unless both parties agree to dispense with the requirement to go to arbitration).
Similarly, if there are no arbitration provisions within the contract (or a separate arbitration agreement between the parties), then a matter can only be referred to litigation, unless the parties agree that they should instead go through an arbitral process.
Given the above, where parties have a specific preference for litigation or arbitration, it is important that this is reflected within the contract.
What is Arbitration?
Arbitration is an alternative dispute process where the parties refer a dispute to an independent third party, the Arbitrator, to make a determination.
The arbitral process is largely determined by the parties, where they have the ability to prescribe specific rules or processes that are to apply. This may be through an explicit reference to specific rules or processes that are to be adopted (which are typically published by specialist organisations), or failing this a legislative process which largely leaves procedural matters to be agreed or determined by the parties and/or the arbitrator.
Arbitral Considerations
If parties decide to include an arbitration agreement in their contract, then it will be important to include specific provisions around procedural and administrative matters. This is especially important for the initial arbitral steps, as where arbitration becomes necessary agreement between the parties on seemingly simplistic or administrative matters may become overly complicated.
Given this, it is important that parties turn their minds to, and consider including specific drafting around:
- if specific rules will be adopted (e.g. ACICA Arbitration Rules or Resolution Institute Arbitration Rules);
- how a referral is to be effected, and if there are any timeframes that must be complied with around such; and
- how many arbitrators there will be, and how they will be appointed (e.g. through agreement, referral to an independent body, or being selected by one of the parties).
Where these matters are prescribed at contract formation, it allows certainty if a dispute is to arise and the parties feel compelled to progress to arbitration.
Benefits of Arbitration
Key benefits of arbitration include:
- Speed: arbitration may afford the parties an opportunity to resolve disputes more promptly as opposed to litigation, especially where they elect to adopt rules specifically tailored for an “expedited arbitration”.
- Cost: as arbitration typically involves fewer procedural steps (as opposed to litigation), it will often also be a more cost effective solution, as the process can be streamlined based on the specific matters in dispute. However, if parties were to elect to go with three arbitrators, any cost savings may be eroded as the parties will be responsible for the arbitrators costs.
- Flexibility: as opposed to litigation, the parties may be able to agree on a tailored procedure catering to the specific needs and requirements of the dispute, which can be especially useful in matters which involve unique facts or circumstances.
- Confidentiality: any dispute, and the subsequent determination, will remain confidential, which may be of particular importance based on the parties involved and the nature of the dispute.
Limitations of Arbitration
Notwithstanding the above, limitations of arbitration include:
- Power of the Court: Where one party is uncooperative, or fails to comply with certain procedural steps, litigation may be preferred to arbitration. This is because courts have powers and abilities to act and issue binding directions to the parties, which an arbitrator does not.
- Finality: Whilst some parties may prefer the finality offered by arbitration, because of the limited avenues to appeal a decision, parties may be hesitant to elect to proceed with such, given the restrictions in appealing a potentially erroneous decision.
- Unpredictability: Given an arbitration does not follow the established rules of litigation (e.g. around evidence), there is the potential for a certain level of unpredictability that would not ordinarily be expected in a court room.
The above considerations should be properly weighted up by the parties during contract negotiations to decide if arbitration is preferred to more traditional litigation. If arbitration is preferred, then care should be taken when drafting provisions around such to provide a detailed and clear process the parties can follow if a referral to arbitration becomes necessary.
LPC Lawyers
The LPC Lawyers team have a wealth of experience to assist across contractual drafting and dispute process. Through providing clients support across the duration of a project’s lifecycle, we can assist in ensuring a project’s successful and efficient delivery.
If you have any questions or concerns about your current or future projects, please do not hesitate to contact LPC Lawyers for a discussion on how we can assist.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
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