Arbitration: An Effective Means of Settling Disputes

Arbitration is among the most important alternative means of settling disputes outside the ordinary courts, offering a flexibility and efficiency that allow the parties to resolve matters faster and more privately than judicial proceedings permit. It has become the preferred instrument in commercial and international disputes, for its capacity to strike a balance between competing interests and to secure the enforcement of the awards it produces.

What arbitration is

Arbitration is an agreement between two or more parties to refer an existing or prospective dispute to an arbitral tribunal for decision, rather than resorting to the courts. Once agreed, arbitration binds the parties; the arbitrators issue a final decision known as the arbitral award, which is binding and enforceable.

Why arbitration matters

• Speed of decision: by comparison with judicial proceedings, arbitration decides disputes quickly, which makes it well suited to matters requiring urgent resolution.
• Procedural flexibility: arbitration allows the parties to agree rules and procedures suited to the nature of their dispute, including the choice of language and of the applicable law.
• Privacy and confidentiality: arbitration preserves the confidentiality of the dispute, which protects the standing of the parties, particularly in commercial matters.
• Free choice of arbitrators: arbitration allows the parties to choose arbitrators specialised in the field concerned, which improves the quality of the decisions.
• International enforceability: arbitral awards are readily enforced in many states thanks to international conventions, such as the New York Convention of 1958.

The kinds of arbitration

• Commercial arbitration: used in disputes arising out of commercial activity, such as contracts of sale, carriage and investment.
• International arbitration: it covers disputes between parties from different states, and is applied chiefly in investment disputes and international contracts.
• Domestic arbitration: conducted within a single state and according to its own law.
• Compulsory arbitration: imposed by law in certain cases, such as collective labor disputes.
• Voluntary arbitration: founded on the agreement of the parties, whether before the dispute arises (an arbitration clause) or after it (a submission agreement).

The stages of arbitration

1. The arbitration agreement: it is the foundation of the arbitral process. It may be a clause stipulated in the contract or a separate agreement.
2. Appointment of the arbitrators: the arbitrators are chosen by agreement between the parties, or through an arbitral institution where agreement proves impossible.
3. Commencement of the proceedings: the arbitral process begins with the filing of a request for arbitration setting out a summary of the dispute and the claims of the party filing it.
4. The hearings: hearings are complied with consider the evidence and the submissions. They are flexible and confidential in character.
5. Issue of the award: the arbitrators issue a final award after examining the matter, and that award is binding and enforceable.

The advantages of arbitration

• Specialism and experience: it allows the parties to choose arbitrators with experience and knowledge of the field in dispute.
• Cost: although it may run high in some cases, the total cost is often lower than that of protracted litigation.
• Flexibility in the choice of law: the parties may choose the applicable law and procedure as they wish.
• Swift enforcement: thanks to the international conventions, arbitral awards may be enforced in most states without lengthy procedures.

The difficulties of arbitration

• High cost: in some large disputes, the fees of the arbitrators and of the arbitral institutions may be considerable.
• No right of appeal: since arbitral awards are final, they cannot be appealed, which may prove a drawback where the award contains errors.
• The intricacy of international proceedings: international disputes may meet difficulties in the application of differing laws or in the enforcement of awards.
• Incomplete legal protection: in some cases judicial proceedings may be better suited to protecting the rights of the weaker party.

The arbitral institutions

There are many institutions providing arbitration services to parties, chief among them:

• The London Court of International Arbitration (LCIA).
• The International Centre for Settlement of Investment Disputes (ICSID).
• The International Chamber of Commerce (ICC).
• The GCC Commercial Arbitration Centre.
• The Saudi Center for Commercial Arbitration (SCCA).

Arbitration in the Kingdom of Saudi Arabia

Arbitration in Saudi Arabia has developed considerably in recent years, particularly with the issue of the Saudi Arbitration Law of 1433 AH, which seeks to strengthen the Kingdom's standing as a destination for investment by providing an effective means of settling disputes. The salient features of the Saudi law are:

• Procedural flexibility: the law allows the parties to choose the law and the procedure that suit them.
• Judicial support for arbitration: the Saudi courts cooperate with arbitration to secure the enforcement of the awards issued.
• Conformity with Islamic law: the Saudi law requires arbitral awards to accord with the provisions of Islamic law.

Arbitration is an effective means of settling disputes, for its flexibility, its speed, and its capacity to do justice between the parties. As reliance on it grows both at home and abroad, arbitration may be expected to play a larger part in strengthening the business environment and protecting the rights of parties. For the arbitral process to succeed, the parties should choose experienced arbitrators and arbitral institutions of good standing, and should comply with the agreed procedure, so that disputes are resolved fairly and effectively.