Many have heard about the Courts when facing a legal dispute. However, there are fewer who have heard about “arbitration”. Fashioned as an alternative dispute resolution, arbitration actually has a long history of application in today’s world and one of its key features are the “confidentiality” and “enforceability” components.
What is “Arbitration”?
Arbitration is a different form of dispute resolution mechanism that parties must first voluntarily agree to in their written agreement(s). Disputes or differences are bound to arise whenever parties enter into a contract or agreement. In most cases, the common thing to do is to have that dispute resolved by going to the Courts.
However, parties can opt for any such dispute or difference arising to be resolved by way of arbitration. This dispute resolution mechanism is contractual in nature and an arbitration clause could easily be inserted into the legal agreement by the parties although care must be given to how such arbitration clause are drafted as a poorly drafted arbitration clause would likely attract more problems than resolutions.
So, why arbitrate a dispute or difference?
Unlike going to the Courts where you have to engage lawyers and are governed by strict rules of Courts’ procedures, arbitration is a private dispute mechanism where the parties could, among other things:-
- determine or appoint their own specialised representative to represent them during the arbitral proceedings;
- mutually agree on who the arbitrator (i.e. the private judge) who will hear and determine the outcome of the arbitration. If both parties could not agree on who is to be the arbitrator, most countries, including Malaysia, have an arbitral institution or body that will appoint such an arbitrator;
- determine the venue of where the arbitral hearings will be conducted.
In this regard, arbitration is perceivably faster than going to the Courts given that the arbitrator (presumably a specialist in that particular dispute or differences) would only have to deal with the particular dispute or difference and that there is no appeal against the arbitration award.
Arbitral hearings are conducted in a less formal environment compared to the Courts and parties are able to schedule the arbitral hearings in a manner that is more conducive and suitable for their circumstances.
As indicated above, because arbitration is a private dispute resolution mechanism, all of its hearings and documents are deemed confidential, including the reasons of such determinations made in the arbitration award unless the parties mutually agree for its disclosure. This enables the parties’ commercial reputation and privacy to be maintained.
Should I be concerned by the appointment of the arbitrator(s)?
There should be very little concern on the arbitrator(s)’ appointment as there is an existing framework for it. First, the parties to an arbitration clause have the autonomy to decide who they would want to appoint as the arbitrator. If the arbitration clause designate a 3-persons arbitral tribunal, then each party could nominate their own arbitrator and the presiding arbitrator will be appointed or agreed upon between the 2 nominated arbitrators.
If the parties could not agree on the arbitrator(s), then it is crucial that the arbitration clause designate the appointing authority to deal with such matters. In Malaysia, it is common for arbitration clauses to designate the Asian International Arbitration Centre (formerly known as the Kuala Lumpur Regional Centre for Arbitration) [“AIAC”] as the appointing authority. If this option is triggered, then the Director of the AIAC that will appoint a suitable arbitrator to hear and determine the dispute or differences.
Finally, in the unlikely event that the Director of the AIAC is unable to make such appointment, the parties could apply to the High Court to make such an appointment.
What are the downsides to arbitration?
Given the specialised nature of arbitration, the arbitration costs would likely be higher than the Courts’ costs. Unlike the Courts, parties in an arbitration are required to foot the arbitrator(s)’ fees and in a case of an institutional arbitration, the administrative charges of the arbitral institutions on top of their representatives’ costs.
Further, there are now known instances where arbitration have taken time similar to that of the Courts or even longer to arrive at a conclusion or determination.
Finally, if the losing party refuses to comply with the arbitration award, the winning party would have to enforce the arbitration award in the jurisdiction where the losing party, preferably, has assets. This would be likely met with the losing party trying their best to set aside the arbitration award and depending on the said jurisdiction’s legal system may take considerable time to conclude. The winning party could take comfort in that when a setting aside application is made, the Courts do not go and re-examine the merits or findings made by the arbitrator(s).
If I were to consider arbitration as the dispute resolution mechanism, what do I need to look out for?
In short, to have an efficient and controlled (in terms of costs and time) arbitration, one would necessarily have:-
- a good crafted arbitration clause to avoid the usual pitfalls or tactics employed to derail such proceedings;
- good representation or representatives for the arbitral proceedings that are familiar with the arbitral process and to the subject-matter involved.