Arbitration occurs when two or more people agree to have a third party resolve their dispute. The arbitration agreement can occur either before the dispute arises (a compromis, which is the most common) or after the dispute arises (a submission agreement).
The agreement can specify who the arbitrator is, although that is fairly uncommon. Usually the agreement specifies how the arbitrator will be selected.
Parties pick arbitration over lawsuits because it can be:
- Quicker
- Cheaper
- More easily enforced (especially in the international context) and;
- Allows the parties more control over the process (including making it scalable to the dispute at hand).
However, none of these attributes will be obtained if the clause is not drafted carefully.
One of the first decisions is whether or not an arbitral institution (such as the American Arbitration Association, the American Dispute Resolution Center, the International Chamber of Commerce or the London Court of International Arbitration) will administer the arbitration. While the arbitral institution does not act as the arbitrator, they help the administration of the case and each have a stable of reputable arbitrators to select from. Alternatively, the parties can agree on an ad hoc arbitration.
The rules of each arbitral institution are different. For example, a three arbitrator panel under the American Arbitration Association’s rules must issue an award by a majority. Under the International Chamber of Commerce’s rules, the chair of a three person panel can issue an award by himself even though the other two arbitrators do not agree. It is important to understand the rules. Arbitral intuitions will not general administer a case under another arbitral institution’s rules, but every major arbitral institution will administer an arbitration under the UNCITRAL Arbitration Rules.
It is equally important to select where the arbitration will be held, especially in international cases. Generally speaking, this means the arbitration should be held in a country who is a party to the 1958 Convention on the Recognitions and Enforcement of Foreign Arbitral Awards.
Once an arbitration award is rendered, the award must be enforced by the court within the statute of limitations if the losing party does not want to voluntarily comply with the award. This can be done under Connecticut’s arbitration act, the Federal Arbitration Act, or Connecticut’s enactment of the UNCITRAL Model law on International Commercial Arbitration. Generally speaking, a court must enforce an arbitration award unless:
- the award has been procured by corruption, fraud or undue means;
- there has been evident partiality or corruption on the part of any arbitrator;
- the arbitrators have been guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any other action by which the rights of any party have been prejudiced; or
- the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.
An outline by Houston Putnam Lowry from a UConn MBA course about arbitration can be found here.