HEXCO · Polytechnic · NC Accountancy
Business Law 1: Arbitration
Learning Outcome 4 of 5
Free HEXCO NC Accountancy notes on Arbitration, learning outcome 4 of 5 in Business Law 1. Law in society and business, the Zimbabwe legal system and general principles of law. Semester 2, module 310/22/M07.
Here we learn what arbitration is and why it matters in business, the stages of the arbitration process, its merits and demerits compared with going to court, and the powers of an arbitrator.
Court cases can be slow, costly and public, so many business contracts provide that disputes will be settled privately by an independent arbitrator instead.
4.1 The Concept of Arbitration
Arbitration is a way of settling disputes outside the ordinary courts, by agreement between the parties.
In Zimbabwe it is governed mainly by the Arbitration Act, which is based on the UNCITRAL Model Law on international commercial arbitration.
Definition of Arbitration
Arbitration is a method of resolving a dispute in which the parties agree to refer it to one or more independent persons, called arbitrators, whose decision, called an award, is final and binding on them.
The agreement to arbitrate is usually an arbitration clause in the main contract, or a separate submission agreement made after the dispute arises, and an award can be enforced through the High Court like a court judgment.
Importance of Arbitration
Arbitration settles disputes efficiently, often by an expert in the field. It brings harmony and reconciliation, because the process is less confrontational than court. It brings finality to conflicting relationships, since awards can be challenged only on limited grounds. It also improves relationships, allowing parties, such as a supplier and a long-standing customer, to resolve a disagreement and keep doing business.
4.2 The Arbitration Process
The arbitration process is the series of steps from the start of the dispute to the final award.
The exact procedure depends on the parties' agreement and any arbitration rules they have chosen.
Stages of the Process
The process generally follows these stages:
File a claim
The claimant gives written notice of the dispute to the other party, stating the claim and the remedy sought, and starting the arbitration under the agreement.
Answer the claim
The respondent replies, admitting or denying the claim, and may make a counterclaim.
Select the arbitrator
The parties agree on one arbitrator or a panel, often three, or an appointing body or the court appoints them if the parties cannot agree. The arbitrator must be impartial and independent.
Pre-hearing conference
The arbitrator meets the parties to agree the timetable, the issues in dispute, the procedure, the venue and the costs.
Discovery
The parties exchange relevant documents and information, such as contracts, invoices and correspondence, so each knows the other's case.
The hearing (meeting)
The parties present their evidence and arguments, witnesses are questioned, and the arbitrator considers the case.
Decision and award
The arbitrator gives a written award, deciding the dispute and any amount payable, which is final and binding and can be enforced through the court.
4.3 Merits and Demerits of Arbitration
Arbitration has clear advantages over litigation, but it is not perfect.
The parties should weigh both sides before agreeing to it.
Merits and Demerits Compared
The table sets out the main merits and demerits side by side.
| Merits | Demerits |
|---|---|
| No publicity Hearings are private, so business secrets and reputations are protected. | Possible disclosure of classified information Sensitive information must still be shared with the arbitrator and the other party. |
| Convenience and informality The parties choose the time, place and procedure. | Too informal The lack of strict rules may lead to unfair treatment of a party. |
| Use of expert knowledge An arbitrator with technical expertise, such as an engineer or accountant, can be chosen. | Lack of legal skill or sympathy An expert who is not a lawyer may misapply the law, and there is no jury or judge to consider fairness. |
| Speedy settlement It is usually much faster than a court case. | No room for appeal in some cases An award can be set aside only on narrow grounds, even if it seems wrong. |
| Less expensive Shorter proceedings usually mean lower costs. | Can be costly The parties must pay the arbitrator's fees and the venue. |
| Neutrality and harmony A neutral arbitrator helps preserve the relationship. | Can be biased or autocratic The arbitrator has wide powers, and a party may feel the process was one-sided, which can cause bad blood. |
Other Demerits
Some writers add that arbitration can destroy working relationships if a party feels unfairly treated, and that in some arbitrations no reasons are given for the decision, making it hard for the losing party to understand or accept it. Parties can reduce these risks by choosing an experienced arbitrator and agreeing that reasons will be given.
4.4 Powers of the Arbitrator
An arbitrator needs powers to run the proceedings and reach a fair decision.
These come from the arbitration agreement, the rules chosen by the parties and the Arbitration Act.
The Main Powers
Subject to the parties' agreement, the arbitrator generally has the power:
To take evidence
To receive the evidence of the parties and to examine witnesses, including evidence under oath or affirmation.
To record evidence
To have all evidence recorded, so that the award is based on a proper record.
To order the production of documents
To order the parties to produce books, records and documents relevant to the dispute.
To inspect property
To require a party to allow inspection of goods or property involved in the dispute.
To proceed in the absence of a party
To continue and make an award if a party, after proper notice, fails to attend without good reason.
To decide incidental questions
To decide questions that arise in the course of the arbitration, such as procedural issues.
To award interest and costs
To award interest, including interest for the period before the award, and to decide who pays the costs.
To obtain evidence from abroad
To arrange, through the proper channels, for the evidence of a person outside the country to be taken, for example by a commissioner.
To require pleadings
To require the parties to deliver written statements of claim and defence.
To maintain order
To keep order during the proceedings so that the hearing is fair and efficient.
All Business Law 1 learning outcomes
- Learning Outcome 1: Law in Society and Business
- Learning Outcome 2: The Zimbabwe Legal System
- Learning Outcome 3: The Law of Contract
- Learning Outcome 4: Arbitration
- Learning Outcome 5: The Law of Delict