Arbitration: Pros & Cons

 

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Why Arbitrate?

1              The aim of this briefing is to identify the relative advantages and disadvantages of Arbitration as a means of dispute resolution. Arbitration is, justifiably, an increasingly popular method of dealing with disputes, but arbitration is not ideally suited to every situation. This note compares the main features of arbitration with litigation and ADR,  and pinpoints key issues in deciding the most appropriate dispute resolution forum.

2              Typically, the question of whether or not to arbitrate arises at two key stages:

  • When negotiating a contract. The parties may decide to include in their agreement an arbitration clause to cover disputes that arise in the future. Inevitably, the arbitration clause is one of the last terms to be agreed, and there may be a temptation to rush matters to get the deal finalised. Given the far-reaching consequences of agreeing, or failing to agree, an arbitration clause, this temptation is best resisted. It is vital that the pros and cons of arbitration are given proper consideration at the time of contracting.
  • When a dispute has arisen. The decision at this stage is, in one sense, easier because the features of the particular dispute, and its suitability for arbitration, will be clearer. However, it may be more difficult to conclude an agreement to arbitrate if one party has an interest in delaying matters, or perceives a tactical disadvantage in arbitrating.

3              If the parties do decide to enter an arbitration agreement, it is important that it is carefully drafted; further advise as necessary should be taken on individual circumstances.

Arbitration compared with litigation

4              Arbitration can have several advantages over litigation. However, it is important that each perceived advantage is examined carefully in each particular case to assess its weight.

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Enforcement

5              Ease of enforcement is probably the most important factor in favour of arbitration. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) provides an extensive enforcement regime for international arbitration awards. There is no real equivalent for enforcement of court judgments.

6              If you opt for arbitration principally because of the advantageous enforcement regime, it is important to ensure that you draft the agreement with this in mind. This will usually involve ensuring that the arbitration agreement is in a form that will be recognised as valid in both the seat of the arbitration and the country of enforcement.

Certainty

7              Like a choice of court clause, a well-drafted arbitration agreement introduces a welcome degree of certainty with regard to the forum for resolving disputes. This is particularly attractive where there is a cross-border element to the dispute: the need to consider, or take advice on, the complex rules of private international law governing jurisdiction can be entirely sidestepped.

8              In litigation, disputes over jurisdiction can be expensive and (once appeals are factored in) extremely time-consuming. By contrast, a carefully drafted arbitration agreement should minimise the chances of jurisdictional disputes. Furthermore, if the parties agree to institutional arbitration, or agree that a certain set of rules will apply to their arbitration, this will also ensure a degree of procedural certainty and predictability (By simply referring to the applicable arbitration rules, the parties can inform themselves of what steps they need to take, and when.

9              Of course, disputes relating to jurisdiction and procedure can and do arise in arbitration just as in litigation. But the chances of such disputes can be eliminated or minimised by carefully drafting the arbitration agreement.

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Flexibility

10           A significant advantage of arbitration is the ability to tailor procedures to the needs of a particular dispute. There is great scope for the adoption of innovative, effective and efficient procedures. For example:

  • The parties are generally free to agree a suitable procedure, and are able to influence the procedure much more than is possible in court proceedings.
  • Similarly, the tribunal will give directions that are fine-tuned to the particular dispute so as to ensure its speedy and efficient determination.

Expertise

11           The parties in an arbitration can choose their tribunal. For example, where a dispute raises technical or scientific issues of fact, the parties can choose a tribunal with the relevant technical expertise. Similarly, where a dispute turns on a point of law, they can appoint a lawyer or lawyers. Choosing wisely can save time and money.

Privacy

12           Litigation is rarely private. For example, in England, court trials are usually open to members of the public. The mere fact that a party is involved in English court litigation can be ascertained by a search of publicly available information, and most judgments are publicly available. More importantly, non-parties are permitted to obtain copies of any statements of case, judgments or orders in English litigation (unless the court makes a special order to the contrary – see CPR 5.4C).

13           The relative privacy of arbitration is an attractive feature to many commercial parties. Arbitration hearings are usually held in private, and the fact that a party is involved in arbitral proceedings is not usually in the public domain. Furthermore, English law has also recognised an implied duty of confidentiality which prevents the disclosure to third parties of most documents produced or disclosed in an arbitration, including the statements of case and award. This is in stark contrast to court proceedings.

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14           Note, however, that the precise scope of the duty of confidentiality, and the exceptions to it, may be a matter of argument. If privacy and confidentiality is a particularly important factor consider including an express confidentiality clause in your arbitration agreement.

Neutrality

15           Another important feature of arbitration is the ability of the parties to refer their disputes to a neutral forum. This factor is likely to be particularly important to commercial parties, wary of referring disputes to the “home” courts of their contracting partner. The consensual nature of arbitration means that the parties can ensure that the composition of the tribunal, as well as the seat of the arbitration and the location of any hearing, are neutral. By their choice of the arbitral seat, the parties can also ensure that their arbitration is subject to modern, effective and supportive arbitration law.

Cost

16           Although arbitration is often perceived as being cheaper than litigation, this is not always the case. The parties must pay the tribunal plus any administrative costs (for example, room hire), which may represent a relatively substantial outlay when compared with the cost of court proceedings. The parties must also undertake the practical arrangements and organisation for any hearing.

17           To a large extent, the relative cost of arbitral proceedings depends upon the attitudes of the parties and the tribunal. An experienced tribunal and co-operative parties will often be able to devise procedures that minimise costs. By contrast, where arbitration is conducted as if it were court litigation, or where the tribunal unthinkingly applies the procedure set out in institutional rules without any attempt to modify them, costs can escalate. Do not assume that arbitration necessarily equals cheaper.

 

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Delays

18           Again, this perceived advantage of arbitration is one that needs to be assessed carefully. It is true that, compared with lead times to trial in court, arbitration often represents a speedy method of dispute resolution. However, if the parties opt for a three-man tribunal consisting of three busy and popular arbitrators, there may be a substantial delay before any hearing can be accommodated. Also, because arbitrators’ powers of coercion are much more limited than the courts’, there is greater opportunity for deliberate delays and breaches of procedural deadlines.

19           This works the other way, too: if your chosen strategy is to delay the “day of judgment” for as long as possible, then arbitration may be your best option. It is probably fair to say that institutional arbitration offers the greatest safeguards against delays.

Finality

20           A court judgment will very frequently be subject to appeal(s). By contrast, the opportunities for appealing or otherwise challenging an arbitration award are very much more limited. This is frequently perceived as an advantage to the parties – though, of course, this is questionable if the arbitrator determines a dispute wrongly.

Predictability

21           Although national arbitration laws vary to some extent, there is a significant degree of harmonisation. Many countries have adopted the UNCITRAL Model Law; others (like England, Wales and Northern Ireland) have arbitration laws based upon its provisions. There is, therefore, a degree of certainty and predictability with regard to arbitration law that may not apply to the procedural law of national courts.

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When is litigation preferable to arbitration?

22           Notwithstanding the factors identified above, there are certain situations in which litigation will usually be preferable to arbitration. The following analysis focuses primarily on litigation in the English courts: the position may be different if you are seeking to compare arbitration with litigation in a foreign court, in which case advice from a competent foreign lawyer is advisable).

Multiparty disputes

23           The right to arbitrate derives from the arbitration agreement. There is, therefore, no power to join third parties unless all the parties, and the third party, agree. Although joinder may well result in overall savings in costs, parties will often refuse to agree to it for obvious tactical reasons. This means that in multiparty situations, arbitration can be a cumbersome and inconvenient procedure, which carries a risk of inconsistent findings and which may prejudice the chances of settlement.

24           For similar reasons, arbitration cannot easily accommodate class action litigation. ( Note, however, that class arbitration is recognised in the US (though subject to certain restrictions).

Recalcitrant parties

25           Arbitral tribunals’ coercive powers are much more limited than that of a court. Although national courts can sometimes intervene to enforce arbitrators’ procedural orders, delays are still a more distinct possibility in arbitration than in litigation. Some institutions have taken steps to deal with this, but deliberate delaying tactics may be more difficult to combat in arbitration than in litigation.

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Summary determination

26           In principle an arbitral tribunal can determine claims and defences summarily. However, in practice they may be less willing than a court to do so. For example, English courts tend to be robust in disposing of meritless claims or defences on a summary basis. An arbitral tribunal is less likely to adopt such an approach. Therefore, if your claims are simple, involving only one defendant, and are indisputably due, you may prefer to issue court proceedings and apply for summary judgment.

No precedent

27           An arbitration award is for most purposes confidential to the parties. Furthermore, although persuasive, it does not give rise to any binding precedent or res judicata vis a vis other parties. Where, therefore, a final and generally binding ruling on the meaning of a standard form contract is required, litigation in court will be preferable.

Irrelevant evidence

28           The tribunal or parties may decide whether or not to apply the strict rules of evidence. If they decide not to, there is a greater chance of the introduction of prejudicial or irrelevant material. However, this is not usually a problem in practice.

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Arbitration compared with ADR

29           The term “ADR” encompasses so many and varied procedures that it is difficult to generalise about its relative advantages and disadvantages. For present purposes, the following general points may be stated.

 

30           ADR (in particular mediation) enables the parties to reach solutions that are not based on a “win/lose” paradigm, and that promote continuing relationships. As such, ADR may save time and costs by cutting through the legal or technical rights and wrongs, and focusing upon the solution. The flexibility and goal-oriented nature of ADR will be attractive to many parties.

31           However, unless the parties reach a settlement, ADR will not give rise to any binding judgment or award. Parties may withdraw from ADR before reaching any settlement, or the ADR may conclude without any settlement being reached, giving rise in such cases to wasted costs. Furthermore, and by contrast with arbitration, there is at present no statutory regime in support of ADR. Parties who are not comfortable with this relative lack of structure may prefer to arbitrate or litigate, or possibly to adopt two-tiered or hybrid procedures.

Wills, Inheritance and Trust Disputes

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Wills, Inheritance and Trust Disputes have increased over recent years due to growing affluence, increased consumer rights awareness, the growth of more complex family structures and an ageing population.

However, by failing to make a will, almost two out of three Britons risk leaving a financial nightmare for family members when they die, warns the Law Society.

http://www.lawsociety.org.uk/news/press-releases/britons-with-no-will-should-act-fast-warns-law-society/

Research  from the Dying Matters Coalition revealed that only 36 per cent of British adults say they have written a will, while 83 per cent reported being uncomfortable discussing their dying wishes. The research coincided with Dying Awareness Week.

  • Those who die without a will die “Intestate”, and this can result in a complicated and long drawn-out battle for those left behind. When a person dies intestate, the State decides who inherits according to a set procedure. As such their friends, favourite charities and relatives may get nothing; dependants and co-habitees may have to apply to the court because their interest would otherwise be ignored.
  • A will is always fundamental, but this is critical for co-habitees who are not married or in a registered civil partnership. There is no provision for co-habitees, and “common law” partners are not recognised either. People with children or dependents will need to make it clear who will look after or provide for them.

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  • A badly drafted will can cause more problems than no will at all, so the Law Society advises against using unregulated will writers. All solicitors are subject to strict regulation to ensure that they deliver the best service to their clients, unlike unregulated will writers. Solicitors are unparalleled in the will writing market as only they have the breadth of training to consider wider implications and complex issues, including tax and family law.
  • Whether you are involved in a claim, or considering your options, it is important to get the best legal advice.  Disputes over a Will or Trust can be distressing for all concerned.  A sensitive and practical approach is required, to  resolve family and financial disputes on a pragmatic basis.  A non-adversarial approach should be tried out of court, involving pre-action protocols, Mediation / Alternative Dispute Resolution and deeds of variation.  However, court action may be needed.
  • We act for administrators, executors, trustees, beneficiaries and dependants regarding all aspects of contentious probate and trust matters. Our team have in-depth experience of problematic and high value disputes or difficulties following the death of a family member involving houses, businesses, partnerships, shareholdings, property, farms, land holdings and other assets, including property abroad.

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J Paul Sykes is one of fewer than 500 Solicitors and Barristers with the necessary experience and skill to be appointed a Member of “ACTAPS”, the Association of Contentious Trusts and Probate Specialist, set up in 1997.

We support the voluntary code of the Association of Contentious Trust & Probate Specialists

http://www.actaps.com/

We advise and act in disputes including:

1. DISPUTED WILLS

Common reasons for a Will dispute include:

  • Invalid procedure:

For a Will to be valid it must be in writing, signed and witnessed in the correct manner.  This may be a problem with homemade Wills.  A correctly drafted Will should revoke earlier Wills, but this needs to be expressly set out.

  • Undue Influence:

The Will must be made voluntarily.  If the deceased was pressured or coerced into making a Will, it may be deemed as invalid.

  • Mental Capacity:

For a Will to be valid the person making the Will must have sufficient mental capacity at the time the Will was signed.

  • Knowledge, approval, fraud and forgery:

If someone is tricked into signing a Will or there has been some other fraudulent activity then the Will may be deemed invalid.

  • Negligent drafting:

The Will does not reflect the wishes of the deceased because it was drafted negligently or contrary to the instructions of the deceased.  Even if a Will is valid, you may be able to claim against the solicitor or other professional if they drafted the Will negligently.

We advise on all issues that could give the right to seek a declaration that a Will is invalid and should be disregarded completely.

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2. CONTENTIOUS PROBATE 

“Contentious Probate” – The legal term for a dispute regarding inheritance or the administration of a deceased’s Estate.  This can include disputes about a Will or a dispute regarding Probate.

“Probate” – The process of managing the affairs of a deceased person. When someone dies an application is made to the Probate Registry to get permission to deal with their affairs.

“Grant of Probate” -Issued by the Probate Registry where there is a Will, authorising the Executors or Personal Representatives to administer the deceased’s Estate.

“Grant of Letters of Administration” -Issued by the Probate Registry where there is no Will, authorising the Administrators or Personal Representatives to administer the deceased’s Estate.

Although the majority of Estates are administered without disputes arising, where there are problems we can advise on the law as to who should have control of an Estate and how it should be divided and managed.

It is important for clients to seek legal advice promptly so as to preserve the assets of the Estate, for example through lodging a caveat.  Speed is essential as some statutory claims require the issue of court proceedings within six months.

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3. TESTAMENTARY CAPACITY 

For a Will to be valid, the person making the Will (“Testator”) must have sufficient mental capacity at the time the Will was signed.

We are experienced in making challenges to, or upholding the validity of a Will.  This is an involved area of law and detailed, careful preparation is essential.  So too is a clear understanding of the criteria that Courts apply and the evidence available.  Thorough research and obtaining sufficient evidence to pursue the claim is required to prove the position, for example on issues regarding the deceased’s lack of capacity, coercion, or undue influence by another.

4. DISPUTES INVOLVING TRUSTS

A Trust is a legal relationship where someone (“the Settlor”) settles or transfers assets to another individual or a company (“Trustees”).  The Trustees hold and manage these assets for the beneficiaries of the Trust, chosen by the Settlor.  A Trust can be established during your lifetime or following your death.

Trustees have serious statutory and common law obligations, they must:

  • act with reasonable care and skill;
  • act impartially and fairly;
  • administer the Trust in accordance with its terms;
  • act jointly if more than one;
  • be ready with the accounts when due;
  • must not cause loss to the Trust due to any conflict of interest.

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5. CLAIMS FOR REMOVAL OF OR SANCTIONS AGAINST EXECUTORS, ADMINISTRATORS, TRUSTEES

A claim for breach of Trust may arise where it is alleged that the Trustees have failed to comply with their duties and the Trust and beneficiaries have suffered consequential loss. Such claims can have serious consequences for all involved.  It is essential to ensure advice is sought at the earliest stage.

6. DISAPPOINTED BENEFICIARIES 

Although in making a Will the Testator can dispose of their assets as they wish, this is subject to a number of potential restrictions including claims under the Inheritance (Provision for family and Dependants) Act 1975.  Such claims may be pursued by family and dependants where the terms of a Will (or the rules of intestacy where there is no Will) fail to make reasonable financial provision for the complainant.  Often such claims are pursued together with other equitable remedies e.g. proprietary estoppel, resulting and constructive trusts.

It may be argued that insufficient provision has been made for those left behind. The Courts will, where the legal criteria is satisfied, make an award for reasonable provision for dependents from the Estate.

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7. INHERITANCE ACT CLAIMS

Any individual who depends on you financially or whom you have maintained at the time of your death may have a claim against your estate if you have not left them anything in your Will or made no other financial provision for them.

Can I claim under the Inheritance Act?

To find out if you can make a claim under the Inheritance Act, it is important to take professional advice as soon as possible.  If you have not been properly provided for in a Will when you should have been, you may have a valid claim.  You will need to show that you are:

  • A husband, wife, civil partner or cohabitee of the deceased.
  • A former husband, wife or civil partner of the deceased who was
  • receiving maintenance and has not remarried/entered into a new civil partnership.
  • A child of the deceased.
  • Any person who was treated as a ‘child of the family’ of the deceased.
  • Any person who was partly or wholly maintained by the deceased immediately before the death.

AND, that it is within 6 months of the date of Grant of Representation. This is a document issued by the Court which gives permission to those named in the grant to distribute the deceased’s estate.

8. PROMISSORY ESTOPPEL AND PROPRIETARY ESTOPPEL

These are Rules of Equity, where a person is prevented from denying that a certain state of affairs exists, having previously stated that it does.

“promissory estoppel”:  if an individual states that their strict legal rights will not be insisted upon, they cannot later try to assert them if a third party has relied on that declaration to their detriment.

“proprietary estoppel”: if an individual permits or persuades a third party to act to their detriment in respect of land, the first party will be “estopped” from backing out or refusing to grant something that they encouraged the other person to expect.

9. NEGLIGENTLY DRAFTED WILLS, AND CLAIMS AGAINST EXECUTORS

Professional Negligence Claims could be considered against Will Writers, Solicitors and Banks acting as Trustees: there is a duty of care owed to those who may be adversely affected.

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10. DISPUTED POWERS OF ATTORNEY

A Power of Attorney is a legal document where the donor or “Principal” transfers the power to manage their financial affairs to another person, the “Attorney”.  A Power of Attorney can be used when it is easier for someone else to act, or where the donor is unable to do so.  An example would be where someone serving abroad in the Armed Services appoints a Parent as their Attorney to deal with their finances whilst they are away on duty.

“Lasting Power of Attorney”:

This is where an Attorney is appointed to act for you if and when you become mentally incapacitated.  A Lasting Power of Attorney has to be registered with the Court of Protection before it can be used.  A Lasting Power of Attorney replaced the previous “Enduring Power of Attorney” in October 2007.

The old system was vulnerable to abuse and fraud and often the requirement to register at the Court of Protection was ignored.  The new Lasting Power of Attorney avoids this problem, because the Power will not be valid until it is registered. Nevertheless, Enduring Powers of Attorney will be around for many years to come and disputes will continue.

If you object to someone taking over the affairs of a close relative, you may be able to prevent this.  Specific advise is necessary on the appropriate steps. This may include an application to the Court of Protection.  You may be able to remove someone who is abusing their position. All decisions will be made in the best interests of a vulnerable person.  Relevant factors may be the size of any assets involved, the previous wishes of the vulnerable person and the character of the person proposing to take over.

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11. Bereavement Counselling:

First reactions to the death of someone close – What happens to us when we lose someone? For most people, bereavement is the most psychologically distressing experience they will ever face. The death of a significant person is a devastating loss. Everyone experiences grief differently and there is no ‘normal’ or ‘right’ way to grieve. How we react will be influenced by many different things, including our age and personality, or cultural background and religious beliefs, our previous experiences of bereavement, our circumstances and how we cope with loss.

Bereavement counselling is available from a variety of sources, for example:

www.crusebereavementcare.org.uk/www.counselling-directory.org.uk/bereavement.html

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12. Digital Legacy

The Dying Matters Coalition research also revealed that 71 per cent of people said they have never thought about what would happen to their digital legacy, such as social media and online accounts, online photos and music, when they die. The Law Society encourages people to leave clear instructions about what should happen to their digital assets after their death. Having a list of all your online accounts, such as email, banking, investments and social networking sites will make it easier for family members to piece together your digital legacy, comply with your wishes and could save time and money. Not making your digital legacy clear could mean important or sentimental material – such as photographs on social networks – is never recovered.