Alternative Methods Of Dispute Resolution: Negotiation, Conciliation And Mediation (Copy)

1.2 Machinery of Justice

Arbitration, Arbitration Act 1996, Scott v Avery Clauses

Introduction

• Arbitration is a formal method of Alternative Dispute Resolution (ADR) where parties agree to submit their dispute to an independent arbitrator (or panel of arbitrators) instead of going to court.
• Arbitration has a long history in English law and is widely used in commercial disputes, construction contracts, shipping, insurance, and international trade.
• Its modern framework in England and Wales is provided by the Arbitration Act 1996.
• A distinctive feature of arbitration agreements is the Scott v Avery clause, which requires disputes to be resolved by arbitration before any court action.

The Nature of Arbitration

• Definition
  • A dispute resolution process in which an arbitrator, chosen by the parties, makes a decision (called an award) which is legally binding.
• Features
  • Private process (unlike public court hearings).
  • Arbitrator chosen for expertise (law, engineering, shipping, finance, etc.).
  • Flexible procedure – parties may decide rules of evidence, timetable, and format.
  • Legally binding outcome enforceable through the courts.
• Comparison with Mediation/Conciliation
  • Mediation/conciliation: neutral party facilitates agreement, no binding decision.
  • Arbitration: neutral party makes binding decision (like a judge in private).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Law Full Scale Course

The Arbitration Act 1996

• The main legislation governing arbitration in England and Wales.
• Objectives of the Act:
  1. To ensure arbitration is fair, impartial, and efficient.
  2. To reduce court interference in arbitration.
  3. To give legal effect to party autonomy (freedom to choose arbitrator, rules, and procedure).
• Key Provisions:

1. Principles of Arbitration (s.1):
   • Fair resolution of disputes without unnecessary delay or expense.
   • Parties free to agree procedure, subject to safeguards.
   • Court intervention only where provided in the Act.
2. Arbitration Agreements (s.5):
   • Must be in writing.
   • Parties agree that disputes will be resolved by arbitration rather than court.
3. Appointment of Arbitrators (s.15–18):
   • Parties may agree the number and method of appointment.
   • If they cannot agree, the court or an arbitral institution (e.g., Chartered Institute of Arbitrators) may appoint.
4. Powers and Duties of Arbitrator (s.33):
   • Duty to act fairly and impartially.
   • Must give each party reasonable opportunity to present its case.
   • Can decide procedure (hearings, documents, experts).
5. Arbitral Award (s.46–58):
   • Award must be reasoned unless parties agree otherwise.
   • Legally binding on both parties.
   • Enforceable in the High Court like a judgment.
6. Challenging an Award (s.67–69):
   • Grounds for challenge:
     • Lack of jurisdiction (s.67).
     • Serious irregularity (s.68).
     • Point of law (s.69, appeal allowed only with permission).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Law Full Scale Course

Scott v Avery Clauses

• Definition
  • A clause in a contract requiring that any disputes be resolved by arbitration before court proceedings can be started.
• Origin
  • From the case Scott v Avery (1856), where the House of Lords upheld the validity of such a clause.
• Importance
  • Prevents parties from bypassing arbitration and rushing into court.
  • Strengthens arbitration agreements by making arbitration the first step.
  • Encourages settlement in a private, expert-driven forum.
• Modern Use
  • Common in shipping contracts, insurance policies, construction contracts, and international trade agreements.
• Case Example:
  • Scott v Avery (1856): Insurance contract contained clause requiring disputes to be arbitrated before litigation. Court held such clauses were valid and enforceable, preventing premature litigation.

Advantages of Arbitration

• Expertise – arbitrators chosen for specialist knowledge.
• Privacy – unlike court, proceedings confidential, useful in commercial disputes.
• Flexibility – parties set rules, timetable, and procedure.
• Finality – limited grounds of appeal ensure certainty.
• International enforceability – arbitral awards widely recognised under the New York Convention 1958.

Disadvantages of Arbitration

• Cost – arbitrator’s fees may be higher than court fees.
• No legal aid – unlike some court cases, parties cannot access state funding.
• Limited appeals – errors of law may go uncorrected due to restricted appeal rights.
• Delays possible – especially in complex cases, arbitration may still take years.
• Imbalance of power – stronger party may dictate choice of arbitrator or rules.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Law Full Scale Course

Evaluation of Arbitration

• Arbitration offers a middle ground between litigation and informal ADR, combining binding outcomes with flexibility and privacy.
• The Arbitration Act 1996 reinforces arbitration as an independent, fair system with minimal court interference.
• Scott v Avery clauses strengthen arbitration by ensuring disputes are arbitrated before courts are involved.
• Despite criticisms of cost and limited appeal, arbitration remains the preferred choice in commercial, construction, and international disputes.

Conclusion

• Arbitration is a cornerstone of ADR in English law, offering parties binding resolution outside the courts.
• Supported by the Arbitration Act 1996 and validated by Scott v Avery, it provides certainty, fairness, and flexibility, especially in specialist and international disputes.
• It reflects the balance between party autonomy and judicial oversight, making it a vital component of the machinery of justice.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Law Full Scale Course