087 2580476

The Chartered Institute of Arbitrators
Irish Branch
21st. to 23rd. January, 2000
Assignment
Discuss the advantages and disadvantages of
Arbitration as a means of determining disputes.
Liam Cotter BCL Motor Engineer/Assessor

Introduction.

Almost everyone has at least a vague idea of what litigation is and what it
involves with court rooms, lawyers, judges and strict legal procedures being
the most obvious manifestations of that form of dispute resolution. Arbitration
on the other hand, is a little less clearly understood and although it’s
proponents would claim that it is everything that litigation is not, for example
more flexible, more cost effective and more speedy, these descriptions do
little with regard to defining or describing what arbitration is and why it is more
appropriate than litigation, in certain situations.

Before outlining the advantages of Arbitration over other forms of dispute
resolution such as litigation or ADR, it is perhaps important to define what
arbitration actually is and although the arbitral process contemplates a
number of essential characteristics, perhaps one of the more succinct
descriptions proposed that arbitration is
… a judicial process by which the parties to a dispute agree to have it
settled by a person of their choice and to be bound by the decision he
makes ….” 1
All of the essential characteristics of the arbitral process are there, the
intention that the decision be legally binding, that the binding nature of any
decision derives from the agreement of the parties and that the parties to the
agreement and the dispute are the same.
Advantages
All of the texts in this area of Arbitration outline in detail the various
advantages of arbitration over litigation or ADR and can be summarised, as
follows,
1 Cost/flexibility: Costs can be dramatically reduced in Arbitrations when
compared to litigation because of the absence of strict procedural rules which
allow for instance, the parties to represent themselves, no requirement for
legal representation, particularly in cases of a mostly technical or financial
nature and pre hearing preparatory work can dramatically reduce the length of
the hearing.
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1. Arbitration Act 1996: A Practical Guide, Margaret Rutherford, John Simms, FT Law
& Tax, London, 1996, page 27.
2. Adjudicator: The arbitrator can be chosen by the parties themselves, who
usually has an expertise in the area in question and who can bring this
experience to bear on the dispute between them, a facility that is not available
in a formal court situation.
3. Confidentiality: Although for the most part, court hearings are in public,
Arbitrations are generally confidential, a point that is particularly important
when issues of trade secrets, highly sensitive information or confidential
financial information is at issue between the parties.
4. Location: The location of any hearings can be decided between the
parties and can be heard virtually anywhere, i.e. on a ship and equally
important, hearings can be located at a neutral venue so not to give any party
the possible advantage of the hearing being held on “home territory”.
5. Speed: Usually arbitrations can be arranged and can proceed very quickly
indeed and this is a particularly important advantage where issues in dispute
require an immediate resolution.
By it’s very nature, the court process results in cases taking years to get listed
and heard, a situation that can cause further hardship on the parties in
dispute. Apart from the cost issue, this is perhaps one of the more important
advantages of the arbitration system.
Disadvantages.
There is no doubt that any disadvantages in the arbitration process are likely
to be profession specific and are more likely to be related to procedural or
statutory issues. I would like to mention two specific disadvantages I have
encountered in Motor Trade arbitrations, the first being the issue of third
parties to an arbitration agreement and the second being the perceived
removal of the judicial discretion by s.5(1) of the Arbitration Act, 1980.
Dealing with the third party issue firstly, the arbitration clause in an S.I.M.I 2
sales order form between a Motor Dealer and a person envisaged under the
Sale of Goods Act 3 is quite ineffectual against a third party finance company,
who is not a party to the contract of sale and who can refuse (quite rightly) to
be bound by the arbitration clause.
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2. Society of the Irish Motor Industry
3. Sale of Goods and Supply of Services Act. 1980.
Given the large no. of vehicle purchases that are financed by such finance
institutions, this third party issue has been a substantial stumbling block to
such disputes being arbitrated on, and this is a major weakness of the
arbitration system.
The second weakness of more recent origin and potentially more serious for
the future of Motor Trade arbitration in Ireland relates to a recent Circuit Court
decision 4 to refuse to grant a stay, despite s.5(1) of the Arbitration Act, 1980
which states that a judge
… “shall make an order staying the proceedings”…
the word “shall” above appeared to remove the judge’s discretion not to grant
a stay, but in practice this does not seem to be the case 5. In this case, the
judge seemed unhappy, having examined the foundation documents of the
S.I.M.I., that this organisation had the choice of “default arbitrator” in the event
that the parties could not agree on an arbitrator.
The judge had a fundamental objection to the trade body having a default
power of appointment and deemed this standard form clause to be unfair
against the Plaintiff. Interestingly, the judge invoked European Union
consumer protection law 6 to strike down the S.I.M.I order form and the
arbitration clause it contained.
As these E.U. regulations are directly effective, the judge refused to stay the
court proceedings and decided that the matter would be dealt with in the
Circuit Court jurisdiction, despite the owner signing the S.I.M.I. vehicle order
form which contained the arbitration clause, as the agreed form of dispute
resolution. This decision has been appealed to the High Court by the
respondents, but my own view is that this decision (whether I agree with it or
not) is quite a clever and thoughtful piece of legal reasoning and may well be
affirmed by the higher court.
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4. Unreported (a written judgment is still awaited)
5. For allternative view, see Arbitration Law & Procedure, Michael Forde, The
Round Hall Press. Dublin, p.24, para. 3
6. Unfair Terms in Consumer Contract Regs. 1995 (Reg. 3(4) – Forde 10.007)
In conclusion, although this decision appears to place the future of arbitration,
at least in relation to Motor Trade cases in some doubt, one would hope that
the overwhelming advantages of arbitration, at a time when the court system
seems to be overburdened with long lists, would persevere.
I do not ultimately believe that Arbitration seeks to ouster the court’s
jurisdiction (which appears to be the underlying fear of at least some of the
judiciary, in arbitration cases generally) and in fact, it is desirable and
necessary that the court system should play a supervisory role in the process
to ensure uniformity of accepted legal principals and to ensure that injustice
does not occur.
Liam Cotter 23/01/2000