Arbitration is an alternative form of dispute resolution, preferred to litigation – as the default approach. Originally, it was used to resolve disputes arising from contracts of a commercial nature, especially those with a foreign element.
The process has fewer formalities, is more confidential and manageable by the parties. The place where the arbitration will take place, the language of proceedings, the arbitral tribunal, applicable law and other procedural rules – are all set by a mutual agreement reached between the parties.
Arbitration vs. Litigation
Disputes arising from a contract are settled in trial, by a judge, even if parties have not expressly addressed an ad hoc clause for the competent court. In any case, they are obliged to follow the rules of the legislation in force, which stipulates the competent court and the applicable law.
In arbitration, this does not happen. Parties may provide the following clause in their contract:
“Any dispute, conflict or controversy arising out of or in connection with this contract, consisting but not limited to its arrangement, validity or termination, shall be resolved by arbitration in accordance with this contract and the rules provided in the Arbitration Agreement”.
This clause implies that parties have signed an Arbitration Agreement, attached to their Contract, with specific procedural rules, and a list of disputes eligible to be settled by arbitration. However, parties are not obliged to sign a secondary agreement, as they might only provide in their main contract a clause where they agree for their disputes to be settled by arbitration.
Today, Arbitration is widely used in contracts governed by international trade and/or investment treaties, where parties are governments and foreign companies.
Why do these parties choose arbitration?
Arbitration has several advantages over litigation:
Litigation is (usually) public. To the contrary, arbitration is a private process, where only the parties, their representatives, the arbitral tribunal, and other persons relevant to the process such as experts or witnesses – are allowed to participate.
- The will of the parties
The content of the arbitration agreement is drafted in accordance with parties’ will and autonomy.
- Binding Award
Arbitrator’s award is as binding as the decision of a court.
Parties are free to stipulate in an Arbitration Agreement or an ad hoc clause in their contract, the decision to settle any disputes that may arise from their contractual relationship, by arbitration. However, not every dispute is eligible to be settled this way. Therefore, they should check whether the law they want to apply for their case allows or not arbitration as an alternative way to dispute resolution.
Usually, criminal cases, or disputes arising from claims over patents or trademarks are not settled by arbitration.
Parties choose the arbitrator on their free will. They may choose to have the dispute ruled by 1 (one) arbitrator, or by a tribunal of 3 (three). In the first scenario, parties choose together the arbitrator. In the second one, each party chooses an arbitrator, and both of them choose the third.
Parties are free to choose the applicable law to their Arbitration Agreement. This law might be the law of their nationality, an international convention, or general principles of international law. Pursuant to this, their dispute will be solved with a final and binding decision.
However, it might happen that parties have not chosen the applicable law. In this scenario, the Tribunal, or the sole arbitrator, will take the responsibility to choose the applicable law.
Parties draft an Arbitration Agreement because they want a final and binding decision for their disputes.
The tribunal awards a final decision, which resolves the matter substantially. To that end, it is binding and enforceable for the parties.
However, if one of the parties disagrees with the final decision, it can be appealed. This fact does not make the decision unenforceable, but it gives the appellant the opportunity to put in place his claims.
Parties should enforce the tribunal’s decision, even if their national legislation does not have an ad hoc law on arbitration. In such a case, international conventions – in particular the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards – are the instruments which oblige the losing party to enforce the award.
The New York Convention stipulates that all its signatory parties are obliged to enforce the arbitral awards. Currently this convention has 169 signatories. Albania is one of the signatory states.
International Arbitration and the Albanian State
One of the most important cases in arbitration is “Hydro and others against Albania” – also known to the public as “Becchettti v. Albania”, where the Albanian State, as the losing party, refuses to execute the tribunal’s decision.
A2CNN has prepared a short documentary on the hidden costs of Arbitration, which (still) holds a cost to the Albanian state budget.
You can watch here the documentary prepared by the journalist Angelo Haruni.
Whereas Legit in the following social networks: