Arbitral agreement vs amicable settlement

Question

What are the similarities and differences of arbitral agreement and amicable settlement?

Answer 1

Arbitration

Arbitration is a formal dispute resolution mechanism that is supported by law. It requires the agreement of all participants which may come as part of a contract before there is a dispute or the parties may agree to use arbitration after the dispute arises. Courts will generally not hear disputes where arbitration has been agreed upon.

The decisions of arbitrators will be enforced by the courts in exactly the same way that court judgments are. Appeals from arbitration are limited and narrow. The tribunal is usually 1 or 3 independent arbitrators appointed either be agreement or subject to an agreed appointment mechanism.

The parties have wide discretion (subject to the law that gives arbitration its force) on how the arbitration is conducted. Many arbitrations are conducted as formal hearings similar to a court case but they can also be decided on the documents or even more informally by a meeting of the parties with the arbitrator. Most arbitration laws allow the arbitrator (with the agreement of the parties) to act as a mediator although this can complicate matters if the mediation fails.

They are usually quicker and often cheaper than going to court although if the parties want to throw huge resources at the arbitration, they can. The parties can also agree that strict rules of evidence do not apply - most commonly they will allow hearsay evidence that would be inadmissible in a court.

Arbitration gives you a binding ruling by an independent tribunal that a court will enforce.

Settlement

In this process, the parties work it out for themselves and reach a settlement that they can all agree to (amicably or not). The usual process is a negotiation (with or without lawyers) where the parties put their views and state their claims. There may or may not be claims of legal rights and those claims are not 'tested' the way they would be in a court or arbitration.

They may also employ other forms of alternative dispute resolution (ADR) beyond negotiation such as mediation or conciliation. The parties are also able to explore unconventional solutions to their dispute that would not be open to a court or arbitration because they may not rest on legal rights and obligations. For example, an offer to consider one party's offer on a future contract by the other is OK in negotiation but not in a court because courts can only deal with things that have happened rather than things that might happen.

Any agreement produced is only enforcable as a contract (assuming it meets the criteria for one; most will) so if one party reneges, enforcement is not as straightforward as it is with an arbitration - instead of a judgment for enforcement, you have a contract claim you have to litigate.

Why can't we have both?

Most sophisticated contracts do.

First, the vast majority of disputes get resolved by the people on the ground before anyone really starts to call them disputes.

Of those that do escalate, most get resolved by negotiation and compromise before they become "formal".

Most contracts of any substance will have a dispute resolution clause for fixing "formal" disputes including how such disputes are notified to the other party. These are usually 'escalating'; for example, they might require negotiation, then mediation, then arbitration (or litigation) and each step must be completed before you move to the next.

Answer 2

What are the similarities and differences of arbitral agreement and amicable settlement?

Similarities:

• Both are considered alternative methods for dispute resolution.

• Both are binding to all the parties to the controversy at issue.

Differences:

• One party is unlikely to realize, prove, or be granted the proper remedy if/when the arbitrator is related with (or even bribed by) the counterparty in a way that results in unlawful bias.

• The outcome of arbitration is very hard to reverse on appeal. By contrast, in an amicable settlement the parties have more control/greater opportunity to procure that the commitments they enter in the settlement match their priorities. That control and opportunity preclude the need to appeal the terms of the [parties' own] decision.

• A party's quest for an appellate reversal of the arbitration outcome subjects all parties to further litigation, with the cost and uncertainty that that entails. For the reason explained in the previous item, that risk is preempted in a settlement.

• One or more parties incur fees for arbitration services, whereas the process of an amicable settlement entails lesser or no cost.

From these differences it is obvious that one should never agree to have arbitration as method for dispute resolution.