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Just Resolutions

June 2024 – Arbitration Resolution Committee

Guiding Principles of Commercial Arbitration and Its Advantages Compared to Traditional Litigation

Brian Haderspock

Guiding Principles of Commercial Arbitration and Its Advantages Compared to Traditional Litigation
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Arbitration is a method of resolving disputes outside of traditional court proceedings. When parties enter into an agreement, they also agree to submit any current or future disputes to an impartial arbitrator or panel. This removes the issues from the jurisdiction of judicial courts and provides a private, alternative means of conflict resolution.

Party autonomy, a cornerstone of arbitration, dictates that when a valid arbitration agreement is in place, the parties involved must arbitrate their disputes rather than go to court. This principle grants parties to a contract the freedom to determine the terms and conditions of their agreement, including the choice of applicable law, dispute resolution mechanism, and the interpretation and application of the contract.

Under the Federal Arbitration Act (“FAA or Act”), a cornerstone of arbitration law in the United States, no party can be compelled to arbitrate unless they have entered into an agreement to do so. The Act underscores the fundamental principle that arbitration is a matter of contract. Therefore, a party seeking to compel arbitration under the FAA must first establish the existence of a valid arbitration agreement. This highlights the role of the FAA in providing the legal framework and conditions for arbitration.

Furthermore, the arbitration process, renowned for its effectiveness and advantages, stands as a beacon of fairness and efficiency. Its substantive and procedural principles ensure a just and efficient adjudication, providing a sense of reassurance and confidence to all parties involved. Moreover, it offers significant advantages over the traditional judicial process, such as speed, flexibility, and confidentiality, further enhancing its appeal.

The following guiding principles of arbitration aim to establish an impartial, swift, and considerate dispute resolution process. These principles uphold the rights and interests of all parties involved, instilling confidence in the process's fairness and impartiality.

A. Basic Principles

1. Party Autonomy and the Principle of Contractual Freedom

The principle of party autonomy is a fundamental aspect of arbitration. It offers the parties involved the freedom to choose arbitration to resolve disputes and the authority to determine the procedures and rules that will govern the process. This principle empowers parties to customize the arbitration process to match their unique needs and preferences.

The presence of the contractual element in arbitration is not a mere formality but a crucial factor that makes resolution through this mechanism possible. It underscores the importance of the parties' agreements and their role in shaping the arbitration process, thereby emphasizing the significance of their contractual freedom.

Furthermore, freedom of contract allows arbitrating parties to write their own rules of arbitration—in effect, it permits them to establish the law of arbitration for their transaction.

Moreover, as stated by the principle of flexibility mentioned below, arbitration offers dispute parties flexibility and speed. It allows them to design the arbitration procedures and decide on the applicable law that best suits their needs. These characteristics are central to the principle of party autonomy mentioned above.

2. Principle of Flexibility

Arbitration can be adapted according to the parties' needs.

The parties can customize the arbitral process to their needs—eliminating legal rules or trial techniques that might prove inconvenient or unsuitable while maintaining procedural elements necessary to achieve fairness, finality, and functionality.

The laws governing arbitration procedures are considerably more efficient and adaptable than those applied in proceedings before the ordinary judicial courts. The latter are characterized by their sluggish pace and strict formalism, which can often result in significant delays and procedural errors. By contrast, arbitration processes are typically more functional and flexible, allowing for a more streamlined and effective resolution of disputes.

Party autonomy is so important in international commercial arbitration that the latter would not exist if parties were not offered the flexibility to decide on the multiple aspects of the arbitral proceedings.

3. Principle of Privacy

In contrast to judicial proceedings, where public disclosure is mostly inevitable, arbitration requires that arbitrators and parties maintain confidentiality and reserve all relevant information.

Arbitration is a legal process for resolving private disputes in which the relationship between the parties and the arbitrators is also kept reserved. This means that the arbitration process and the arbitrator's final decision remain confidential between the parties, arbitrators, and arbitral institutions.

Notwithstanding the inherent privacy of arbitral proceedings, many times this principle is lost when the losing party seeks judicial review of the arbitral award which is decided by the judicial courts and, hence, open to public scrutiny. However, courts will only review awards on specific issues, generally related to procedural errors. For instance, under the FAA, the judicial review of awards is limited and enumerated in 9 U.S.C. §§ 10, 11.

4. Principle of Suitability and Specialization

Tied to the principle of flexibility is the right the parties have to select the arbitrators, who can be sole arbitrators or panel of arbitrators. This allows the parties to choose arbitrators who are knowledgeable about the dispute's subject matter. Judges in state courts are less likely to possess the same level of technical expertise in the transactions that come before them as the lawyers who represent the parties.

It is known that different commercial relationships have varying subject matters that require specific knowledge and expertise to properly comprehend their scope. Therefore, when appointing an arbitrator or an arbitral tribunal to settle a dispute, it is advisable for all parties involved to prioritize expertise and specialization. This approach guarantees that the selected arbitrators possess the qualifications to deliver a timely, impartial, and fair decision.

Furthermore, contrary to being a judge, arbitrators are not required to be lawyers but can be of any profession or expertise. Nonetheless, some rules require at least one arbitrator to be a legal professional when dealing with a panel of arbitrators. Moreover, it is also important to note that the possibility of choosing a non-lawyer arbitrator with specialized knowledge and expertise is not available in states with restrictive arbitration laws that permit only lawyers to serve as arbitrators.

5. Principle of Expeditiousness

This principle relates to the celerity or speediness that is a fundamental aspect of the arbitration process, requiring that proceedings be conducted within reasonable timeframes. This principle involves resolving disputes continuously and uninterrupted, free from obstacles and delays that are common in ordinary judicial proceedings. Many arbitral institutions have established a maximum period within which the arbitral tribunal must issue an award.

This principle is one of the most important in the arbitration framework, dictating that arbitration procedures are usually processed much more quickly than judicial processes. Arbitration institutions generally establish timeframes for the arbitrators to render an award, usually between six and eighteen months, in contrast, litigation is known to last for several years.

Because arbitrators typically have substantially lighter caseloads than judges and courts, there are often fewer delays in arbitration cases, and these cases can get underway sooner than they would likely start in the traditional court system.

When parties disagree regarding the timeframe for a certain process or action, the arbitral institution establishes the timeframe for the concerned procedure. This ensures that both parties involved in the dispute clearly understand the expected timeline and can plan accordingly. It is important to note that the timeframe can still be mutually agreed upon by the parties involved, but if no agreement is reached, the decision of the arbitral institution will be final and binding.

6. Principles of Impartiality and Independence

Impartiality and independence are often used synonymously to reflect the unbiased quality that arbitrators are expected to possess. While often used interchangeably, they are conceptually different, albeit linked.

Independence means that the arbitrator should not be connected to any of the parties involved in a dispute, including their lawyers and the issue being debated. Impartiality, on the other hand, means that the arbitrator should not show favoritism or bias towards any of the parties involved.

Arbitrators are expected to perform their duties impartially and independently. This means that they should not have any affiliation or inclination towards one of the parties. Moreover, they are required to disclose any information that may affect their impartiality or independence. This is necessary to maintain the perception of fairness and objectivity throughout the arbitration process.

Arbitrators are responsible for rendering decisions that align with the contractual agreement between parties and the pertinent rules of procedure. Unbiased judgment is also emphasized as a fundamental component of equity. Therefore, arbitrators are required to maintain complete impartiality and refrain from having any vested interests, whether financial or otherwise, in the outcome of the case.​

B. Due Process: fair and equal opportunity to be heard.

At its core, due process is the legitimate expectation of a party appearing before a decision maker that it has the right to be protected from arbitrary, discriminatory, or unfair treatment.

Due process encapsulates several key principles of procedural fairness recognized both in international rules and conventions and in the domestic law of developed legal systems.

The following principles relate to the fundamental right of due process in arbitration proceedings.

7. Principle of Equality

The principle of equality is an essential element in the administration of justice and is a basic juridical principle protected by most Constitutions.

The principle dictates that every party to a legal dispute should have an equal opportunity to present their case and assert their rights. There should be no partiality or bias, and the judge should remain independent and impartial throughout the proceedings.

8. Principle of Immediacy

The principle of immediacy in the oral procedural system involves the interaction of the judge in the reception of the evidence, the parties, witnesses, and experts, allowing a decision, with the quality information obtained in the hearing.

This principle is related to the oral aspect of arbitration proceedings which permits direct communication between arbitrators and the involved parties. It indicates the promptness of the proceedings that requires a constant connection between the arbitrators and the parties, which ultimately results in a more accurate resolution.

9. Principle of Contradiction

The principle of contradiction is a criterion that governs procedural law and expresses that every person has the right and opportunity to confront the evidence presented at trial and deny the assertions made by the of the other party, therefore, ensuring that both parties are able to defend themselves equally.

It is imperative that judges provide the litigants with a fair opportunity to present their stance along with any relevant evidence that supports their arguments. Failure to do so would render any resolution issued by the arbitrator unjust and biased.

C. Advantages in contrast to Litigation

Limited Court Intervention.

Arbitration has the advantage of operating independently from the court system. Although courts may supervise certain aspects of the arbitration process, such as enforcing arbitration agreements and arbitral awards, they generally do not interfere with the substance of the dispute or the arbitration proceedings themselves.

Arbitration's allure is dependent upon the arbitrator being the last decision maker in all but the most unusual cases.

Efficiency and Flexibility.

The main benefit of using arbitration in dispute resolutions is its efficiency when compared to standard court proceedings.

Arbitration is often preferred over traditional litigation due to its efficiency and flexibility. Parties have the freedom to select arbitrators who have expertise in the subject matter of the dispute, and proceedings can be conducted in a more streamlined and expedited manner compared to court proceedings. Furthermore, arbitration allows parties to schedule hearings at their convenience and choose the language and location of the arbitration.

The arbitral tribunal must adhere to the instructions of the parties; otherwise, it oversteps the authority given to it by the parties. If the arbitral tribunal exceeds its authority, neither its jurisdiction nor its award is based on the parties' agreement, and as a result, there is no legal basis for either.

Less costly than litigation.

Litigation can be a costly affair, as it involves not just lawyers' fees, disbursements, and court costs, but also demands a significant investment of management time for prolonged discoveries and document reviews. From a business perspective, the litigation process can be prolonged and expensive, with a final resolution of a dispute often taking years.


Arbitration depends heavily on confidentiality which enables the involved parties to keep the details of their dispute private. Unlike court proceedings, arbitration hearings and documents are usually not open to the public. The confidentiality aspect promotes honesty and encourages the parties to freely discuss their positions and interests without any fear of public exposure.

Finality and Binding Nature of Awards.

Appeal against an award is generally either unavailable or unavailing.

Perhaps the main characteristic of arbitration is that, except for very limited circumstances, the arbitrator's award is not subject to review by the courts as to errors of law or fact.

Arbitration awards are usually considered final and binding for all parties involved. Whenever an arbitrator or arbitral tribunal delivers an arbitral award, it is typically enforceable in the courts. There are only a few options available for appeal, which means that the decision has a sense of finality. This level of finality provides certainty and closure to the dispute resolution process.

The purpose of the short periods prescribed in the federal and state arbitration statutes for moving courts to vacate an award is to accord the arbitration award finality in a timely fashion.

Final remarks

It is crucial to maintain fairness to ensure the integrity of the arbitration process.

Arbitration has become a popular option for businesses and individuals who wish to resolve disputes more efficiently and cost-effectively than traditional court proceedings.

Arbitration has proven to be less formal and more adaptable to specific cases, which allows for greater efficiency, speed, and simplicity.

The abovementioned principles serve as the foundation for a fair and objective decision-making process that ensures justice is served and disputes are resolved efficiently and respectfully through arbitration.