Credits – Google

In the past few decades, Arbitration
has become a mainstay in resolving legal disputes. There are a plethora of
articles which showcase the advantages of Arbitration while ignoring or
simply giving a brief outline of the inherent dark clouds or cons of Arbitration.
A closer look at the recent trend of inserting the Arbitration clause; one
needs to wonder; Is Arbitration really the best mode of dispute resolution?
This is a question which has plagued my mind.
As previously mentioned Arbitration has
been promoted by many profound authors, article writers, and bloggers worldwide
as an efficient way to resolve disputes. The advantages of Arbitration are once
again outlined as follows:
1.     Avoids hostility. Because the parties
in an Arbitration are usually in agreement to the Arbitration clause and are
encouraged to participate fully and sometimes even to help structure the
resolution, they more often together peaceably rather than escalate their angst
and hostility toward one another, as is often the case in litigation.

2.     Usually cheaper than
is designed to be cheaper and more affordable for parties by putting in place
all necessary mechanisms to ensure faster and less complicated resolution of
issues. Lower cost is also partly due to the fact that the rules of evidence
are often more relaxed than in a trial, so that documents can be submitted in
lieu of having a witness come to trial to testify. Arbitration is designed
to consume less time than litigation, in order to save time and money. According
to a recent study by the Federal Mediation and Conciliation Services, the
average time from filing to decision was about 475 days in an Arbitrated case,
while a similar case took from 18 months to three years to wend its way through
the courts.
3.     Flexibility: Unlike trials, which
must be worked into overcrowded court calendars, Arbitration hearings can
usually be scheduled around the needs and availability of those involved,
including weekends and evenings. Arbitration is less formal than court
proceedings and the arbitral tribunal may conduct arbitration in such manner as
it considers appropriate if the parties fail to agree on the procedure to be
followed (Article 19 of the Model Law on International Commercial Arbitration).
Arbitration also allows the tribunal to adopt the inquisitorial system which
involves search for the truth largely through the tribunal’s own investigations
if deemed necessary. This in turn saves time and money as against the
procedure of evidence law applicable in court.        
    Parties are attracted to the less formal nature of arbitration which
encourages speed and hence a less costly way of settling disputes. The
flexibility of arbitration extends to the freedom to choose the venue of the
arbitration and the language and the seat of the arbitration whether in the
contract’s arbitration agreement itself or at a later stage. This decision
allows parties from different legal jurisdictions and different legal systems
to pick a neutral venue or a venue that is arbitration-friendly or convenient
for them. This helps parties of different legal jurisdictions having a single
seat avoids the complications relating to conflicting laws.
4.     Simplified rules of
evidence and procedure.
The complex rules of evidence and procedure do not apply in
Arbitration proceedings. This makes Arbitration more adaptable to the needs of
those involved. Arbitration also dispenses with the procedure called discovery
that involves taking and answering interrogatories, depositions, and requests
to produce documents such procedures are regarded as a delay tactic of
litigation. In Arbitrations, most matters, such as who will be called as a
witness and what documents must be produced, are handled with a simple phone
call. Furthermore, rules of evidence which may prevent some evidence from being
considered by a judge or a jury, this rule does not apply to arbitration. Thus,
an Arbitrator’s decision may be based on information that a judge or jury would
not consider at trial.
5.     Privacy and

Arbitration proceedings are generally held in private. Parties may agree
to keep the proceedings and terms of the final resolution confidential. Both of
these safeguards can be a boon if the subject matter of the dispute might cause
some embarrassment or reveal private information, such as a company’s client list.
6.     Finality: in most legal
systems, there are very limited avenues for appeal of an arbitral award. So
that the Arbitration will be the end of the dispute. This gives finality to the
Arbitration award and parties are advised take the Arbitration decision in good
7.     Enforceability of
Arbitration Awards:
ability to enforce an arbitration award another advantage of arbitration. 
For example; The New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards 1958 (the New York Convention) as well as the UNCITRAL
Model Law on International Commercial Arbitration 1985 and the UNCITRAL
Arbitration Rules 1976, provides for recognition and enforcement of Arbitration
Agreements and the resulting awards which has received a wide spread acceptance
and uniformity of arbitration laws.  Therefore arbitration awards between
contracting parties form different countries will be easily enforced in the
country where they expect to enforce an award provided that such a country is a
signatory to the Convention or another treaty that obligates it to enforce
arbitral awards.
Going against the authors tradition of
garnishing Arbitration as a concept and simply stating the cons of Arbitration
in bullet points, it is my view that a closer analyses of the advantages of the
so called advantages of Arbitration will reveal the cloud within the silver
lining of Arbitration. This will help parties to any transaction to be truly
aware of the possible drawbacks of Arbitration and to make an informed decision
about whether to enter or remain in a consumer transaction that mandates it —
or whether to choose it as a resolution technique if a dispute arises or
whether the descision to insert an Arbitration clause should be beyond the copy
and paste of the Arbitration clause precedent because it makes the contract
look longer, more prestigious and more complicated.
The disadvantages include the
1.     Privacy: the fact that
Arbitration proceeding are not held in a public forum and that Arbitration
records are regarded as private documents may be considered to be advantageous
by many; however on taking a closer look at the so called advantage will show
that the privacy breeds Lack of transparencyThe lack of
transparency caused by the privacy of Arbitration makes it more difficult to
spot bias. This is also made worse by the fact that Arbitration decisions are
rarely reviewed by the courts as a result of the fact that parties sometimes
agree to keep the proceedings and terms of the final resolution confidential.
In order to avoid some embarrassment or publication of private information,
such as a company’s client list.            
            The privacy of Arbitration
proceedings and records also gives rise to a Lack of access Precedents on
previous Arbitration decisions. Therefore it is difficult if not impossible to
apply the rule of stare decisis rule. This in turn contribute to a high
level of uncertainty by the parties on the outcome of Arbitration. 
2.     Flexibility which is
one of the most well known tailored and tailorable advantages of Arbitration
depicts that Arbitration hearings can usually be scheduled around the needs and
availability of those involved, including weekends and evenings and holidays.
However like the artribute of privacy, the flexibility of Arbitration may also
breed lack of transparency, and precedents. It has also been seen lately that
arbitration procedures are becoming equally as complex as the court system and
infact holds very few difference to court processes. It can be assumed that
arbitration is copying court litigation and as arbitration has developed, the
procedures too have become as complicated. It is hoped that the UNCITRAL Notes
on Organizing Arbitral Proceedings 1996 will weed out potential problem areas.
disadvantage of flexibility is embedded in the standards used by an Arbitrator
which are not clear. Generally the arbitrator cannot depart from the law which
is a guide to all arbitration panels. However, sometimes Arbitrators focus on
the equity of “apparent fairness” of the respective parties positions
instead of strictly following the law, which would result in a less favorable
outcome for the party who would ordinarily be favored by a strict reading
of the law. 
3.     Cost: Parties to a
transaction are encouraged to resolve disputes by Arbitration because
Arbitration was designed to be a cheaper alternative to litigation, however
experience also indicates that parties often tend to underestimate the costs of
Arbitration. The idea of Arbitration being cheaper than litigation has become a
myth. Within the last decade, Arbitration which was characterized as being less
expensive has been argued to have become very expensive that even the most
enthusiastic advocates in international Arbitration have argued that it has
become the most expensive mode of dispute resolution. The rising cost of
Arbitration is beginning to be a cause for alarm and in fact will make many
parties give up half way. According to a recent survey by a consumer watchdog
group called “Public Citizen”, Price Waterhouse Coopers (PWC) in corroboration
with the school of international Arbitration at the Queen Mary University of
London the cost of initiating Arbitration is significantly higher than the cost
of filing a lawsuit.                
    There are many factors to consider in the cost of
Arbitration such as the Arbitrator’s fees which is much higher in the event
that a panel of 3 or more arbitrators are involved. It is not unusual, for
example, for a well-known Arbitrator to charge a per day  or per hour
basis for his or her services or their services in the case of a
panel. this could run the cost of arbitration into hundreds of thousands
or even millions of Naira; transportation and accommodation of the Arbitrator
is also borne by the parties and such cost may be even higher  in the case
that the seat of Arbitration is out of jurisdiction; administrative costs which
is becoming more costly as more experienced lawyers take up the cause; parties
also bear the cost of any expert witness called; Parties are also required to
higher and pay their stenographers for the testimony and pleadings such charges
are also incurred sometimes on a daily basis; which is by no means a cheap
endeavour. Other costs ancillary to the logistics of the Arbitration (renting a
room for the hearing, videoconferences, etc.) also apply
4.     Simplified rules of
evidence and procedure.
The complex rules of evidence and procedure do not apply in
Arbitration proceedings in order to make Arbitration more adaptable to the
needs of those involved as well as to save time and expenses. For example
discovery may be more limited with Arbitration. In litigation the important process
like discoveries is dispensed with in Arbitration. Discovery which involves
taking and answering interrogatories, depositions, and requests to produce
documents from an opposing party, or even a person or business entity who is
not a party to the case to provide certain information or documents. This
process is often discarded as a delaying and game-playing tactic of litigation.
As a result, many times Arbitration is not agreed to until after the parties
are already in litigation and discovery is completed. By that time, the
opportunity to avoid costs by using Arbitration may be diminished.
5.     Third party
proceedings: Unlike litigation, Third Party Proceedings are more difficult
to execute as a result of the fact that a Third Party who may share in
liability one way or the other in the transaction in dispute cannot be
compelled to join in proceedings. Such third party can only be joined in
Arbitration proceedings upon his consent.  Kelly v. Tri Cities
Broadcasting (1983) 147 CA 3d 666; Melchor Investment Co. v. Rolm Systems
(1992) 3 CA 4th 587.)                
The fact that
the court procedures are not strictly adhered may also lead to the cases where
certain evidence may be admitted (for example hearsay) which is strictly not
allowed in litigation due to the unavailability of cross-examination to test
the accuracy of the statement.
6.     Finality; A final and binding
decision is hard to shake as both parties often give up their right to appeal.
The finality of Arbitration therefore breeds limition of recourse. There is no
automatic right of appeal even if the Arbitrator makes a mistake of fact or
law, depending upon the Arbitration clause or the Arbitration legislation.
Parties need to expressly agree to an appeal procedure in their Arbitration
agreement. Therefore, the remedies for a party who is dissatisfied with the
Arbitration award is limited. If the Arbitrator’s award is unfair or illogical,
this cannot be reviewed on the basis that the Arbitrators made a mistake of
fact or a mistake of law, but only on the basis that the Arbitrators
misdirected their mandate. A consumer may well be stuck with whims and
prejudices of a single Arbitrator and barred forever from airing the underlying
claim in court. The most plausible way to remedy an Arbitration decision is to
file a suit in court overturning the arbitral award on grounds which are
difficult if not impossible to prove.
7.     Enforceability of
Arbitration Awards:
in mind the existence of The New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) as well
as the UNCITRAL Model Law on International Commercial Arbitration 1985 and the
UNCITRAL Arbitration Rules 1976, who’s primary aim is to provide for
recognition and enforcement of Arbitration Agreements the problem in
international arbitration remains apparent. An international arbitration may
present the practical challenges associated with international business
dealings. For example, an international arbitration may require learning the
substantive law of a foreign jurisdiction, or new rules of procedure which may
appear “backward” compared to any previous experience. In addition, challenges
such as linguistic differences and the need for use of a translator (or even
multiple translators) may further complicate and draw-out the arbitration
proceeding.   The situation where enforcement of an arbitration award in a
country which is not signatory to the New York convention or the UNCITRAL Model
Laws, such enforcement procedure may remain elusive and expensive. 
8.     Uneven playing field. Some are concerned
that the “take-it-or-leave-it” nature of many Arbitration clauses work
in favor of a large employer or manufacturer when challenged by an employee or
consumer who has shallower pockets and less power. Also In situations where the
Arbitrator is reliant on one party for repeat business (1), then the potential
for abuse is present as there may be an inherent incentive to rule against the
consumer or employee and the advantage of impartiality is lost.
9.     Questionable

Another concern is that the process of choosing an Arbitrator is not an
objective one, particularly when the decision-maker is picked by an agency from
a pool list, where those who become favorites may get assigned cases more
often. Parties to the dispute may also agree on the Arbitrator, so the
Arbitrator will be someone that both sides have confidence will be impartial
and fair. However An Arbitrator chosen by a party within an industry may be
less objective, more likely to be biased in favor of the appointing group
Adding possible complication. An Arbitrator’s desire to obtain future retainers
may result in compromise or “splitting the baby” awards. The Arbitration
agreement which does not set out the qualifications or the organization that
administers the Arbitration, as well as the bias and competency of the
Arbitrator also stands as a risk of additional complications to Arbitration
Speed: Arbitration is designed to consume less time than
litigation, in order to save time and money; however in the wordings of the
Eminent Law Lord; Lord Denning “arbitrate do not litigate” as he stated in the
case of Bremer v. Vulcan (1980) as reiterated in the case of P S
 Abdullah v. D.F.R. (1982).
Lord Denning stated that “when I was a
young man, a Scottish man use to parade this court with his board back and
front written “arbitrate, do not litigate”, this was a good advise in
so far as arbitration is resolved speedily, but it is bad when arbitration
beginnings to drag forever ” . Lord Denning was accurate in his statement
as many elements may affect the duration of litigation and thereby increasing
the cost of the arbitration tremendously and frustrating parties. For instance;
when there are multiple Arbitrators on the panel, juggling their schedules for
hearing dates in long cases can lead to delays.        
    In a bid to speedily resolve issues, Arbitration has discarded
procedural issues like discoveries third party proceedings and Joinder of
parties. The requirement for speed and the requisite discarding of these very
important procedural steps may lead to the a rush of proceedings. This rush in
turn may lead to salient issues not being resolved and “we know that
“ justice rush is justice quashed”.          
                 Arbitrators are also generally unable to enforce interlocutory measures
against a party, making it easier for a party to take steps to avoid
enforcement of an award and even resile at mid stream in the arbitral
proceeding at any time if due care is not taken. Another issue under this
heading is the issue of enforcement of Arbitration awards. Unlike court
judgments, Arbitration awards themselves are not directly enforceable. A party
seeking to enforce an Arbitration award must resort to judicial remedies,
called an action to “confirm” an award. This reversion to the courts
defeats the advantage of speed as attributed to Arbitration as efforts to
confirm the award can be fiercely fought, thus necessitating huge legal
expenses that negate the perceived economic incentive to Arbitrate the dispute
in the first place. And also such a motion for annulment of an Arbitration
award or a motion for confirmation is not confidential which also defeats the
attribute of privacy. Unless agreed upon in advance, the process for selecting
an Arbitration institution, the specific Arbitrator and the number of
Arbitrators could significantly delay the Arbitration process. 
Subject Matter Not Capable of Settlement: Parties to a
transaction are at liberty to choose Arbitration as their dispute resolution
mechanism; however not all disputes can be settled by Arbitration, for example
criminal matters or matters of public law (such as intellectual property
rights; dispute over the validity of a patent, fraud). Additionally an
Arbitrator may not have the power to grant remedies that a court can. There is
support for the view that a court will refuse to stay proceedings in support of
Arbitration if the Arbitrator cannot award the remedy claimed. In the case of
Hashim bin Majid v. Param Cumaraswamy, an application to stay court proceedings
was refused on the grounds that one of the remedies claimed by the plaintiff
was a dissolution of the partnership and the court was of the view that this
was not an issue that could be decided by an Arbitrator.
In any transaction or anticipated business dealings the decision to exclude the
ordinary jurisdiction of the courts of law must always be made after careful
consideration, and must go beyond simply indulging in the fad of copy and past
of Arbitration Clause in any agreement. Parties must recognize the fact that
each transaction is relative and must be careful not to assume that what was
effective in a given context will produce the same results in each particular
case which may arise. Hasty and impulsively Decisions may easily lead to a
disastrous outcome.
Given the possible perils and
unevenness for those who unwittingly enter the arbitration clauses in
contracts, it is only wise that parties should consider a number of factors to
become better informed and, possibly, ward off a bad experience. Such factors
include but are not limited to the following:
  • The
    importance of confidentiality;
  • The
    ability to anticipate the type of disputes that are likely to arise:
    The choice to arbitrate or litigate will probably turn on whether you will
    need full discovery from the other side; selecting arbitration risks
    truncated discovery, unless specified otherwise.
  • The
    parties involved in the transaction ie. Whether or not the government is a
    party as the government may seek immunity from disclosure of documents
    which are key to proving a case. Immunity considerations may be diminished
    within the confines of a confidential arbitration;
  • Whether
    or not the dispute is international. Arbitration may control risks of
    foreign law or conflict of laws e.g. Sharia law and home bias;
  • The
    level of complexity of the case as well as the need for an expert panel
    and witnesses.