What is Arbitration?

Arbitration is an agreement to settle a dispute before a privately constituted court, the arbitral tribunal, which is an alternative to the ordinary courts for dispute resolution.

Both ad-hoc arbitration, which is before the arbitral tribunal, and institutional arbitration, which is before an arbitration institute, can be chosen. A decision that the arbitration shall take place at a specific arbitration institute implicitly implies the adoption of the institute’s own arbitration rules. If the arbitral tribunal is chosen, the case shall follow the provisions of the Arbitration Act, unless otherwise agreed between the parties.

Benefits of Choosing Arbitration

The advantage of arbitration is that the parties can choose expert judges, meaning that the parties have the possibility to select arbitrators with knowledge of the specific subject matter of the dispute. Cases in arbitration may be subject to confidentiality, which cannot be maintained in the ordinary courts, as these are public. This makes arbitration particularly advantageous in commercial disputes, shielding the public from the companies’ internal disputes.

There is a great deal of freedom of contract in ad-hoc arbitration, meaning the parties have the possibility to set aside the applicable rules and supplement them with their own considerations. The parties may, among other things, decide on the location of the arbitral tribunal and the procedure to be followed during the arbitration proceedings, as outlined in sections 19 and 20 of the Arbitration Act.

Considerations and Consequences

It is important to be aware that a judgment by arbitration cannot be appealed, making the result final. However, this can also be an advantage, as it shortens the process compared to a trial in the ordinary courts.

Arbitration is often more expensive than mediation or litigation, as the parties must pay the arbitrator’s fee themselves. Therefore, it is worth considering whether arbitration is the best option, depending on the size of the dispute.

The decision in arbitration proceedings has the same legal effects as ordinary court proceedings. This means that both parties are bound by the outcome, just as if the case had been decided by a judge in an ordinary court.

It is possible in business agreements to agree on arbitration both before and after a dispute has arisen, as stated in section 7 of the Arbitration Act. However, it is highly recommended to have an arbitration clause in place before any disagreements arise, as it can be more difficult to reach an agreement once a dispute has occurred.