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Farrer & Co | Arbitration: a more attractive option post-Brexit?

Our Commercial Forecast Q3 2016 edition (issued immediately after the referendum decision) noted the uncertainty around whether, post-Brexit, it will be more difficult to enforce English court judgments in the EU.

Arbitral awards are less susceptible to these concerns because a successful party's right to enforce them isn't derived from EU legislation; it comes instead from the 'New York Convention' – an international treaty to which the UK will remain a party post-Brexit. 

A knock-on effect of the uncertainty is that contracting parties are paying closer attention to boilerplate provisions which deal with jurisdiction, and weighing up whether it's preferable to specify that disputes should be resolved through arbitration instead of the English court. 

It's important to consider the question carefully in the context of the particular background facts but, by way of introduction, here's an overview of the key factors:

• In most cases, the arbitration and litigation processes are very similar, involving exchanges of statements of cases, disclosure, witness statements, expert evidence, and a final hearing followed by a binding decision.

• Confidentiality: in broad terms, arbitration is confidential but litigation is not.  If a dispute with the other side could raise sensitive issues which are better not ventilated in public, the privacy afforded by arbitration may be preferable.

• Tailored procedure: arbitration is more flexible and can allow the parties to select arbitrators and tweak the procedure to reflect the quirks of a particular dispute.   In most cases, however, the procedure bears a striking resemblance to litigation.

• Cost: arbitration can be more expensive than litigation because the fees payable to the arbitrator will exceed those of the court.  It can be a disproportionate means of dealing with very small disputes.  But, if the procedure is tailored, the process can become more efficient and cheaper overall.

• Range of powers: the court has greater powers than an arbitral tribunal.  For example, it can quickly issue interim injunctions or freezing orders, and take action against third parties who didn’t sign up to the contract containing the arbitration clause.  However where the arbitrators need this additional support, they can call upon the court to assist.

• Access to the decision maker: smaller procedural decisions are taken more quickly by arbitrators, over email or conference call.  The formality of the Court process means that accessing the judge takes longer and can cost more.

• Ease of appeal: the grounds on which an arbitral award can be challenged are narrower and it's less likely that a dispute will be prolonged through a series of appeals.  This adds commercial certainty to the outcome, but it can work against the losing party who would rather have another bite at the cherry.

• Enforcement: An arbitral award may be easier to enforce outside the UK than a court judgment.   This was already the case in some jurisdictions (eg Russia) but post-Brexit this may also be true of EU countries. 

If you require assistance or have any queries regarding this article, please contact Kate Allass (kate.allass@farrer.co.uk, 020 3375 7220) or or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Arbitration on our website.
 
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
 
© Farrer & Co LLP, October 2016

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