Cameron Miranda
Arbitration is an alternative to litigation where parties to a dispute submit their evidence and legal arguments to a third party (the arbitrator) for resolution. In common law, arbitration developed in England during the Middle Ages as royal courts were ill-equipped to handle trade disputes. Common law arbitration differs from civil law arbitration in how a dispute is commenced, developed, and presented. For example, common law tends to give more weight to witness testimony under oath, while civil law believes that the best evidence comes from documents. International arbitration with participants from both sides of the common law-civil law divide has traditionally required arbitrators to follow the practice of one party or the other at each stage of the arbitration. However, converging practices that embrace elements of both systems are gaining acceptance.
| Characteristics | Values |
|---|---|
| Development of common law arbitration | Arbitration in its common law form developed in England during the Middle Ages as royal courts were not designed for trade disputes. |
| Common law arbitration in the US | Arbitration was common in the early United States, with George Washington serving as an arbiter. |
| Differences from English arbitration | Unlike England, US courts did not enforce executory agreements to arbitrate. This led to the Federal Arbitration Act of 1925. |
| Common law vs civil law | The two most widespread legal systems are the common law systems, used in most English-speaking countries, and civil law systems, used in Continental Europe and countries influenced by it. |
| Commencing a case | The common law approach is to commence with a 'short and plain statement of the claim'. |
| Use of documents | A civil law practitioner will present a set of documents well in advance of the hearing, while a common lawyer may expect to have each document authenticated by a live witness. |
| Weight of witness testimony | Common law tends to be sceptical without witness testimony under oath, while civil law believes the best evidence comes from documents. |
| Arbitration agreements | These are generally divided into two types: agreements with an arbitration clause and submission agreements, signed after a dispute has arisen. |
| Arbitration costs | The overall cost of administrative and arbitrator fees is, on average, less than 20% of the total cost of international arbitration. |
| Arbitral decisions | All arbitral decisions are considered "final and binding", but this does not void the requirements of law. |
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What You'll Learn
Common law arbitration history
Arbitration in its common law form developed in England during the Middle Ages. During this period, tribunals such as the courts of the boroughs, of the fair, and of the staple emerged as the royal courts were ill-equipped to handle trade disputes, particularly those involving foreigners. In the mid-16th century, common law courts developed contract law, and the Admiralty Court began handling disputes with foreign merchants, expanding the venues for trade dispute resolution.
However, courts became increasingly suspicious of arbitration. For instance, in Kill v. Hollister (1746), an English court ruled that an arbitration agreement could 'oust' courts of law and equity of jurisdiction. This tension between arbitration proceedings and courts ultimately led to the enactment of the Common Law Procedure Act 1854 (17 & 18 Vict. c. 125). This legislation provided for the appointment of arbitrators and umpires and allowed courts to stay proceedings when a disputant filed a lawsuit despite agreeing to arbitration.
Subsequently, the Arbitration Act 1889 (52 & 53 Vict. c. 49) was passed, followed by additional Arbitration Acts in 1950, 1975, 1979, and the Arbitration Act 1996 (c. 23). Arbitration was also prevalent in the early United States, with George Washington serving as an arbiter. However, a key difference between English and American arbitration practices was that American courts generally did not enforce executory agreements (binding predispute agreements) to arbitrate. Consequently, before an award, a claimant could initiate a lawsuit in court, even if they had previously agreed to settle disputes through arbitration.
To address this issue, the Federal Arbitration Act of 1925, modelled on a New York state law enforcing predispute agreements, was enacted. The Act stipulated that arbitration is typically legal when both parties agree to it before or after a dispute arises. Over time, arbitration clauses have faced growing scrutiny, particularly in cases involving workers or consumers and large companies or organisations. Despite this, arbitration continues to be utilised to resolve significant labour disputes, such as the Coal Strike of 1902, and in contexts like Major League Baseball for setting player contracts.
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Common law arbitration agreements
Arbitration agreements are generally divided into two types: the first, and more common, type of agreement stipulates that if a dispute arises, it will be resolved by arbitration. The second type is signed after a dispute has arisen, agreeing that arbitration will be used to resolve the issue (sometimes called a "submission agreement"). Arbitration agreements are a contract in their own right and separable from the substantive contract in which they sit. This means that arbitration agreements can only bind parties who have agreed, expressly or implicitly, to arbitrate.
In the context of common law, arbitration in its common law form first developed in England during the Middle Ages. At this time, royal courts were not designed for trade disputes, so tribunals such as the courts of the boroughs, of the fair, and of the staple arose. In the mid-16th century, common law courts developed contract law, and the Admiralty Court became accessible for disputes with foreign merchants, broadening the venues for trade disputes.
In the United States, arbitration is authorized by the Federal Arbitration Act (FAA), which stipulates that arbitration is legal when both parties agree to it after or before a dispute arises. The FAA also provides that workers in transportation are exempt from arbitration agreements. The US Supreme Court has generally taken a pro-arbitration stance, although certain exemptions have been passed in recent years.
In terms of the law governing the arbitration agreement, this can be difficult to determine and will depend on the circumstances of the case and the approach taken by the arbitral tribunal or national court. In Sulamérica v Enesa, the Court of Appeal laid down guidelines, following English common law rules, which state that the governing law of an arbitration agreement should be determined by undertaking a three-stage inquiry into express choice, implied choice, and the closest and most real connection.
International arbitration relies on choice-of-law rules to determine which law should apply to the dispute. In some cases, the laws of more than one state may apply. The choice of the seat of arbitration can indicate an acceptance that the law of that country will apply to the proceedings.
The common law and civil law approaches differ in how a dispute is commenced, developed, and presented. For example, the common law approach tends to favour witness testimony, while civil law places more emphasis on documents. In recent years, converging practices that embrace elements of both systems have emerged and are gaining acceptance in international arbitration.
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Common law arbitration in the US
Arbitration in its common law form first developed in England during the Middle Ages. At that time, royal courts were not designed for trade disputes, and trade with foreigners was otherwise unenforceable. Common law arbitration was used to settle disputes between merchants.
In the United States, arbitration is an alternative to litigation, where parties to a dispute submit their evidence and legal arguments to a neutral third party (the arbitrator) for resolution. Arbitration is particularly useful in cases where litigation is not an option due to the unavailability of courts or judges. Arbitration is generally used as a substitute for litigation, and in the US, it is broadly authorized by the Federal Arbitration Act (FAA).
The FAA stipulates that arbitration is legal when both parties agree to it either before or after a dispute arises. The Act also provides that workers involved in transportation are exempt from arbitration agreements. State regulation of arbitration is significantly limited by federal legislation, and the Supreme Court has taken a pro-arbitration stance in most cases.
In the US, the common law approach to arbitration involves commencing with a "short and plain statement of the claim". This is known as "notice pleading", which is often a mere outline of the facts and the theory of the case. The common law approach tends to be more sceptical of evidence unless a witness can be found to testify under oath.
The use of documents at hearings also differs between common law and civil law practitioners. A civil law practitioner will present a neat set of documents to the tribunal in advance, which will be considered self-authenticating. In contrast, a common law practitioner may also present documents in advance but will expect each document to be authenticated, presented, and explained by the testimony of a live witness.
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Common law arbitration vs civil law
Common law and civil law are the two most widespread legal systems globally, influencing over 230 nations. Common law systems are used in most English-speaking countries, including the United States, Canada, India, Australia, and the United Kingdom. Civil law systems are prevalent in Continental Europe, Japan, China, Latin America, and many countries influenced by Continental Europe, such as those in Africa.
The key difference between common law and civil law lies in their foundational principles and approaches to dispute resolution. Common law is primarily case-driven, relying on judicial decisions and precedents to resolve disputes. It is based on the doctrine of stare decisis, where courts are bound by previous rulings made by higher courts. Common law gives significant weight to witness testimony and employs an adversarial approach, allowing parties to argue their cases before a judge acting as the decision-maker.
On the other hand, civil law is rooted in written statutes and comprehensive legal codes. It focuses on applying codified laws that encompass all aspects of legal life, from civil to criminal matters. Civil law gives precedence to documentary evidence over witness testimony and treats witness accounts with scepticism, especially those affiliated with or employed by a party. The civil law approach is generally quicker and cheaper, as it does not oblige parties to disclose all relevant documents, which can lead to a more concise process.
In recent years, converging practices that blend elements of both common law and civil law have emerged in international arbitration. These practices aim to bridge the divide between the two systems and find a middle ground acceptable to parties from different legal traditions. This convergence is particularly relevant in international arbitration, where participants from diverse cultural and geographic backgrounds must navigate conflicting understandings, expectations, and beliefs to achieve a compromise.
While the common law and civil law systems differ significantly, both have proven effective in administering justice. As the world becomes increasingly interconnected, we may witness further convergence between these two legal traditions to accommodate the diverse needs of societies they serve.
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Common law arbitration costs
Arbitration is a form of dispute resolution that developed in England during the Middle Ages, arising out of the need for tribunals to handle trade disputes that the royal courts were not designed to address. Arbitration agreements are generally divided into two types: agreements that provide for future disputes to be resolved by arbitration, and agreements signed after a dispute has arisen, agreeing to submit to arbitration.
The costs of arbitration are a significant factor for claimants when deciding whether to initiate proceedings. The overall costs of arbitration include party costs (e.g., lawyers' fees, witness expenses) and arbitrators' fees and administrative costs. The allocation of these costs is typically governed by the procedural law of arbitration ("lex arbitri") and applicable arbitration rules, with arbitral tribunals having broad discretion in allocating costs. The "'costs follow the event' rule, adopted in common law and civil law jurisdictions, requires the losing party to pay the successful party's costs. However, in practice, parties rarely specify cost allocation in their arbitration agreements.
The ICC advance on costs system requires a $5,000 non-refundable fee from the claimant when filing a "Request for Arbitration," with additional fees for joining parties. The court may also fix separate advances for principal and counterclaims, which can be revised during the procedure. The actual costs of arbitration, including administrative expenses and arbitrators' fees, are fixed at the end of the case, with any remaining funds reimbursed to the parties.
The costs of investment arbitrations are notably higher than commercial arbitrations, with respondent states incurring mean costs of USD 4.7 million and investors facing mean costs exceeding USD 6.4 million, according to a 2021 BIICL report.
To reduce arbitration costs, careful drafting of agreements is essential to prevent costly disputes over interpretation. Additionally, the inherent flexibility of arbitration allows for tailoring to the parties' needs, potentially reducing costs when compared to litigation.
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Frequently asked questions
Common law arbitration is a form of arbitration that developed in England during the Middle Ages. It arose as a means to resolve trade disputes, which the royal courts were not designed to handle.
The two traditions differ in how a dispute is commenced, developed and presented. For example, common law arbitration tends to be more sceptical and places greater emphasis on witness testimony, whereas civil law arbitration gives precedence to documentary evidence.
Arbitration was common in the early United States, with George Washington serving as an arbiter. Arbitration has also been used to resolve large labour disputes, such as the Coal Strike of 1902.
Arbitration is an alternative to litigation where parties to a dispute submit evidence and legal arguments to a neutral third party (the arbitrator) for resolution. Arbitration agreements can only bind parties who have expressly or implicitly agreed to arbitrate.
