Definition
Arbitration is a process for resolving disputes using a forum agreed upon by the disputing parties.
Discussion
Overview
Arbitration is an alternative to relying on a coercive public court system.
Decisions in arbitration, usually called “awards”, are made by consent, thus in accordance with the Legal Principle.
Arbitration is effective because:
- the parties have both consented to the person or body making the award, and
- failure to comply with an arbitration decision often leads to severe reputational damage.
This second reason for the effectiveness of arbitration is why arbitration services do not need their own enforcement mechanisms. A party refusing to accept the award gives warning to others that they should reconsider if they want to risk associating with that party in the future.
Types of Matters in Arbitration
Today, private arbitration is commonly used for resolving civil disputes.
Many contracts include arbitration clauses specifying how the parties will resolve any conflicts.
However, there is no social reason why arbitration cannot be used for resolving regulatory and criminal disputes. A political reason why arbitration is not used for many acts of aggressing such as causing bodily harm or committing burglary is due to the governments holding a monopoly on dispute resolution for such matters. In other workd, most governments today do not allow non-government procedures to determine matters outside of contract.
Timing of an Arbitration Agreement
If disputing parties do not arrange for arbitration prior to a dispute taking place, the effectiveness of arbitration reduces.
After a dispute has occurred, the alleged wrongdoer has little incentive to accept arbitration unless there are complementary systems in place which make it costly for the party to avoid resolving the matter.
Such complementary systems may be social, such as reputational damage, but also institutional, such as insurance, associations, subscriptions and agents.
Case Studies
Medieval merchant law (lex mercatoria) was the private legal system used by traders across Europe. Its provision of dispute resolution procedures was the primary mechanism to settle disagreements between merchants from the 11th century to the late 14th century. The systerm remained influential (and preferred by merchants) until well into the seventeenth century, from which time public law systems began to increase. Ostracism by way of boycotting was a key consequence traders used under merchant law to punish those who did not comply with the awards made by arbitration bodies.
Commercial arbitration where individuals and businesses used private dispute resolution procedures started becoming popular in the late 1800s in the United Kingdom. In 1926 the American Arbitration Association was established in the United States. As of 2011 approximately 75% of all commercial disputes in the United States are resolved through arbitration and mediation (“mediation” meaning less formal discussions rather than official procedures).
International arbitration refers to individuals or non-governmental entities of distinct nationalities using private dispute resolution. In fact, that is the only way they may resolve disputes as the international public law systems are reserved for disputes concerning national governments or organs thereof. The significance of international arbitration is evidenced by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This, in fact, is an international treaty, meaning a feature of public, not private law. However, it compels national governments to recognize and respect the awards made by private arbitration. In effect, this means the public law system cannot override the arbitration system unless in the circumstances of one of the exceptions written in the treaty.
Implementation
Ulex (version 1.2) is a legal system structured around justice by consent rather than justice by coercion.
Further Resources
Ulex, version 1.2 README: https://github.com/proftomwbell/Ulex/tree/master/versions/1.2.