When a commercial dispute arises with a customer, supplier, or business partner, you need a way to resolve it that does not eat up months of your time or drain your cash flow. Arbitration is one of the main options, and it works differently from taking the matter to court.
Arbitration is a private dispute resolution process where both sides present their case to an independent third party called an arbitrator. The arbitrator hears the evidence and arguments and hands down a decision (called an award) that is usually final and binding on both parties. In Australia, domestic arbitration is governed by uniform state-based legislation, while international commercial arbitration falls under the International Arbitration Act 1974 (Cth).
This article explains the key elements of arbitration: what the arbitrator does, what kinds of disputes can and cannot be arbitrated, how the process unfolds, and the main advantages and drawbacks to weigh up before you agree to it.
What an arbitrator does
The arbitrator acts as the decision-maker for the dispute. Unlike a judge, who is assigned by a court system, the arbitrator is chosen by the parties or appointed through the mechanism they have agreed on. That means both sides have a say in who will hear their case.
The arbitrator is responsible for:
- Managing the procedural steps of the arbitration
- Deciding on the admissibility of evidence
- Hearing oral submissions and reviewing documents
- Delivering a binding award that resolves the dispute
If the parties cannot agree on the procedural rules, the location, or the timetable, the arbitrator typically has the power to make those decisions themselves. This flexibility is one of the hallmarks of arbitration but can also create uncertainty if the parties have not agreed on a clear framework in advance.
Unlike a mediator, who helps the parties negotiate their own settlement, an arbitrator decides the outcome. The arbitrator is usually a lawyer, retired judge, or industry specialist with expertise relevant to the dispute. Their qualifications matter because the award they deliver is binding and, in most cases, cannot be revisited by a court on its merits.
What kinds of disputes can go to arbitration
Not every dispute can be resolved through arbitration. As a general rule, any commercial dispute that involves rights the parties are free to negotiate and settle privately can be arbitrated. Common examples include disputes over:
- Breach of contract
- Debt recovery
- Property or asset disputes
- Partnership or joint venture disagreements
- Construction or supply chain issues
However, certain matters are generally considered unsuitable for arbitration because they involve broader public interests or statutory rights that only a court can determine. These include:
- Criminal offences
- Insolvency and bankruptcy matters
- Certain family law matters such as divorce and parenting arrangements
- Competition and consumer law claims that raise public interest issues
The question of whether a dispute is capable of being arbitrated is called arbitrability. It is not always clear-cut, particularly where a dispute mixes commercial and regulatory elements. If you are unsure whether your particular dispute can be arbitrated, it is worth getting legal advice before you commit to the process.
The arbitration process from start to finish
Arbitration can be initiated in two ways: the parties can agree to arbitrate after a dispute arises, or they may already have an arbitration clause in their contract that requires them to use arbitration before (or instead of) going to court.
Notice of dispute
The process formally begins when one party sends a written notice to the other. The notice should set out the nature of the dispute, how it arose, and what remedy is being sought. This document is often called a notice of dispute, and it frames the issues the arbitrator will need to decide.
Appointment of the arbitrator
Once the dispute is on foot, the parties need to agree on an arbitrator. They can choose a single arbitrator or a panel of three. Many commercial contracts name an arbitration body (such as the Australian Centre for International Commercial Arbitration or the Resolution Institute) that can appoint an arbitrator if the parties cannot agree.
The arbitrator must be independent and impartial. Both sides typically have the opportunity to object if they believe a proposed arbitrator has a conflict of interest.
Preliminary conference and procedural directions
Before the hearing, the arbitrator will usually hold a preliminary conference to set the ground rules. This can cover:
- Timelines for exchanging evidence and submissions
- Whether there will be oral hearings or a documents-only process
- The location and format of the hearing (in person, by video, or hybrid)
- How costs will be handled
The hearing
The hearing itself is less formal than a court trial but still follows a structured process. Each side presents its evidence and arguments. Witnesses may be called and cross-examined. The arbitrator controls the proceedings and can ask questions.
Because arbitration is private, the hearing is not open to the public. This confidentiality is one of the main reasons businesses choose arbitration over litigation.
The award
After the hearing, the arbitrator delivers a written decision called an award. The award sets out the outcome and the reasons for it. It can include orders for:
- Payment of damages
- Specific performance (requiring a party to do something they agreed to do)
- Declarations about the parties' rights
- Injunctions (ordering a party to stop doing something)
- Cost orders (requiring one party to pay some or all of the other side's legal costs)
The award is generally final and binding. There are limited grounds on which a court can set aside or appeal an arbitral award, such as where there has been a serious procedural irregularity or where the award conflicts with public policy.
Where businesses typically get caught out
Arbitration has genuine advantages, but it is not a silver bullet. Business owners often discover these pitfalls only after the process is under way.
The costs can add up quickly
Unlike a court hearing, where the court's time is subsidised by the state, the parties pay for every hour of the arbitrator's time. They also pay for the hearing venue and any administrative fees charged by the arbitration body. A dispute that drags on can become as expensive as litigation. It is worth getting a cost estimate from the arbitrator or the arbitration body before the process begins, so you can weigh the potential outcome against the expense.
Limited appeal rights work both ways
The finality of an award is a strength if you win and a risk if you lose. Unlike a court judgment, there is no general right of appeal on the merits. If the arbitrator gets the facts or the law wrong, there is usually very little you can do about it after the award is handed down.
The process is only as efficient as the parties allow
Arbitration can be faster than court, but only if both sides cooperate. A difficult opponent can use the flexibility of arbitration to run up costs and delay the outcome, much as they might in litigation.
An arbitration clause might not suit every dispute
Many contracts include a standard arbitration clause without much thought. But some disputes are better suited to mediation (which is non-binding and aimed at settlement) or to a fast-track court process. If your contract locks you into arbitration for every dispute, you might end up in a more expensive process than the issue warrants.
A worked example
Imagine your business supplies custom packaging to a retailer under a contract that includes an arbitration clause. The retailer rejects a shipment, claiming the packaging does not meet specifications. You disagree and argue the specifications were met and the rejection is unjustified.
Because your contract requires arbitration, you send a notice of dispute outlining the issue. The parties agree on a single arbitrator with experience in manufacturing disputes. The arbitrator holds a preliminary conference and sets a timetable for exchanging technical reports and other evidence.
At the hearing, both sides present their evidence. The arbitrator asks questions about the specifications and the testing procedures used. A few weeks after the hearing, the arbitrator delivers an award finding that the packaging met the specifications and ordering the retailer to pay for the shipment plus your arbitration costs.
The whole process takes four months from start to finish. A court case on the same facts could easily have taken twelve to eighteen months.
How Artificer Legal can help with arbitration
Arbitration can be a powerful tool for resolving commercial disputes, but the groundwork matters. An experienced legal practitioner can help you at several points along the way.
Before a dispute arises, a lawyer can review your commercial contracts to ensure any arbitration clause is drafted clearly and suits the types of disputes your business is likely to face. A badly worded clause can lead to costly preliminary arguments about whether the arbitrator has jurisdiction at all.
Once a dispute has started, legal assistance can include:
- Preparing the notice of dispute and framing the issues clearly
- Helping you select an appropriate arbitrator
- Drafting and filing written submissions and evidence
- Representing you at the hearing
- Advising on whether there are any grounds to challenge an unfavourable award
At Artificer Legal, we help small and medium businesses navigate commercial disputes, including arbitration, without the overhead of a large firm. We can assess whether arbitration is the right path for your situation and guide you through each stage.
The single most important thing to understand about arbitration
Arbitration is not a softer or more casual version of court. It is a legally binding process with a final decision that is harder to overturn than a court judgment. The flexibility that makes arbitration attractive also places a premium on getting the preparation right the first time.
The key points to remember are:
- Arbitration is a private, binding alternative to litigation that uses an independent arbitrator chosen by the parties.
- In Australia, domestic arbitration is governed by uniform state Commercial Arbitration Acts, and international arbitration by the International Arbitration Act 1974 (Cth).
- Commercial disputes involving breach of contract, debt, or property can generally be arbitrated, but criminal, insolvency, and some family law matters cannot.
- The process runs through notice of dispute, arbitrator appointment, preliminary conference, hearing, and final award.
- The main advantages are flexibility, speed, and confidentiality; the main risks are cost, limited appeal rights, and reliance on both sides cooperating.
- An arbitration clause in a contract should be tailored to your business rather than copied from a template.