Whether in a professional or personal context, disputes can arise when individuals disagree. However, it is often possible to avoid costly litigation or going to court by resolving issues through alternative dispute resolution (ADR) methods.
Among the reasons that have favored the development of ADRs, the most important are: the length, lack of flexibility, and high costs of state procedures on one hand, and the need to approach a neutral and impartial tribunal on the other hand.
ADRs are extrajudicial and alternative methods of resolving legal disputes that allow avoiding court proceedings. The most common types of ADR are Conciliation and Mediation, Arbitration, or Mixed Mechanisms such as "Med-Arb" and "Mini Trials."
Currently, arbitration is the most popular method of extrajudicial dispute resolution.
But what does arbitration mean and why is it very important for everyone, particularly for every entrepreneur, to have knowledge of it? In this article, we will present some practical information on this subject.
Notions of Arbitration
Arbitration is a conventional method of dispute resolution where parties submit present or future disputes to private judges (one or more arbitrators) to decide with a ruling that can have the same effects as a state court judgment.
Why Resort to Arbitration?
Specialization of arbitrators
Speed and flexibility of the procedure
Confidentiality
Predictability of the forum in international disputes
Application of non-state rules
Easier recognition and enforcement of arbitral awards
Neutrality of the tribunal
Exclusion of state immunities
Despite the arguments in favor of arbitration, there are certain elements to consider when agreeing to arbitration. Among these concerns are the following:
Fears regarding the lack of independence or impartiality of arbitrators
Costs
Cross-examinations during the process
Solomonic decisions
Arbitration Agreement
To initiate an arbitration procedure, the existence of an arbitration agreement is essential. This agreement can take two forms:
Arbitration agreement: agreement to go to an arbitration tribunal once the conflict has arisen.
Arbitration clause: agreement in the contract (or statutes) assuming that in case of future disputes, they will go to an arbitration tribunal.
The arbitration agreement can include the number of arbitrators, the applicable law to the substance, and the seat of arbitration, or it can be a simple arbitration agreement without any specifics.
Types of Arbitration
There are two types of arbitration: institutional and ad hoc, and it is up to the parties to decide which type suits them. Institutional arbitration is conducted according to the procedural rules published by a particular arbitration institution that generally "manages" the arbitration, for example, the Swiss Chamber of Arbitration Institution (SCAI) manages arbitration according to the Swiss Rules of International Arbitration.
Ad hoc arbitration depends entirely on the cooperation between the parties. Parties favor ad hoc arbitration when they wish to control the arbitration procedure themselves.
Seat of Arbitration
A very relevant element in an arbitration agreement is the designation of the seat of arbitration. The seat of arbitration is not necessarily the physical location where the arbitration procedure is held but is the legal seat of the procedure, linking the arbitration procedure and the award to a specific national legal system.
The seat of arbitration is important because it will generally determine the law applicable to the arbitration procedure (Lex arbitri) as well as the interventions, if any, of the competent state tribunal, for example, in provisional measures or in the case of annulment.
A poorly designated seat of arbitration can have very serious consequences. For example, it can considerably delay arbitration, increase the risk of parallel judicial proceedings, and allow the award to be challenged before local courts, which may sometimes not be reliable or be in a jurisdiction more favorable to the counterparty.
Arbitration in Swiss Law
Switzerland, being a world capital of arbitration, has adopted a very favorable approach to arbitration. Swiss law recognizes arbitration and, depending on whether there is an international element or not, divides arbitration into International and Domestic.
In the case of international arbitration, Chapter XII of the PILA applies, and if arbitration is domestic, the third part of the CPC applies.
According to Art. 176 PILA, arbitration is international if the seat of the arbitral tribunal is in Switzerland and if at least one of the parties did not have its domicile or habitual residence in Switzerland at the time the arbitration agreement was concluded.
According to Art. 61 CPC, when parties have concluded an arbitration agreement regarding an arbitrable dispute, the court seized declines its jurisdiction, except in cases mentioned in the law. Furthermore, under Art. 354 CPC, arbitration may involve any claim that is subject to the free disposition of the parties.
Given the trend to resort very often to arbitration rather than state court, if you wish to have more information on this matter, our team of professionals will be happy to welcome you at our offices located at 1 Rue du Valentin, 1004 Lausanne, to advise and assist you in your legal proceedings.
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