Understanding Arbitration and Alternative Dispute Resolution

Understanding Arbitration 

What is Arbitration? 

Arbitration is a process where the parties appoint an independent third-party to act as a Judge and determine the dispute. The decision of the Arbitrator is binding on the parties. The parties cannot refer the matter to the court appealing against the Arbitrator’s decision unless he has reached that decision having made a manifest error of fact or law.

Arbitration is widely used in commercial disputes, especially in sectors such as construction, shipping, energy, and international trade. It is often preferred for its neutrality, especially in cross-border contracts, where parties can mutually agree on the arbitration rules, language, and even the seat (location) of arbitration. 

In the UK, arbitration is now governed by the Arbitration Act 2025, which introduces several key reforms:

Key Reforms under AA 2025 

(a) Extended Immunity for Arbitrators

The 2025 Act enhances protections for arbitrators by expanding their immunity from legal liability. Arbitrators are now protected from claims arising from  their resignation, unless the resignation is deemed unreasonable. Additionally, if a party seeks to remove an arbitrator through court proceedings, the arbitrator cannot be ordered to pay costs unless they are found to have acted in bad faith.

(b) Governing law of arbitration agreements 

Under English law, arbitration agreements are typically governed by the same law as the main contract, unless parties agree otherwise. The 2025 Act clarifies that the express choice of law by the parties will govern the arbitration agreement. If no express choice is made the law of the seat of arbitration will apply by default.

An exception exists for investor-state arbitrations, where the arbitration agreement arises from a treaty or non-UK legislation. In such cases, the default rule does not apply.

(c) New tribunal power -Summary Dismissal 

To improve efficiency and prevent abuse of the arbitration process, the Act introduces a significant new power: tribunals may now summarily dismiss claims or defences that are clearly unmeritorious. If a party applies for summary dismissal, and the tribunal determines that a claim, defence, or issue has “no real prospect of success,” it may issue an order for its dismissal

The Arbitration Act 2025 marks a significant development in the UK’s arbitration framework. However, where existing contracts refer to the Arbitration Act 1996, it is important to review the terms carefully to determine whether the 1996 Act or the new 2025 regime applies.

Alternative Dispute Resolution 

Disputes are a common part of daily life and can arise in various contexts, such as neighbourhood disagreements, tenancy issues, employment conflicts, family matters, and other civil disputes. To resolve these issues, individuals may turn to different methods and processes collectively known as dispute resolution.

Traditionally, dispute resolution refers to litigation — taking the matter to court. However, court proceedings are often costly, time-consuming, and adversarial in nature. Litigation also involves public disclosure of personal or sensitive matters, which can deter parties from pursuing this route. Because of these drawbacks, Alternative Dispute Resolution (ADR) has gained popularity in recent years.

Particularly, the Civil Procedure rules had oblige the courts, and place lawyers under a duty, to encourage the appropriate use of ADR and make it easy to use. The courts even have power to order that parties must engage in ADR.

What is ADR?

ADR refers to methods of resolving disputes without having to go to court, This is why it is referred to as ‘alternative’ – it’s an alternative to litigationADR methods aim to ease the burden on the judicial system while encouraging amicable settlements between parties. Common forms of ADR include mediation, arbitration, negotiation and adjudication 

Mediation 

Mediation is a voluntary process in which a neutral third party facilitates communication and negotiation between two disputing parties to help them reach a mutually acceptable resolution. Mediation can be initiated by either or both parties or ordered by the court.

In England, many small money claims in the County Courts are now subject to a scheme requiring parties to participate in a brief, free-of-charge telephone mediation session with a court-appointed mediator. This scheme, which has been running as a pilot since May 2024, is expected to expand to include a wider range of County Court claims in the near future.

Negotiation 

Negotiation can take place at any stage of a dispute — whether alongside mediation, during the pre-trial stage, or even during the trial process itself. It involves the parties, either directly or through their solicitors, attempting to reach an agreement on the matters in dispute.

Adjudication 

Adjudication is a fast-track dispute resolution process in which a dispute arising under a contract is referred to an independent third-party adjudicator for a binding determination.

It is most commonly used in construction disputes, where time is often of the essence, and parties can typically expect a decision within a few weeks. However, both party will have the option to pursue the dispute in court if they do not agree with the expert’s decision. 

This writer, Astrid is a pupil barrister in Malaysia. She has a keen interest in Employment and Constitutional Law and will be pursuing this interest in her work as a pupil barrister.

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