Although arbitration does have some advantages over traditional routes of pursuing a remedy, it is far from perfect and it has many inherent flaws.
The Double-Hatting Problem
Double-hatting is when an individual takes on the role of an arbitrator and a legal representation simultaneously in different cases. This is a serious problem for International Arbitration. As a result, the development of this area of law lacks genuine diversity. Delays of the arbitration proceedings are also attributed to the Double-Hatting problem. It can be difficult to appoint experienced arbitrators as their schedules are extremely busy.
Legitimacy Crisis
As the appointed arbitrators often come from a neutral jurisdiction that is different from the law that the parties have chosen, they may not be familiar in the application and interpretation of the laws that the parties have chosen. The rendered award might be prone to errors. Besides that, parties can agree to a confidential arbitral proceeding, but there is a lack of transparency in its proceedings. Moreover, arbitration has been criticised for being a “winners” system. The system is designed to select a “winner” and an arbitrator’s job is not really to come up with a solution that resolves the dispute. Mediation, on the other hand, might be more suitable for businesses with more embedded legal problems in a transaction.
The lack of consistency and predictability of decision
The principal feature of arbitration is the finality of awards. The lack of an appellate system makes the arbitration process unpredictable. Furthermore, if the arbitrator has made some manifest errors in rendering the award, the error cannot be reviewed. Also, the doctrine of precedence applies in litigation but not in arbitration. For some cases where the stakes are high, litigation is a more viable option as there is more predictability in the system.
Key Takeaways
- The Double-Hatting Problem – illustrates that there is a real lack of diversity in the jurisprudence of arbitration. It also demonstrates the inefficiencies of it.
- Arbitration awards have legitimacy problems as the system is not very transparent and it lacks an appellate system
- As the system of precedence does not apply in arbitration, the outcomes of arbitration may be unpredictable.