Arbitration 101


Arbitration is most frequently defined as an alternative to the Court’s dispute resolution system. As a mechanism of dispute resolution that involves an impartial third-party decision-maker, arbitration has its roots deep in antiquity. In its contemporary form, however, the mechanism has become popular during the last few decades. In essence, arbitration is a private mechanism of dispute resolution that is based on the parties’ agreement to arbitrate. Once the parties have agreed to arbitrate, they can no longer refer their dispute to the Courts, hence the paramount importance of the arbitration agreement. The agreement to arbitrate can be in the form of an arbitration clause attached to the main agreement, or it may even be agreed as a method of dispute resolution between the parties after a dispute has arisen.

Arbitration is an adjudicative dispute resolution method. That means, that, contrary to other alternative dispute resolution (“ADR”) procedures such as mediation, conciliation and negotiation, the award issued by the arbitrators is the outcome of the application of the substantive law to the merits of the case and, thus, becomes binding on the parties. The award issued by the arbitrators is final and the parties must comply with it. In the contrary event, the winning party can enforce the award through the Courts. Arbitration is a manifestation of the principle of party autonomy. The parties to the arbitration agreement are free to decide how they want their arbitration to look like. Therefore, in addition to the substantive law, the arbitrating parties can decide the procedural rules, the seat of arbitration and they can even select the arbitrators that will handle the case.

As is apparent, the mechanism features numerous advantages when compared to litigation. Unlike litigation, at least in many jurisdictions, arbitration procedures are resolved much quicker and they are conducted in private. In addition, as opposed to the random assignment of a state judge, the arbitrating parties are able to select as arbitrators, people who are experts on the subject matter of the dispute. Furthermore, a particularly attractive element concerning international disputes is the ability of the parties to choose a neutral place as the seat of arbitration.

Arbitration can be chosen as a method of dispute resolution for various types of disputes. It is limited, however, to the cases that are “arbitrable”. For reasons of public interest, not all cases can be referred to arbitration. An example of these are criminal cases as well as some cases related to family matters. Depending on the features that a case exhibits, arbitration can be domestic or international. If all the elements that a case consists of, included but not limited to, the parties’ place of domicile, their identity as well as the subject matter of the dispute, are related to a specific state, then that particular arbitration as well as the ensuing award will be considered domestic. By contrast, if elements of other states are present, then that arbitration qualifies as international. A different legal framework applies depending on whether arbitration is domestic or international, hence the necessity of the distinction.

Despite the numerous advantages, arbitration in Cyprus is not as widely used as it is in other jurisdictions. This is probably due to the prevailing misconception that the administration of justice is a state monopoly. In spite of this perception, however, the backlog of the litigation system as well as the ever-increasing use of ADR systems abroad will inevitably lead people to seek alternative dispute resolution methods. Arbitration is one such alternative.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information provided. For further information, please contact Anna Liza Kyprianou at Tel +357 26930800 or via email Anna.LizaKyprianou@kyprianou.com