Interstate Commercial Arbitration

TYPES OF COMMERCIAL ARBITRATION

There are three major institutional settings in which commercial arbitration appears as a mechanism for the settlement of dispute.



First type

It happens when two persons in a contract delineating a business relationship agree to settle any disputes that may arise under the contract by resort to arbitration before named arbitrators or persons to be named at the time of the dispute. In this, which can be called individuated arbitration, the making of all arrangements, including the procedures for arbitration, rests entirely with the parties concerned. The chief moving factors here are:

1.) a simple wish as in certain crude oil situations where such arrangements exist;
2.) the availability of expert deciders;
3.) the avoidance of possible legal difficulties with the nature of the transaction itself; and
4.) the random acceptance by many businessmen of the idea that arbitration is faster and less expensive than court action.



The primary function of arbitration is to provide the merchants where mercantile disputes will be settled by merchants. This suggests that merchants wish to form, and have for a long time succeeded in forming, a separate, and, to some extent, self-governing community, independent of the larger unit. For law this means that courts may perform, in the commercial field at least, a different function from that which we usually assign to them. In many cases, they may not be the primary for an adjudication. If this is true, when they are called upon to decide a commercial case in one of these areas, it will be either after adjudicatory agency has acted or because the other system cannot, or will not, cope with this case. We cannot understand the significance of the “law” contained in the reports and statutes until we have studied arbitration decisions.


Second Type

A second type of arbitration arises within the context of a particular trade association or exchange. The group establishes its own arbitration machinery for the settlement of disputes among its members, either on a voluntary or compulsory basis, and sometimes makes it available to non-members doing business in the particular trade. A particular association may also have specialist committees, which are investigatory in character, with the arbitration machinery handling only the private disputes involving non-specialist categories of cases.[1]

Third Setting

A third setting for commercial arbitration is found in administrative groups, such as the American Arbitration Association, the International Chamber of Commerce, and various local chambers of commerce, which provides rules, facilities, and arbitrators for any persons desiring to settle disputes by arbitration. Many trade associations with insufficient business to warrant separate organizations make special arrangements with one of these groups to process disputes that arise among their members.

Furthermore, there are many reasons why parties may choose arbitration as a more efficient means of dispute settlement than adjudication. It seems likely that a dispute processed through arbitration will be disposed of more quickly than if the parties had made their way through the court system to a final judgment. One of the arbitral awards handed down in 1994 in commercial cases administered by the American Arbitration Association, an average of 204 days had elapsed between the date the case was filled and the date of the award; the median processing time was 133 days. Arbitration tends to be a speedier process in part because it allows the parties to bypass long queues at the courthouse door and to schedule hearings at heir own convenience. In addition, arbitration procedure is “informal”; pre-trial procedures, pleading, motion practice, and discovery are substantially streamlined or in many cases completely eliminated. And the arbitrator’s decision is likely to be final.

[1] Murray, John S.; Rau, Alan Scott; Sherman, Edward F.; Arbitration (University Casebook Series – Foundation Press), page 25.