Resolve a dispute through arbitration
It is common for a contract to include a provision that any disputes will be settled through arbitration. Such a provision is called an arbitration clause. Unlike court proceedings, arbitration is not a public process but rather a private method of resolving disputes.
Advantages and disadvantages of arbitration
If you are considering including an arbitration clause in your contract, you should consider the advantages and disadvantages in your particular case.
Advantages:
- It can be quicker than court proceedings. The dispute is settled in a single instance instead of two, or sometimes three, as may be the case in court proceedings.
- The dispute is handled confidentially. No outside party knows the content of the dispute, or even that there is a dispute.
- The parties can choose their own arbitrators, who are specialists in the area of the dispute.
Disadvantages:
- High costs. Arbitrators and secretaries are paid by the parties; a court does not charge for their work. If the contract is for something of minor value, do not include an arbitration clause in the contract, as it could be a costly process.
- If you feel the decision is wrong, it cannot be appealed.
Arbitration clause
It is important that the arbitration clause is clearly worded. Specify the number of arbitrators, where the arbitration will take place, the language and which country's law is to be used. You can also specify that a simplified arbitration procedure will be used or that mediation will be used first. If you only specify that disputes are to be settled by arbitration, the Arbitration Act applies.
What does arbitration cost?
The Stockholm Chamber of Commerce Arbitration Institute's website has a cost calculator that you can use to estimate the cost of arbitration, simplified arbitration and mediation. Please note that the calculator only calculates the cost of the secretariat. Costs for lawyers, witnesses, investigations, etc. are not included.
Cost calculator at the Arbitration Institute of the Stockholm Chamber of Commerce (in Swedish)
Court proceedings despite arbitration clause
Even if there is an arbitration clause in the contract, a court can still resolve the dispute. For this to be possible, neither party may object. A court may also find that the arbitration clause is unfair and hear the dispute anyway. For example, it may be unfair if one party is in an inferior position in the contractual relationship compared to the other party.
Disputes between businesses and consumers are normally heard by the courts, even if the contract contains an arbitration clause. Such disputes may not normally be settled through arbitration. However, stringent requirements must be met in order for an arbitration clause to be considered unfair in a contract between two businesses.
The arbitration award
Once the negotiations are over, the arbitrator or arbitrators will give their decision on the matter, known as an arbitration award. The arbitration award cannot be appealed and is enforceable in over 150 countries.
If the dispute has been resolved through mediation, the result is an agreement between the parties. That agreement can be made enforceable by an arbitration award.
Annulment of an arbitration award
An arbitration award may be set aside if the arbitration proceedings have not complied with the applicable requirements of compliance with law, for example if an arbitrator has been disqualified, if a party has not been allowed to present their case properly, or if the arbitration dealt with a matter which Swedish law stipulates may not be decided by arbitrators.
An arbitration award may be set aside by the court of appeal where the arbitration took place. In such case, the arbitration award also become public.
Standard contracts
In some in sectors, trade organisations draw up standard contracts containing arbitration clauses. If you reference a standard contract of this type in your contract, that clause will apply (unless you stipulate otherwise in your contract).