What is Arbitration?

Going to court to settle a dispute is a two stage process:

The first is having a state appointed judge, magistrate or tribunal member decide the rights and wrongs of the case and make a judicial order as to what has to be done by one party or the other, or both. Usually, if the losing party is dissatisfied with the decision, they can appeal to a higher level in the court system on a matter of law.

The second is the enforcement of that decision. The judge does not enforce the decision. If the losing party does not obey it, then the winning party has to go to a separate section of the state apparatus, such as the sheriff, to force the loser to obey. The judge does not play any role in the actual enforcement.

Arbitration is an alternative to obtaining a judgement. The decision by an arbitrator, called an award, has the same effect as a judgment of a judge, and can be enforced in the same way by the state apparatus, such as the sheriff.

Domestic Commercial Arbitration is the legal term where the parties are domiciled or have their places of business in Australia; the dispute is commercial in nature; and the dispute is not an international dispute. In Australia, Domestic Commercial Arbitration is governed by the individual states’ and territories’ Commercial Arbitration Acts.   In Victoria, for example, it is the Commercial Arbitration Act 2011 (Victoria).


The purpose of the Commercial Arbitration Act 2011 (Victoria) is “to improve commercial arbitration processes to facilitate the fair and final resolution of commercial disputes by arbitration without unnecessary delay or expense” (section 1AA(a)).

The Act aims to achieve this by “enabling parties to agree about how their commercial disputes are to be resolved … and “providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.” (section 1AAC (1) and (2)).

The advantages of Arbitration over going to Court

    1. Choice of decision maker – The parties can choose the decision maker, who may have expertise in the issues, or a person in whom the parties already have confidence.


    1. Speed and Cost – The parties do not need to compete with others using court resources, so the hearing and the decision can be made much quicker than the normal court process. Costs can accordingly be much less.


    1. Simplified Rules of Evidence and Procedure – There are no formal rules of procedure and evidence, so the parties and the arbitrator can set the rules to fit the case. The only non-negotiable requirement is that of natural justice.


    1. Privacy – As the arbitration is not held in an open court and reported in the court lists, a dispute and its final resolution may be kept confidential.


    1. Finality – The grounds to appeal an arbitration award are much less than a court judgement.

Empowerment, Control and Flexibility – For all the above reasons, the arbitration process allows the parties themselves much more personal input into the process.