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What is the Purpose of Arbitration? A Comprehensive Guide

In the complex landscape of international dispute resolution, arbitration emerges as a highly favored method with distinct advantages over classic litigation proceedings. This article provides a condensed exploration into the world of arbitration, delineating its fundamental purpose, its distinct advantages, and the scenarios in which it proves most effective. As we unravel the intricate details of arbitration, we aim to shed light on how it functions as a streamlined alternative to traditional court proceedings, offering a private, efficient, and specialized platform for resolving conflicts. By immersing ourselves in the foundational principles and examining the real-world applications of arbitration, businesses, legal professionals, and individuals are equipped to make well-informed decisions about managing disputes. This in-depth understanding not only facilitates a smoother dispute resolution process but also enhances the ability of parties to strategically navigate complex legal landscapes, ensuring they are better prepared to address and resolve conflicts in a manner that is both effective and judicious.

Understanding Arbitration
Arbitration, a cornerstone of alternative dispute resolution (ADR), represents a strategic departure from conventional court litigation. In this process, disputing parties voluntarily opt to present their grievances before one or more impartial arbitrators, whose binding decisions serve as final decisions of a dispute. The essence of arbitration lies in its departure from the formalities often associated with traditional litigation, offering a more flexible, expedient, and confidential avenue for conflict resolution.

While the roots of arbitration extend back to ancient Greece, its evolution has been profound, particularly in modern legal systems. Today, arbitration plays a pivotal role in various domains, notably within international commercial law, facilitating smoother resolution of intricate and complex contractual disputes. Its utility also extends to the realm of international business transactions, where its adaptability to diverse legal systems and cultural contexts proves invaluable.

As arbitration continues to evolve and adapt to contemporary legal landscapes, its significance as a versatile and efficient tool for dispute resolution remains undeniable, offering parties an expedient and confidential alternative to protracted court proceedings.

Purpose of Arbitration
The purpose of arbitration extends far beyond mere conflict resolution; it embodies a multifaceted approach aimed at fostering efficiency, fairness, and impartiality in the resolution of disputes outside the traditional court system. Delving deeper into its objectives unravels a tapestry of principles that underpin its significance in the realm of alternative dispute resolution.

Efficiency and Speed: At the heart of arbitration lies a commitment to expediency. Unlike the often protracted timelines associated with court litigation, arbitration proceedings offer a streamlined process characterized by flexible deadlines and expedited resolutions. The agility of arbitration not only minimizes delays but also optimizes resource allocation, ensuring that parties can swiftly navigate through the intricacies of dispute resolution.

Expertise: Central to the efficacy of arbitration is the appointment of experienced arbitrators who embody a wealth of expertise and specialized knowledge pertinent to the subject matter under consideration. These arbitrators, meticulously selected by the parties involved (or appointed by international arbitral institutions), bring to the table a nuanced understanding of complex technical or commercial disputes, thereby facilitating informed and equitable resolutions.

Confidentiality: In an era marked by heightened privacy concerns and the imperative to safeguard sensitive information, the confidentiality afforded by arbitration emerges as a pivotal advantage. Unlike the public scrutiny often associated with court proceedings, arbitration offers a veil of confidentiality, enabling parties to engage in candid discussions and present evidence without fear of public disclosure. This confidentiality is particularly advantageous for businesses grappling with sensitive proprietary information or individuals seeking to protect their privacy.

Control Over the Process: Another hallmark of arbitration is the unparalleled degree of control over the proceedings it affords to the parties involved. Unlike the more rigid framework of litigation, arbitration empowers parties to tailor the process to their specific needs and preferences. From the selection of arbitrators to the formulation of procedural rules, parties exercise a significant degree of autonomy, thereby fostering a sense of ownership and investment in the resolution process.

Finality and Enforceability: Arbitration culminates in binding awards that offer a definitive resolution to disputes, thus instilling a sense of finality and closure. Unlike court judgments, which may be subject to lengthy appeals processes, arbitration awards are generally conclusive, with limited grounds for challenge. This finality not only engenders certainty but also serves as a catalyst for effective dispute resolution. Moreover, the enforceability of arbitration awards on an international scale, facilitated by conventions such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, underscores the global efficacy of arbitration as a mechanism for resolving cross-border disputes.

In essence, the purpose of arbitration transcends the mere adjudication of conflicts; it embodies a holistic approach to dispute resolution that prioritizes efficiency, expertise, confidentiality, autonomy, and finality. By embracing these principles, arbitration emerges as a formidable tool for navigating the complexities of modern legal landscapes, offering parties a pathway to resolution that is both equitable and expedient. 

When is Arbitration Used?

Arbitration is commonly used in several areas including: 
Arbitration, as a versatile tool in the realm of dispute resolution, finds widespread application across various business sectors and industries. Its adaptability and efficiency make it a preferred choice for addressing international business conflicts in diverse contexts, ranging from complex commercial commercial disputes, to life sciences, infrastructure, M&A transactions etc.. Examining the myriad scenarios where arbitration proves instrumental unveils the breadth of its utility and its capacity to cater to the unique needs of different stakeholders. 

International Commercial Disputes: In the realm of international commerce, where transactions span across borders and involve intricate and complex contractual arrangements, arbitration emerges as a cornerstone for resolving disputes. Businesses, keen on avoiding the complexities and uncertainties of litigation, often embed arbitration clauses within their agreements. This strategic foresight not only expedites the resolution process but also ensures a level playing field for parties operating within disparate legal frameworks.

International Construction Contracts: The construction industry, characterized by its technical complexities and propensity for disputes, relies heavily on arbitration to navigate conflicts arising from construction contracts. Given the specialized nature of construction disputes, arbitrators possessing expertise in construction law and engineering play a pivotal role in adjudicating matters swiftly and comprehensively. The flexibility afforded by arbitration allows for tailored solutions that address the intricacies of construction projects, thereby mitigating delays and minimizing disruptions.

Life sciences: The life sciences resort increasingly to arbitration to resolve any disputes. Since life sciences are innovative and dynamic, arbitration seems especially suitable to this industry as arbitration can provide life science companies in dispute confidentiality, adaptability, commercial certainty and cross-border enforcement capabilities.

Energy and infrastructure: Energy transition issues such as decommissioning and regulatory change, all present significant challenges for energy sector participants. As governments and commercial parties alike seek to adapt to these developments, disputes in this area are inevitable. Contracts in energy and infrastructure are governed by a myriad of legal and contractual obligations, arbitration serves as a mechanism for resolving conflicts discreetly and efficiently. The underlying contracts usually incorporate arbitration clauses, providing a confidential forum for addressing disputes while circumventing the public scrutiny associated with traditional litigation. This confidentiality not only preserves the integrity of the contractual relationship but could also fosters a conducive environment for an amicable resolution.

M & A: Merger and acquisition (M&A) transactions typically feature heavily negotiated terms, numerous signing entities and stakeholders, as well as multifaceted and interlinked contracts. Owing to their complex nature, M&A transactions inevitably give rise to a wide range of disputes, in many circumstances involving multiple contracts and parties. 

In sum, the widespread use of arbitration across a wide range of commercial areas underscores its versatility and efficacy as a mechanism for resolving conflicts. While arbitration offers numerous benefits, including efficiency, expertise, confidentiality, and flexibility, it is essential to remain vigilant to ensure that its use aligns with principles of fairness, accessibility, and transparency. By leveraging arbitration judiciously and conscientiously, stakeholders can navigate disputes effectively while upholding the principles of equity and justice.

Benefits of Arbitration 

Wide ranging party autonomy: The parties to an arbitration can shape their dispute resolution process by, for example, selecting the governing law, the place of arbitration, many aspects of the arbitral procedure and, of course, arbitrators whom they believe will ensure a fair hearing of their case.

Procedural flexibility and less formality: The less formal nature of arbitration proceedings can make the process less intimidating and more adaptable to the needs of the parties involved. Arbitration rules are streamlined, flexible and far less complex than most national rules of civil procedure, making them better suited to parties from different jurisdictions.

Enforceability: International arbitration awards are more widely and readily enforceable than court judgments as a result, primarily, of the 1958 New York Convention, a multilateral treaty for the enforcement of arbitral awards. Currently more than 170 countries have acceded to the New York Convention.

International Acceptance: Arbitration is widely accepted as a fair means of resolving international disputes, supported by international treaties and local laws favoring its use.

Neutral Forum: A party will often prefer not to submit to the jurisdiction of another party’s national courts. International arbitration can provide a neutral forum for dispute resolution.

Sector specific experience of arbitrators appointed: Arbitrators can be selected for their familiarity with relevant commercial practices, trade usages and legal structures, and their ability to apply different national laws and deal with comparative law issues.

Challenges and Considerations
Despite its advantages, arbitration is not without challenges. Critics argue that the private nature of arbitration can lack transparency and sometimes fairness, especially in scenarios where there is an imbalance of power between the disputing parties. Additionally, the costs can still be high, particularly when involving top-tier arbitrators or multiple international parties.



The role of arbitration in the modern dispute resolution landscape cannot be overstated. As a dynamic and adaptable mechanism, arbitration offers a multifaceted approach to resolving conflicts that transcends the limitations of traditional litigation. Its efficacy lies in its ability to provide parties with an expedient, expert, and private forum for addressing disputes, thereby fostering a climate of efficiency and fairness in legal proceedings.

Whether grappling with complex commercial disputes or engaging in cross-border transactions, arbitration emerges as a cornerstone for achieving timely and equitable resolutions. By circumventing the bureaucratic hurdles and procedural complexities often associated with court litigation, arbitration empowers parties to take control of the resolution process, tailor proceedings to their specific needs, and leverage the expertise of arbitrators versed in the nuances of their respective industries.

Businesses, legal practitioners, and individuals alike stand to benefit from incorporating arbitration into their dispute resolution strategies and contractual agreements. By embracing arbitration as a proactive tool for managing conflicts, stakeholders can unlock its unique advantages while remaining cognizant of its inherent limitations. The strategic deployment of arbitration not only facilitates smoother dispute resolution outcomes but also contributes to the seamless operation of commercial activities on both domestic and global scales.

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