I delivered a paper last week for the South Australian Bar Association on pendulum arbitration. It met with a positive reaction, and I share it below.
The general drift – unsurprisingly enough, is that I believe pendulum arbitration to be underused in the commercial context. The principal reason for this is that most practitioners are unaware of it, and thus have no experience or knowledge about when and how it should be used. Hopefully, this paper will be a small step in rectifying this lacuna.
Pendulum Arbitration: What? Why? How?
Robert Fenwick Elliott[1]
Abstract
- Pendulum arbitration is a form of arbitration in which the arbitrator must adopt, as the award, one or other of the draft awards put forward by the parties themselves. It is widely and successfully used in other jurisdictions around the world and particularly in some types of dispute, but has been only rarely used in Australia as a means of resolving commercial disputes. Its advantage over conventional arbitration is that it is significantly faster and significantly cheaper. It may be implemented by entering into a suitable pendulum arbitration agreement, either ab initio in a contract or ad hoc, whether at the outset of the dispute or after a mediation has failed, or after litigation has become bogged down.
- There are good reasons why pendulum arbitrations could and should be more widely used.
What Is Pendulum Arbitration?
- Pendulum arbitration (also known as baseball arbitration, or last best offer arbitration, or final offer arbitration (FOA)[2], or straight choice arbitration) is a subset of arbitration whereby at the conclusion of the process, the parties each provide the arbitrator with a draft award, and the arbitrator adopts as the final award the draft which most closely accords with the arbitrator’s opinion.[3] There is no scope for the arbitrator to substitute his or her own judgement, and so there is a powerful incentive on the parties to pitch their draft awards at a moderate and reasonable level, so as to improve the prospect that their draft will be adopted.
- For practical reasons, discussed below, pendulum arbitrations are conducted much more rapidly, and less expensively, than conventional arbitrations. Usually, but not always, the arbitrator does not give reasons.[4]