Pendulum Arbitration – Questions and Answers

See Pendulum Arbitration Overview for a general description of the pendulum arbitration process. Here are some answers to some more detailed questions that you may have.


How does pendulum arbitration differ from other types of arbitration?

In pendulum arbitration each party, at the conclusion of the hearing, hands the arbitrator a sealed envelope containing a draft arbitral award. The arbitrator then adopts one of those draft awards without amendment, being the one that most closely matches the arbitrator’s assessment of the legal entitlements of the parties.

Does it have other names?

Yes. It is also known as Baseball Arbitration[1], or Last Best Offer Arbitration, or either/or arbitration, or Flip Flop Arbitration.

Does the arbitrator give reasons?

Normally, no. And not in the form I offer.[2]

How does it work out in practice?

In practice, both parties typically put in draft awards which are relatively reasonable and conservative assessments of their entitlements, in order to increase the likelihood of their draft being adopted.

Working backwards, both parties are thus discouraged from advancing improbable cases, knowing that it is counter-productive to argue for positions which are not going to be supported in their draft awards.

The result is thus that the arbitrator’s award is exactly as proposed by one party, and is likely to be relatively close to what was proposed by the other party.

Do the parties have a proper opportunity to put forward their case?

Yes. The primary focus is on written submissions, with the opportunity for each party then to make oral submissions in a relatively short hearing, typically lasting one day.

Do the parties have to be legally represented?

No, although they usually are, and almost always are in large cases.

What is the “look and feel” of a pendulum arbitration hearing?

Generally, more akin to a mini-trial type of process, rather than a traditional arbitration process.

Is pendulum arbitration cheaper than conventional arbitration?

Almost certainly, yes. The majority of the party’s costs are likely to be the costs of its own lawyers. Those costs are likely to be broadly the same as the cost of preparing for and running mediation, or an adjudication under the security of payment legislation, and much less than the costs of conventional arbitration or litigation.

Does the arbitrator choose between the draft awards on the basis of the law, or on the basis of his own concepts of what would be fair?

Unless otherwise agreed, the arbitrator chooses between the draft awards on the basis of the law as applied to the facts.

Is pendulum arbitration quicker than conventional arbitration?

Yes. There is no procedure for discovery of documents. And because the oral hearing takes place in a single day, the time needed for preparation for the hearing, and the hearing itself, is much less than for conventional arbitration. Further, because the arbitrator does not give reasons, there is no delay whilst the arbitrator writes his award; the award comes very soon after the conclusion of the one-day hearing.

Is pendulum arbitration the only form of “quickfire” arbitration?

No. For example in commodities disputes, the parties sometimes engage in what is known as “look sniff” arbitration. But that form of arbitration is not suitable for typical construction disputes. Similarly, a number of arbitration bodies have attempted some form or the other of “expedited” arbitration, but these typically offer relatively modest advantages over full-scale arbitration.

Why has conventional arbitration generally failed in its attempts to be quicker and cheaper than litigation in the courts?

There are a number of reasons for this.

One is that in many jurisdictions, the courts have been all too jealous of their jurisdiction, and hence all too willing to interfere in the arbitration process, either at a procedural level or by way of appeal. For this reason, arbitrators have been understandably concerned by the prospect of being criticised or even overruled by the courts, and for this reason have tended to give quarter to every sort of procedural or legal objection, particularly by parties who do not want to see any prompt resolution of the dispute, in order to ward off any potential criticism that they have failed to take full and proper account of everything that might be put to them.

Working in the same direction as this has been the usual regime as to costs. Arbitrators are traditionally paid by the hour, or the day, and so the longer the arbitration goes on, the greater the arbitrator’s remuneration. Similarly, lawyers are paid by the hour (sometimes by the day) and so again, the lawyers obtain a financial benefit from the arbitration taking as long as possible. The normal rules as to the recovery of legal costs by the successful party worsen this problem, if the parties can be persuaded that the cost of “the long way round” might be recoverable from the other party at the end of the day.

Is pendulum arbitration less stressful than conventional arbitration?

Yes, not only because it is much quicker and less expensive than conventional arbitration, but also because there is no opportunity for lengthy and gruelling cross-examination of witnesses.

Is pendulum arbitration less damaging to commercial relationships than conventional arbitration?

Yes, for the same reasons.

How much do you charge for acting as pendulum arbitrator?

I charge 3% of the sum in dispute, as identified by the parties themselves, subject to a minimum charge of $5,000. If the sum in dispute is greater than $1 million, and depending on the nature and complexity of the dispute, I may be willing to agree a lower percentage. Those amounts are exclusive of GST, and expenses (if any) which are payable in addition.

Are those charges fixed?

Yes.  In a conventional arbitration, the arbitrator charges by the hour or the day, and in that sense there is a certain motivation for the arbitrator to extend the length of hearings, and hence increase not only his own fees but also the legal costs incurred by the parties.

If my company wins, are we entitled to recovery of our legal costs? And interest?

When it formulates its draft award, each party can, and ordinarily should, consider what entitlement it has to recover its legal costs, and what liability it may already have to pay legal costs, and to factor those costs in. Likewise interest. The pendulum arbitrator has regard to any such entitlements and liabilities in choosing between the draft awards; there is no separate award requiring either party to pay the legal costs of the other. Likewise, there is no separate award of interest: the award is on an “in all” basis.

Is the service available for every type of dispute?

No. My extensive experience in construction, engineering and energy disputes means that I have a particular capability in those fields. I do not have the same capability in other fields, and so would not be prepared to accept appointment in disputes in which I do not have the necessary experience.

Further, if one of the two parties is determined to “deep pocket” the other party, willing to spend in legal costs whatever it takes to kick the dispute into the long grass, the process is inherently unsuitable. It works only in cases where both parties genuinely want the dispute resolved quickly, fairly, and with a minimum of expense.

Is pendulum arbitration possible during the course of legal proceedings?

Yes, and it may be especially suitable where both parties have already incurred considerable cost in preparing pleadings and perhaps obtaining experts reports, but have come to realise that the cost of proceeding on to trial is exorbitant. In those circumstances, their pleadings and experts’ reports are treated as pleadings and experts’ reports in the pendulum arbitration, and are thus not wasted.

If the parties choose to enter into a pendulum arbitration arrangement during the course of legal proceedings, the legal proceedings must be stayed and the pendulum arbitration process replaces those legal proceedings.

Is pendulum arbitration possible following a failed mediation?

Yes, and it may be especially suitable where the mediation has narrowed but not closed the gap between the parties. In those circumstances, the pendulum arbitration will ordinarily be constrained to produce a result within the parameters of what the parties were prepared to agree, thus removing the possibility of a particularly unwelcome result for either party.

Will I get the opportunity to talk to you as the pendulum arbitrator in private?

Absolutely not! Like more conventional arbitration all communications with me as arbitrator must be shared with the other party.  Such openness is a vital ingredient of the process.

Is the result final and binding?

Yes. The award is enforceable in the same way as any other arbitration award.

Has the process of pendulum arbitration ever been challenged in the Australian courts?

Yes. It was challenged in NSW Racing v Tab[3]. The Supreme Court of New South Wales found that there was no reason why the parties should not be held to the pendulum arbitration agreement (the judge referred to it as “last best offer” or “baseball”) that they had agreed.[4]

Is a pendulum arbitration award subject to appeal?

In practice, it is likely to be well-nigh impossible for a party to appeal against the pendulum arbitration award, not least because no reasons for the award are given.

Do you have personal experience of pendulum arbitration working well in Australia?

Yes. For example, see this post.

Does the party whose draft award is accepted get to see the other party’s draft award?


Does the party whose draft award is not accepted get to see the other parties draft award?

Yes; that draft becomes the final award.

Why are pendulum arbitrations not used more frequently in construction cases in Australia?

Pendulum arbitrations are used frequently in other jurisdictions and in other areas of law. But there are very few people with experience of them in construction disputes in Australia. Some lawyers may be reluctant to recommend pendulum arbitration if they expect that litigation or conventional arbitration will produce a better fee income for them. Other lawyers will not recommend it, quite simply because they have no experience of it, and indeed may never even have heard of it.

Are you available for pendulum arbitration of international cases?







[1] Because of its use in disputes about baseball players’ salaries in the US. Night Baseball Arbitration is slightly different.

[2] There are a number of good reasons why the process works better without reasons. And in any event, the fundamental reason is always obvious: the draft that is chosen is closer to the arbitrator’s opinion as to the proper outcome than the draft that is not chosen.

[3] [2002] NSWSC 742.

[4] The relevant passage is as follows:

33           The plaintiff advanced a number of reasons why it ought to be permitted to abandon the arbitration procedure in this case in favour of the courts. The plaintiff submitted that  the nature of the dispute resolution procedure set out in the agreement was unsatisfactory. Clause 24.3(f) provides that each of the parties to the dispute must “make a written submission as to how the dispute should be resolved” to the arbitrator.  Clause 24.3 (h) and (i) state that the arbitrator must “make a determination in relation to the dispute and in doing so, must adopt the submission made by the party (to the dispute) that most closely accords with the arbitrator’s opinion in the matter.” The submission that is adopted by the arbitrator is deemed to be the decision of the arbitrator: clause 24.3(i).

34           This kind of clause is sometimes referred to as a “last best offer” or “baseball” clause, so-named because of its use in the United States of America in resolving professional baseball players’ salary disputes.  In that context, each party submits a proposed monetary amount to the arbitrator. At the conclusion of the hearing, the arbitrator chooses one award without modification. A variation, referred to as “night baseball” arbitration, requires the arbitrator to make a decision without the benefit of the parties’ proposals and then to make the award to the party whose proposal is closest to that of the arbitrator.  In either form, the arbitrator does not have the authority to compromise between the parties’ positions, which provides an incentive to each party to make its final offer more reasonable than the other’s. The object is to move the parties towards the position of the other, to the extent where it may be possible to bridge the remaining gap by negotiation.

35           The plaintiff now seeks to bypass the baseball arbitration in favour of declaratory relief by a court, in an effort to avoid what it suggests may be an arbitrary result.  The plaintiff submitted that the agreement has a long way to run, and that the continued use of arbitration as a means of dispute resolution is unsatisfactory in the long term. The agreement is dated 11 December 1997 and governs the relationship for 99 years.

36           Both the parties are commercially experienced and were capable of protecting their own interests in the negotiation of the agreement. I see no reason why the plaintiff should not be held to the form of dispute resolution which it agreed to when negotiating a long term agreement only a few years ago.

37           The plaintiff also submitted that the resolution of the dispute will involve questions of law which are best determined by a court.  The fact is that the parties have by agreement committed matters of both fact and law to arbitration. Clause 24.3 provides that the arbitrator is to be agreed upon by the parties, or failing such agreement, is to be appointed by the President of the Institute of Arbitrators, Australia. In the case of the latter, the arbitrator to be appointed must be a senior lawyer or retired judge experienced in the conduct of the racing and gaming industry. There is no reason therefore why the arbitrator would not be capable of resolving questions of both fact and law. The plaintiff submits that in the case of a decision against them, they will commence court proceedings on the grounds of an error of law, as allowed by clause 24.5 and s 38 of the Commercial Arbitration Act.  Therefore to avoid wasting time, the plaintiff submits that it is appropriate that this matter not go to arbitration, but proceed straight to court.  This submission does not take account of the fact that the arbitrator’s decision may be plainly right and that leave is necessary under s 38(4) of the Act.

38           Reference was made to the fact that the agreement embodied the commercial arrangements between the parties for the purpose of the Totalisator Act 1997 and thus are conditions of the licence.  Under that Act that Minister has certain functions and may apply to the court to prevent breaches of the Act as a condition of a licence.  It was submitted that there was a public interest which was better served by the court dealing with the matter rather than an arbitrator who only had two choices.

39           Some disputes may attract the Minister’s concern and some may not.  His rights to act are always preserved and parties to an arbitration can put their submissions to the arbitrator in a way which they think best resolves their dispute over the conditions and thus any breach.

40           In my view there is no sufficient reason why the matter should not be referred to arbitration.