A Fantastic Beast Called "Non-Binding Arbitration"

• Published date: 22 September 2021
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Winston & Strawn LLP
• Author: Mr Terence Wong and Jacob Harding

Make no mistake - as much as we would like to believe that magical creatures exist in this world, that's not what we find in many jurisdictions.

As known to people familiar with international arbitration, the principle of finality is a fundamental feature of arbitration in many jurisdictions. That essentially means that arbitral awards cannot be challenged or appealed on the merits. In other words, they are binding. However, there is this "fantastic beast" called "non-binding arbitration" that is occasionally seen in commercial contracts and agreements, although its legality has not been recognized in the English or the Chinese domain.

According to the judgment of the English court in IS Prime Ltd v TF Global Markets (UK) Ltd & Ors [2020] EWHC 3375 (Comm) (9 December 2020):

It is a necessary requirement, before an agreement between commercial parties relating to disputes between them as regards their rights and liabilities inter se can be an arbitration agreement within the meaning of s.6(1) of the Arbitration Act 1996, that it provide for them to submit those disputes to be determined by an individual or panel of individuals, by whose decision and consequent award the parties will, by their agreement, be bound. (Emphasis added.)

In mainland China, Article 9 of the Arbitration Law provides, inter alia, as follows:

The arbitration award is final. After the award is given, the arbitration commission or the people's court shall not accept the re-application of the suit concerning the same dispute by any of the parties concerned. (Translated and emphasis added.)

Having said that, this fantastic beast seems to exist in the United States. For instance, at Section 1011(1) under Title V (Judicial Branch) Chapter 44 (Mediation Alternatives to Judicial Action) of the 2020 Florida Statutes in the United States, it provides as follows:

"Arbitration" means a process whereby a neutral third person or panel, called an arbitrator or arbitration panel, considers the facts and arguments presented by the parties and renders a decision which may be binding or nonbinding as provided in this chapter. (Emphasis added.)

Why Should I Care?

Although rarely seen, "non-binding arbitration" does exist in contracts and agreements. So, what happens if your agreement provides, expressly or impliedly, for non-binding arbitration?

There are two recent court judgments rendered in 2020'one from an English court, the other from a mainland Chinese court'that wrestled with this fantastic...