When two parties enter into a contract, there is always a possibility of a dispute, which sometimes arises despite of the best efforts made by both parties to avoid it. Arbitration is available to resolve these disputes between contracting parties as an alternative to traditional court litigation.
Arbitration can be a quicker and cheaper way of resolving disputes and rendering justice than traditional court litigation. In a commercial world, timely resolution of disputes is the essence of a good and efficient business. Businesses can’t afford to waste unnecessary time, money and energy in a dispute resolution which could more effectively be used in the promotion of business and increasing profitability.
Litigation v. Arbitration
Arbitration has numerous advantages over the Litigation process. Some such advantages are set out below:
- Privacy - Litigation is a public process. It takes place in courts which are generally located in public premises. Arbitration, on the other hand, is a private process. Only persons connected with the dispute are permitted to be present during the arbitration proceedings.
- Simplicity of initiation of proceedings – The procedure for initiation, continuation and termination of court proceedings is prescribed by the legal system of every country. If any right of any person is violated, he can initiation legal proceedings against the violator under the appropriate laws of a country. For the initiation of arbitration proceedings the existence of an arbitration agreement is the only requirement.
- Less Formal and less inflexible –Proceedings before court are renowned for formality and detailed compliance with rules and procedure. In arbitration, parties can prescribe their own procedure in their arbitration agreement. If the parties have failed to prescribe any such procedure they can select the procedure prescribed by the rules of arbitration of an arbitration institution or organisation such as the UNCITRAL Model Law on Commercial Arbitration, the text of which is set out in Schedule 1 of the Arbitration Act 2010. The arbitration procedure so prescribed is quite informal and flexible.
- Selection of adjudicators – In litigation, parties to a dispute have no say in the selection of a judge. The judges are appointed by the State and the same Judge may not preside over the entire case from interlocutory applications to final determination at trial. In arbitration the parties can appoint any person as their arbitrator. The arbitrators so appointed by the parties continues with the case until the resolution of a dispute and, thus, providing a continuity to the proceedings.
- Choice of venue - In litigation, an aggrieved person has to attend a court where it is located and has no choice in the venue of litigation. In arbitration there is no fixed venue. Parties are given the right to decide the venue of arbitration, and they could also change the venue after the commencement of arbitration proceedings with the consent of the arbitral tribunal.
- More cost effective– It is an established fact worldwide that litigation involves very high costs. Arbitration can, by tailoring the process to the effective needs of the parties, be a more cost effective process.
- Avoid unnecessary bureaucracy and delay - Litigation is a time consuming process .It is bound by rules of court and “one size fits all” traditional approach. Arbitration can, with proper case management by the arbitrator and parties, resolve disputes in a shorter period of time.
Different Alternative Dispute Resolution Methods
Apart from arbitration, there are a number of other methods, equally effective and efficacious, in existence in the international commercial world for the resolution of disputes. These methods are not in substitution of arbitration; in fact, they may often be a prelude to arbitration. These methods can be tried first for the resolution of dispute and if these methods are unsuccessful, the dispute is ultimately referred to arbitration. Some such predominant methods are as follows:
- Conciliation In conciliation, the conciliator clarifies the issues in dispute between the parties. He tells them about the advantages and disadvantages of their respective cases. He tries to bring about an agreement between them upon mutually acceptable terms. He prepares or draws the agreement containing the accepted terms and gets it signed by the parties. In certain cases, the conciliator also signs the agreement so arrived at between the parties.
- Conciliation vs. mediation In mediation the role of a mediator is to bring the parties together and make them understand each other’s point of view. The compromise solution to the dispute is achieved by the parties themselves. The role of a conciliator, on the other hand, is to himself draw up a reasonable and fair compromise between the parties and then to persuade them to agree to it. In effect the conciliator may make a recommendation of settlement to the parties. If the parties agree and “sign up” to that recommendation it becomes contractually binding on the parties. If the parties do not agree &/or sign up to the recommendation then the conciliation agreement entered into by the parties will determine the binding effect (if any) of such recommendation .Such agreement may contain a clause stating that either party may , within say 21 days , reject the recommendation and appeal it to arbitration.
- Engineer’s Assessment In construction and other engineering contracts the existence of a constant dispute resolution machinery is essential for the smooth completion of a project. If a dispute arises in connection with the contract, whether during the execution of the works or thereafter, it is firstly referred to the Engineer in writing. The engineer must decide the dispute and his decision is binding on the parties unless the contract allows the aggrieved party to proceed to arbitration as an appeal.