One of the features of law is its dynamic nature. The law is flexible, makes accommodations and incorporates new concepts that meet the ever-changing climates within the society.
A concept which has been incorporated within the recent decade is the concept of Alternative Dispute Resolution. This concept is geared towards fostering a quicker and less hostile environment for settling disputes, and also to help decongest the back log of cases in court.
Alternative dispute resolution mechanisms are techniques for resolving disputes outside the court. A court room, or a judge is not needed for the resolution of disputes. However, the dispute is referred to a third party to enable the settlement process.
Each technique has its unique features but, in this article, we shall be examining the concept of Arbitration as an alternative dispute resolution mechanism. We shall also compare the nature of arbitration with our well known ‘litigation’, in order to determine which system meets the modern economic climate in India.
The era of globalization has brought with it varied changes. Domestic markets are now open to foreign/international participants. India has not been left out. The country has recently been listed as one of the developing nations with ease of doing business. This has attracted a number of foreign direct investments in the country.
With the increase in foreign direct investments and participations, it is also expected that there will be an increase in the number of commercial disputes.
Often, foreigners who get into commercial disputes with domestic companies/businesses, are not willing to subject themselves to the domestic litigation system of the home country of the disputing party. They will rather opt for a neutral and faster dispute resolution system, that also affords them better participatory rights in the dispute resolution process.
In fact, business owners, entrepreneurs, and people involved in big-time commercial transactions prefer dispute resolution processes which embody some of the flavors mentioned as follows:
- A Process which allows experts or professionals to determine the commercial dispute between the disputing parties.
- A process which ensures confidentiality of the information involved in the commercial dispute.
- A process which ensures that the commercial dispute is settled speedily.
- A process which is not saddled with technical and complex requirements.
- A process which encourages flexibility in the dispute settlement process. Disputing parties can meet at convenient hours, within any jurisdiction, and at convenient places, to thrash out their dispute.
- A process which allows for transparency, neutrality, and is devoid of any corrupt interferences.
- A process which allows for the successful party to enforce its claim against the other party.
This is why in modern times, the practice, wherein parties to a foreign or international transaction include a dispute resolution clause in their contract agreement, has become a norm.
It is not also unusual that international participants select dispute centers in other foreign countries like Paris, London, Geneva, etc. These dispute centers provide professionals in the field of the commercial dispute, speedy resolution processes, transparent and reliable resolution processes, and judgments which are enforceable anywhere in the world.
As a matter of fact, the UNCITRAL Model Law regulates the conduct of International Commercial Arbitration. This law has been adopted by various Independent Nations as the model law on arbitration.
In light of the above, the Parliament in India saw the necessity to adjust in line with the changing dispute resolution regime. Also, to encourage foreign direct investment (FDI) in India, and promote the acceleration of economic growth, it became necessary to incorporate judicial reforms to encourage the trust of foreign entities/investors in the Indian Judicial system.
The Indian Arbitration and Conciliation Act, 1996, was passed by Parliament in order to adopt the UNCITRAL Model Law. In 2002, Parliament also amended the Civil Procedure Code, 2000, to incorporate provisions which vest the Court with the power to compulsorily refer parties to any of the Alternative Dispute Resolution mechanisms – Settlement, Mediation, or Arbitration.
Out of all the alternative dispute resolution mechanisms, Arbitration has turned out to be the mechanism greatly favoured for effective commercial dispute resolution.
In light of the foregoing discussions, it is pertinent to understand the concept of arbitration as compared to litigation.
Arbitration is an alternative dispute resolution technique. Under this technique, disputing parties refer their dispute to one or more persons (called the arbitrators, arbiters or arbitral panel/tribunal) to help settle the dispute.
Just like what is obtainable in litigation, the arbitrators listen to the case of the disputing parties, review the evidence, make their findings, and give a decision called the ‘arbitral award’. The arbitral award is binding on the parties as if it were the decision of a court. The successful party can enforce the arbitral award in court.
Parties to a commercial agreement will usually insert a clause in their agreement which stipulates that in the event of a dispute, such dispute should be submitted for arbitration. The said clause is called the arbitration clause. It is not also unusual to see an arbitration clause inserted into an employee’s contract of service.
Where a dispute arises and a disputing party resorts to a court of law, in breach of the arbitration clause, the non-defaulting party can challenge such a case in court. The court will be duty bound to strike out the case and order parties to refer their dispute for arbitration.
Because of its nature, arbitration embodies certain advantages and disadvantages, which makes the process appealing and non-appealing, depending on the interest of the party considering it.
- Advantages of Arbitration
- It allows the parties to participate more effectively in the settlement process. Parties can select their arbitrator or members of the arbitration panel, through a method which they agree upon. Unlike the litigation process where parties do not have control over who is to be chosen as a judge of their case, arbitration affords the parties more in control in the choice of their arbiter.
- The process affords more confidentiality to parties. Their dispute is settled privately, out of the glaring eyes of the public. Confidential information is also protected through this process.
- The arbitration process is less technical. The technical rules of evidence do not apply [but the principle of fair hearing does apply]. The hearing procedures are simplified, and the paper work involved is less.
- Since parties decide on who their arbitrator(s) would be, they are able to choose persons who are experts in the field of the dispute. Thus, the settlement process is conducted by professionals, unlike in the court where the judge is likely not always a professional when it comes to technical disputes.
- Parties can choose flexible venues and flexible time schedules. Thus, the arbitration could be carried out in a hotel, a conference room, or any other comfortable and flexible venue, and at any time of the day or week, including weekends and evenings.
- Because the hearing process is less technical, the process is concluded speedily. Long and frequent adjournments do not apply here. It is not strange that the arbitral process can be concluded in less than a week, or a matter of few days.
- The usual hostility obtainable in the courtroom, is minimal or non-existent in this process. It fosters an environment where parties can work peacefully with more cooperation for speedy resolution of their dispute.
- Depending on the nature of the dispute and parties involved, arbitration is cheaper and more cost-effective than litigation.
- The major disadvantage of arbitration is that where parties indicate that the arbitral award is to be binding on them, an unsuccessful party cannot easily appeal the arbitral award or bring an action against the arbitral award in court. Parties are stuck with the award even where there is a blatant error by the arbitral panel. However, such errors are rare.
- The chances of transparency in the process are somewhat questionable. The fact that the arbitration process is not carried out in open court, where other persons can witness it, makes the process more likely to be tainted with bias.
- In some situations, arbitration can be very expensive. The cost incurred in paying arbitrator’s fees, renting venues, traveling to a dispute centre in another country or region, transport and hotel bills, and the exorbitant prices to be paid as lawyer fees, makes this process unappealing for the average party.
- The arbitration clause may not be fair in certain cases. For example, an arbitration clause contained in an employee’s contract of service may not be favorable to the employee even though it is favorable to the employer. Such an employee would be dragged into an arbitration process for a simple matter which would have been easily settled in court.
3.0 Differences between Litigation and Arbitration
The litigation process is not new. The basic features involve:
- A courtroom accessible by any member of the public
- A judge presiding over matters
- A jury
It is no news that:
- The litigation process can be pretty hostile
- Litigation can be really slow due to incessant adjournments and other technicalities
- Litigation is expensive
It is also not news that:
- Decisions of the court are final and are appealable
- Litigation has led to the development of precedents and general development of the law.
In light of some of the advantages and disadvantages of litigation, we will proceed to highlight some of the differences that can be gleaned between litigation and arbitration, as systems of dispute resolution.
|It involves Courtroom, judges and jury||It involves a dispute center or flexible avenue, with the arbitrator or arbitration panel.|
|Members of the public are always in attendance||Not open to the public. The process involves just the disputing parties, their lawyers (where they choose to get one) and the arbitration panel.|
|Criminal and Civil actions are adjudicated through this medium||Civil matters, mostly of contractual nature, are settled through this medium.|
|The technical principles of evidence are followed during court proceedings.||Apart from the principles of fair hearing, the arbitration panel is not under any obligation to follow the technical principles of evidence.|
|Parties do not play a role in the selection of the judge or jury.||Parties select their arbitrator or members of the arbitral panel.|
|Hearing of cases are regulated by the court’s schedule.||Hearing of the disputes are regulated by flexible time schedules as fixed by the parties in consonance with their arbitrator(s)|
|Decisions of the court are easily appealable.||Binding decisions of an arbitration panel are not appealable.|
|Because of adjournments and other plenty paper works, settlement of disputes is usually slow.||A settlement is usually faster than litigation.|
Arbitration is very appealing for commercial disputes which need to be settled within the shortest time possible. But the use of this resolution method is not available for disputes of a criminal nature.
In as much as arbitration is a quick medium for settlement of the dispute, some of the disadvantages of the process may make it unappealing for the average disputant.
When it comes to the ability to appeal a decision, the litigation process is still more favorable in this regard.