Arbitration and mediation are different methods of dispute settlement that
can be broadly placed under the category of alternate dispute resolution (ADR)
methods. These methods involve out-of-court settlements to avoid unnecessary
litigation and receive quick settlement of disputes.
Business is one of the most widely seen professions. Thus, it is quite
natural that there would be a slew of business disputes wherever one looks.
Right from contractual interpretations to breach of obligations, there are bound
to be disputes whenever parties come to deal with each other. Business conflicts
can arise from nearly any aspect of it, although, some are more common than
others. Businesses that are into providing services may feel that they were not
paid enough for the quality of services they had rendered, one party may feel
like it has received inferior goods than what was originally contracted for,
there may even be disputes between businesses and consumers – business disputes
are a quite unavoidable aspect.
ADR methods have started becoming popular due to the ease and speed of
dispute settlement. Litigation for long has been the only way for settling
business disputes. However, with the acceptance of alternative methods like
arbitration and mediation, more and more businesses have started opting for
these methods.
Arbitration
Arbitration is a method of settling disputes without either party having to go
to court. This involves a neutral third party who receives evidence, hears the
arguments and then passes an order known as an award. The award is final and
impartial. Usually, agreements entered into by businesses contain an arbitration
clause that states that any disputes arising of a contractual nature between the
parties would be referred to a select arbitrator in a select location.
Arbitration is an excellent alternative to litigation. Mandatory arbitration is
also becoming popular now where contracts state that jurisdiction over disputes
would only be settled by an arbitrator and not by a court.
In India, arbitration is backed by the Arbitration and Conciliation Act,
1996 which was amended by the Arbitration and Conciliation (Amendment) Act,
2015. This Act is based on the UNCITRAL Model Law on International Commercial
Arbitration 1985 and the UNCITRAL Arbitration Rules 1976. The Act provides for a
fair chance for both parties to be heard and to settle on the procedure that
would be followed. When the time to file an application to set aside the award
has passed or application has been refused, the award has to be enforced under
the Code of Civil Procedure, 1908, same as that of a decree of a civil court[1].
The Act mandates that arbitration proceedings have to be completed within a
period of twelve months[2], however, if both the parties to the arbitration
consent to the extension of time, then the period can be extended further by six
months.
The Act also makes provisions for fast track arbitrations. Parties to an
arbitration agreement may decide to mutually appoint a sole arbitrator who
passes an award on the sole basis of written pleadings, submissions and
documents[3]. Oral submissions may not be required for the sake of faster
disposal of the dispute. Such an award has to be passed within six months.
Impartiality of an arbitrator is the most important aspect of arbitration
proceedings. Section 12 of the Act mandates that an arbitrator must submit in
writing any reasons he believes would hamper his impartiality or independence.
The following are the benefits of arbitration for settling business
disputes:
1. Cost effective: Litigating a dispute in court is an expensive
process. Arbitration is a much more cost-effective way of settling disputes[4].
2. Speed: Speed is another factor of arbitration. Usually there are
well defined time limits to pass awards, resulting in quick disposal of the
matter. Arbitrators do not have face big crowds and so have lesser caseloads.
3. Fairness: Arbitrators are usually appointed by both the parties
to the agreement resulting in a fair selection of the arbitrator. No single
party will have the final say over who the arbitrator should be.
4. Finality of Award: Finality of an award is another reason to opt
for arbitration. Since awards passed are final in nature, it puts the disputes
between the parties to a rest and allows them to move on.
5. Simple Procedure: Since arbitration does not involve courts,
they are not bound by any procedural laws of the land. They are free to take on
their own procedure to hear arguments, receive evidence and pass awards.
6. Confidentiality: This is one of the most primary reasons to
choose arbitration. Arbitration proceedings are confidential, that is, there is
no public record preserved of the dispute. This makes whatever trade secrets or
confidential details of the business remain between the parties themselves.
7. Specialisation: Parties can choose an arbitrator skilled in the
law they are facing disputes over, for example, patent law. Courts do not assign
judges on the basis of speciality in law but in arbitration this may be the
case[5].
Mediation
Mediation is another method of resolving business disputes. It is the effort
between conflicting parties to reconciliate their differences and to make
compromises[6]. A mediator must understand both parties to the dispute and their
rights and interests and thus put forth workable solutions that can be agreeable
to both parties. Mediation usually involves the disputing parties, their legal
counsel and a neutral third party who facilitates the discussions[7].
There are usually three different types of mediation[8]:
1. Facilitative: In this type, the mediator has to steer the parties
towards a mutually agreeable solution.
2. Directive: This type requires the mediator to be much more involved in
the solution finding process. He has to give options to the parties and remain
more proactive.
3. Transformative: This type requires the parties to steer the talks and
the direction in which they want to head and the mediator has to follow their
lead and model ideas based on their discussions.
Mediation is the step before litigation. Instead of resorting to expensive
courtroom visits, it is better to discuss the problem before an impartial third
party and consider the options that are available and agreeable to both parties.
The following are the benefits of choosing mediation as a way to resolve
business disputes:
1. Preferable Outcome: The goal of mediation is to come up with options
that are beneficial to both parties. Unlike arbitration, the goal will not be
detrimental to either party since both parties are involved in the discussions
instead of just an arbitrator in arbitration.
2. Lower Costs: Mediation is not a long drawn-out process since it
involves only discussions between parties and a third party. Costs are much
lower since parties do not need to engage legal counsel over a long period.
3. Preservation of Relationships[9]: Since both parties work together in
order to achieve an agreeable solution to their dispute, the environment is much
less hostile than it would be in a litigation. This leads to both parties taking
on a friendlier approach towards each other.
4. Confidentiality: Discussions under mediation are completely
confidential. They take place in a private room only between the parties and
their mediator. It protects trade secrets and other confidential documents that
would otherwise be open to the public as a case in litigation.
5. Flexibility[10]: Parties are allowed to mould the discussions in a way
most suitable to them. The mediator has to follow the path laid down by the
parties and not the other way around. Parties decide when to meet and what kind
of solution they are looking for.
Arbitration v Mediation
Since both options looks appealing to resolve business disputes, there is a
need to distinguish between the two:
1. Mediation is when a neutral third party aims to assist the parties in
arriving at a mutually agreeable solution whereas arbitration is like litigation
which is outside the court and which results in an award like an order.
2. Mediation is not binding on the parties whereas arbitration is.
3. Mediation is more collaborative, arbitration is more adversarial[11].
4. The process of mediation is more informal than that of arbitration.
5. The outcome in mediation is controlled by the parties whereas in
arbitration it is controlled by the arbitrator.
6. In mediation, the dispute may or may not be resolved whereas in
arbitration it is always settled in either party’s favour.
Conclusion
From the above, it is evident that mediation and arbitration are two very
distinct forms of alternate dispute resolution methods. Mediation is more
discussion-oriented and arbitration is more litigation based. Mediation is a
good first step in trying to resolve business disputes. It is an easy and
cost-effective step that seeks to maintain business relations between the
parties by putting forth an agreeable solution. Moving straight to arbitration
is a way of acknowledgement of loss of control over the situation. Arbitration
is a good way to settle the dispute if mediation does not work effectively or
the parties cannot bring themselves to work out a solution that benefits both of
them. Thus, both are an essential step of resolving business disputes.
Arbitration should follow mediation.
End-Notes
[1] Section 36, Arbitration and Conciliation Act, 1996
[2] Section 29A, Arbitration and Conciliation Act, 1996
[3] Section 29B, Arbitration and Conciliation Act, 1996
[4] Anonymous, Arbitration Pros and Cons, https://adr.findlaw.com/arbitration/arbitration-pros-and-cons.html
(Last accessed 20th September, 2018)
[5] Anonymous, What is an Arbitration?, https://www.legalmatch.com/law-library/article/arbitration.html
(Last accessed 20th September 2018)
[6] HunterMaclean Attorneys, Benefits of Mediation in Business Disputes,
https://www.huntermaclean.com/news-publications/benefits-mediation-business-disputes/
(Last accessed 20th September 2018)
[7] Deborah Buyer, Making the Case: Business Dispute Resolution through
Mediation, https://www.mediate.com/articles/BuyerD1.cfm (Last accessed
20th September 2018)
[8] Ibid.
[9] Supra, Note 6
[10] Anonymous, Mediating Business Disputes, https://www.mdrs.com/faqs/mdrs-articles/mediating-business-disputes/
(Last accessed 20th September 2018)
[11] Surbhi S, Difference between Mediation and Arbitration, https://keydifferences.com/difference-between-mediation-and-arbitration.html
(Last accessed 20th September 2018)
How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...
It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...
One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...
The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...
The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...
Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...
Please Drop Your Comments