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Which Is Better, Arbitration Or Litigation?

The question is which is better means of resolving disputes, arbitration or litigation? There is no definite answer as to which is an inherently better process.

86 percent of the companies surveyed had previous experience in resolving domestic and/or cross-border disputes. When asked what types of resolution processes they used in domestic / international disputes, almost all respondents (95%) reported using arbitration either as an independent mechanism or in combination with other mechanisms.

Why are most of the companies trying to avoid litigation?

Companies acknowledged more familiarity with the litigation process than with arbitration. In most developed countries, however, litigation is a time-consuming procedure, businesses have avoided using litigation to save time, especially when large amounts of money are trapped in the dispute. According to companies which used arbitration, the average time taken from the start of the arbitral proceedings to the award is less than three years.

Other concerns which lead to a less preferred choice in litigation include:

Strict framework within which litigation operates, and The lack of confidentiality relating to the proceedings.

Companies with experience in alternative forms of dispute resolution admitted to do so in accordance with their organizational policy, especially with regard to low-value contract disputes where arbitration would not be a cost-effective option. Alternatively, they continued to pursue traditional litigation for before contracts signed, which did not allow for arbitration in case of conflict. While most firms opted for arbitration (95 per cent) due to various advantages, not everyone had a satisfactory experience:

Compared to arbitration outside India, the level of dissatisfaction is substantial for arbitrations seated in India. The level of dissatisfaction could be attributed to the following obstacles to an effective arbitration process in India.

Lack of uniformity in the processes and administration of arbitral awards was an acute issue for parties to arbitrate to settle conflicts. However, in the case of Bharat Aluminum, the recent Supreme Court judgment could be a breather for arbitration outside India.

The arbitration award will be binding, regardless of the seat of arbitration, without recourse to appeal. There is an urgent need for grounds straightening to challenge an award in India. Often filing an appeal not only increases the expense and time of arbitration proceedings but also allows arbitration proceedings similar to court proceedings.

Since there is no defined time limit by which the arbitration proceedings are to be resolved, arbitration is a less appealing dispute settlement mechanism. Nine per cent of the firms had arbitration that lasted more than three (3) years. As observed from the qualitative responses, the duration of more than three years for the parties to resolve disputes through arbitration was a tedious and costly proposition.

The arbitral tribunal's structure is a time-consuming operation and has been listed as the highest aspect having a impact on the duration of the arbitration proceedings, followed by the exchange of pleadings, the collection and review of records and the compliance of awards.

The time and expense of the proceedings are also dramatically affected when the deficient parties take advantage of the procedural loopholes and lack the requisite degree of professionalism in the proceedings.

The fee for arbitrators was among the top three factors attributed to the costs of arbitral proceedings by the companies. Other factors included the professional fees for lawyers / law firms and counsel.

There is a small club of seasoned arbitrators that companies can choose from in case of ad-hoc arbitration in India. This creates a pause in the arbitration process because these arbitrators are inaccessible. Such administrative barriers greatly raise the costs of the trial, making it a more costly process as opposed to litigation.

Benefits of arbitration over litigation

Arbitrational claims can vary greatly. A state might be brought to arbitration for compensatory claims such as expropriation, or may itself begin arbitration proceedings with other states over claims such as those related to international borders. It would be trite to say that arbitration is a conscious attempt of parties to avoid the delay and hence unjust or inefficient method of obtaining resolution of the courts.

There is no one form of "arbitration" as such to compare to litigation.

Additionally, it is necessary to evaluate the following factors:

  • The quality of decision-making.
  • Procedural fairness,
  • The impartiality and independence of involved decision makers,
  • The time and cost of arbitration vis-a-vis litigation,
  • The flexibility of each forum in respecting the special needs of parties and
  • The quality of enforcement.

The biggest benefit of resolution of disputes through Arbitration over Court litigation is its Neutrality and Mutuality.
This may be in respect of:
  • Place of hearings.
  • Language being used,
  • Procedure to be applied,
  • Nationality of Arbitration (in case of international commercial arbitration),
  • Legal representation,
  • Appointment of Arbitrators as per requirement of the nature of dispute,
  • Confidentiality.

The costs incurred in Arbitration by the parties in dispute include the arbitrator's fees, rent for arbitration venues, administrative expenses and fees for the representatives of the parties and witnesses, and in most of the cases less than litigation.

Arbitration is preferred over courtroom proceedings because it is usually less expensive than litigation. It provides for speedy settlement of dispute through flexible time schedule and simpler procedures.

Arbitration offers key advantages that cannot be provided during litigation. In many cases there is an advantage that the arbitrator or arbitral tribunal is an expert in the field of the dispute so that the entire process can be conducted without the interference of lawyers, or other representatives, with major profits in time and economy.

Thus, many disputes as to quality in the commodity trades, many disputes as to the rent of commercial property, and many small consumer disputes, are resolved in this way.

Arbitration is the need of present era keeping in mind the delays in litigation, the acquittal rate , the expenses and the number of legal formalities involved.  

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