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LEGAL DEVELOPMENTS | Aug. 4, 2024

Arbitration vs. Litigation in Business Disputes

INTRODUCTION 

 There are times when there is no easy way to resolve a business conflict. There are two primary methods for settling conflicts: mediation and court cases. If businesses understand the fundamental differences between the two, they may make informed decisions. This paper examines the subtle distinctions between arbitration and litigation in commercial disputes, highlighting the unique features of each process.

Arbitration, or the root word "arbiter" in Latin, is "the process or method of deciding a dispute through an independent arbitrator or referee". This term is one of them because legal professionals have different opinions even if it has the same meaning. It is true that arbitration and its institutions date back to the Greek society's introduction of them before the time of Christ and have been in use ever since. Arbitration is a recognised and acceptable alternative to non-litigation in Indonesian dispute resolution. These days, a lot of people decide to use arbitration and mediation as alternative conflict resolution processes for commercial problems.

 

RESEARCH METHODOLOGY

 The qualitative research of doctrinal nature was employed as the research technique for this article. There have been references to a number of legal research papers, articles, and commentary. The Doctrinal Research Methodology has helped the researcher to study the subject matter with the help of various books and journals which have been used for qualitative research. 

 

Arbitration in Business Disputes

Arbitration is often commended for its confidentiality and efficacy. In this private dispute settlement procedure, an unbiased third person, called an arbitrator, hears all sides of the argument before issuing a legally enforceable decision. Generally speaking, the process is more flexible and faster than going to court. This is especially advantageous for businesses that respect privacy, as the proceedings are not part of the public record. Two of the primary advantages of arbitration are its speed and price. Since arbitration does not require the formality of a courtroom, it can be used as a replacement for the drawn-out pre-trial procedures associated with litigation. This expedited timeframe could be quite helpful for businesses who want to resolve conflicts quickly and resume operations. 

The UNICTRAL model serves as the foundation for the Arbitration and Conciliation Act, which was enacted to define, consolidate, and amend the law pertaining to domestic and international arbitration as well as the enforcement of foreign arbitral awards. In fact, Indian courts are increasingly adopting a pre-arbitration approach and upholding legally binding arbitration agreements, even though the Act stipulates that no court shall interfere with the arbitration process; in contrast, Indian courts never enforce an arbitration agreement where they determine prima facie that no valid agreement exists or the dispute was never arbitrated.

 

Litigation in Business Disputes

On the other hand, litigation is the customary method of settling conflicts in a court of law. It involves a judge (and occasionally a jury) going through a predetermined process regulated by evidence and procedural laws. Litigation is public, providing a level of transparency not available in arbitration. This strategy is vital for circumstances when a legal precedent or public record is necessary. Litigation can be more time-consuming and expensive than arbitration, mostly owing to the lengthier procedures and possibilities for appeals. On the other hand, it provides a more organised setting, which can be important in intricate legal cases with significant stakes.

 

Arbitration or Litigation for Business Disputes

Numerous factors determine whether arbitration is the better option than a lawsuit. These include the nature of the dispute, the need for a decision that sets precedent, the cost, the preferred pace of settlement, and privacy concerns. Arbitration is often selected for its efficacy and confidentiality, whereas litigation is typically selected for its formality and transparency. A business's choice may also be influenced by contractual obligations. Commercial contracts frequently include arbitration clauses requiring arbitration as a dispute resolution mechanism. For businesses to effectively manage conflict resolution, they need to understand these words. It takes knowledgeable legal counsel to successfully negotiate the complexities of arbitration and litigation. Excellent guidance is offered by PM Attorneys and other business dispute legal businesses.

Litigation vs. Arbitration: Business Dispute Resolution Experts

Navigating business challenges can be challenging, but choosing the best conflict resolution method doesn't have to be. Whether you're more inclined towards litigation because of its systematic approach or towards arbitration because of its efficacy, PM Attorneys is here to help. You may be certain that your company's interests are protected and that your dispute is resolved as peacefully as possible since our team of competent specialists is experienced in both arbitration and litigation. Contact PM Attorneys right now for expert guidance and support navigating the complexities of arbitration and litigation.

 

Arbitration vs Litigation: 

In the traditional style of litigation, disputes are settled in court in front of a judge or jury. The jurisdiction and nature of the matter define the sort of court. In maximum civil matters, the place of filing is the basic ground for jurisdiction. One kind of alternative conflict resolution is arbitration, which is an alternative to litigation. Both parties meet and decide to honour and adhere to the arbitrator's or the third party's decision in an attempt to settle the dispute. In an arbitration, one or more arbitrators may hear arguments from each party before making a ruling. When complete confidentiality is essential to resolve a disagreement between parties, arbitration is a private method that is employed. People are usually seeking for solutions to stay out of legal trouble. It's costly, time-consuming, emotionally draining, and uncertain; the result won't be known until a judge or jury makes a decision. However, arbitration offers various advantages to all parties engaged in the dispute because of the parties' faith in the arbitrators, information secrecy, and speedy adoption of solutions, low court expenses, and possibility for international recognition of arbitration verdicts.  Some of the major differences of Arbitration over litigation are mentioned below:-

 Speed of Process:  The arbitration procedure described in the fairness brief. The issue can be heard following the selection of the arbitrator. Page 13, Indian Journal of Integrated Research in Law, Volume II, Issue II, ISSN: 2583-0538. However, in civil litigation, a case must wait until the court has the time to hear it; as a result, the case may not be heard for months or even years.

Selecting a Magistrate or Mediator: Events have little to no impact on the appointment process when a judge is selected through litigation. Events might also affect whether a case is heard by a judge or jury. Unless otherwise specified by the arbitration clause in an agreement, the two parties choose the arbiter jointly in arbitration. While alternative dispute resolution (ADR) is not mandatory and does not always resolve disputes, it does save a considerable amount of money, time, and court docket space that would otherwise be spent on litigation for the disputing parties. Based on all of the aforementioned factors, arbitration could be a preferable means of resolving disputes generally, but that isn't always the case. If there is a dispute, arbitration is frequently a preferable option if the settlement you want to reach is highly technical and you want experienced arbitrators to decide it. But if you want to negotiate a wide settlement (like an annual rent payment, for example), then filing a lawsuit could be a better course of action.   

LANDMARK JUDGEMENTS: 

TATA Sons (P) Ltd. v. Siva Industries and Holdings Ltd

The Supreme Court examined Section 29-A of the Arbitration Act as it stood pre and post-2019 Amendment. Following the 2019 Amendment, the Supreme Court observed that the addition of the phrase “in matters other than international commercial arbitration” in Section 29-A(1) was aimed at exempting international commercial arbitrations from the strict timeline outlined in Section 29-A for delivering arbitral awards. Interpreting both the pre and post-2019 Amendment versions of Section 29-A, the Supreme Court concluded that after the amendment, in international commercial arbitrations, the arbitral tribunal is, at most, obligated to make an effort to issue the arbitral award within 12 months. Consequently, the 12-month time-frame is specifically applicable to domestic arbitrations and serves as a non-binding guideline for international commercial arbitrations. Regarding the prospective or retrospective application of the Section 29-A Amendment, the Supreme Court stated that the removal of a mandatory time-limit for international commercial arbitration does not establish new rights or liabilities. Therefore, Section 29-A(1) should be applicable to all ongoing arbitral proceedings as of the effective date i.e. 30-8-2019. In light of these considerations, the Supreme Court directed the sole arbitrator to provide suitable procedural directions for time extension while simultaneously ensuring a prompt conclusion of the arbitration process.

Hindustan Construction Co. Ltd. v. National Highways Authority of India

The Supreme Court emphasised that the arbitrators, who were technical experts, had a profound comprehension of the intricacies within the contract and possessed practical experience as engineers overseeing similar contracts. Consequently, the Supreme Court raised doubts about the necessity of a court’s intervention under Section 34 of the Arbitration Act when the prevailing consensus among these experts leaned strongly towards a unified measurement approach.

 To support this understanding, the Supreme Court referred to the decision in Voestalpine Schienen GmbH v. DMRC Ltd.42, which underscored the significance of having expert individuals serve as arbitrators, particularly when addressing technical disputes within their specific expertise. The Supreme Court highlighted that Judges typically employ a corrective lens in their decision-making process, influenced by their training, predispositions, and background. However, when exercising jurisdiction under Section 34 of the Arbitration Act, this corrective lens was unavailable. Consequently, the Supreme Court suggested that courts should refrain from utilising primary contract interpretation as a means to facilitate a form of review explicitly prohibited by Section 34 of the Arbitration Act.

 The Supreme Court unequivocally asserted that the Division Bench’s exercise of appellate review, resulting in the reversal of the majority view of the Arbitral Tribunal was impermissible. This prohibition stemmed from the fact that the majority view of the arbitrators seemed reasonable, and the Supreme Court identified no compelling rationale to conclude otherwise. Additionally, the Supreme Court restated the well-established legal principle that awards incorporating reasoned interpretations of contractual terms should not be interfered with casually.

 Moreover, the Supreme Court examined the significance of dissenting opinions in arbitration proceedings, particularly those involving multi-member tribunals. The Supreme Court supported the approach taken in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd.43 and referred to Russel on Arbitration while clarifying that a dissenting opinion is not inherently an award but can be admissible as evidence, particularly in procedural matters during challenges. Additionally, the Supreme Court cited Gary B. Born’s insights on international commercial arbitration, highlighting that a dissenting opinion is a crucial element of the process, enabling parties to present their case and comprehend the Tribunal’s decision.

 The Supreme Court specified that a dissenting opinion cannot attain the status of an award if the majority award is set aside. Instead, it may provide valuable insights into procedural issues, which become crucial in contested hearings. Transforming a dissenting opinion into the Tribunal’s findings or treating it as an award in such cases was deemed inappropriate and improper. Consequently, the Supreme Court allowed the appeal and overturned the challenged judgment, upholding and reinstating the arbitral award that was the subject of the challenge.

Canara Bank v G S Jayaram

The Single Judge of the Karnataka High Court observed that the PLA has no adjudicatory function. This finding of the Single Judge was upheld by the Division Bench in its impugned judgement where it observed that the PLA cannot act as a regular civil court in adjudicating the dispute between the parties. Based on the analysis of the LSA Act and precedents of the Supreme Court, such an understanding was found to be clearly incorrect. Therefore, SC held that these observations of the Single Judge and Division Bench were incorrect. The Division Bench in its impugned judgement also noted that the PLA failed to follow the mandatory conciliation proceedings in the present case. This observation is correct since the award of the PLA does not indicate any attempt made by it to propose terms of settlement to the parties and their rejection. It states that once the respondent and his guarantor did not appear, it adjudicated the dispute on merits in favour of the respondent. For the reasons mentioned earlier in this judgment, the PLA could not have done so. Therefore, on this point only, SC agreed to uphold the final judgment of the Division Bench setting aside the award of the PLA.

Consequently, it was held that the observations of the Division Bench in the impugned judgment in respect of the adjudicatory powers of the PLAs were incorrect while upholding its ultimate conclusion since the PLA failed to follow the mandatory conciliation proceedings in the present case.

The analysis was provided through the judgment that distinguished the powers and functions of Lok Adalat and Permanent Lok Adalat (PLAs) established under the Legal Services Authority Act, 1987 by critically examining the Legislative framework of the Act. Thus, reducing the confusion between the functions, procedures, etc. Thus, providing clarity. It also highlights the fact that although PLAs have adjudicatory powers, they cannot exercise them until the procedure established by the law is followed. This in turn will substantially stop the practice of such ex Parte awards given by PLAs and will enforce the already set out procedure in the Act. Thus, providing transparency and enforcing rules of ‘Natural Justice’

CONCLUSION 

Dispute resolution is used to assist project stakeholders in resolving situational issues and carrying out project execution. When the right conflict resolution strategies are selected and the available binding dispute resolution processes are comprehended, disagreements can have a less detrimental effect on construction time and expense. In many countries where government agencies control and mediate disputes, litigation and judicial arbitration are recognised as legally-binding settlement techniques.

In order to conduct a comparative analysis between judicial arbitration and litigation in the State of Kuwait, 98 real cases that were selected from a population of around 1000 cases that took place between 1995 and 2018 were examined. Convenience sampling was used to choose the instances. Kuwait's Ministry of Justice was required to supply the study team with all 48 lawsuit cases and 50 judicial arbitration cases that comprise the collected cases. The study aims to: (1) compare the two strategies to ascertain their respective value to owners and contractors; (2) collect and assess factual information regarding litigation and judicial arbitration; and (3) characterise the two strategies' time and cost effectiveness and investigate the factors that impact them. Data on judicial arbitration and litigation cases were categorised using claim values. It was found that litigation requires more time to accomplish than judicial arbitration since it includes many legal levels of court. In terms of costs, the results show that judicial arbitration was more cost-effective in instances with claim amounts more than $1.6 million; nevertheless, it was not always acceptable from a legal standpoint. On the other hand, the statistics show that, in contrast to common belief, in situations where claim amounts were less than $1.5 million, judicial arbitration can be more costly than litigation. The findings help interested parties understand the strategies and how they might be used to resolve conflicts. 

References : 

• List indexing (unwir.ac.id)
• What is Arbitration vs. Litigation in Business Disputes? | PM Attorneys
• https://legal.thomsonreuters.com/blog/arbitration-vs-litigation-the-differences/
• https://www.juscorpus.com/wp-content/uploads/2022/07/73.-Prankur-Vats.pdf
• http://classic.austlii.edu.au/au/journals/AUConstrLawNlr/1996/16.pdf