Why Arbitrate?
There are many ways in which a dispute can be settled. In almost every dispute, initially, the disputing parties try to resolve the dispute through negotiation, if negotiation fails, then they try to take the assistance of a mediator, if they fail to reach a settlement then the parties look at the other two options which are Arbitration or litigation.
Amongst other reasons, the two biggest reasons why the parties to an international dispute prefer arbitration over litigation are neutrality and enforceability.
Neutrality
In an international contract, the parties generally come from different countries, so a national court of one party would be a foreign court for the other. In the absence of an arbitration agreement, a dispute may have to be resolved through the national court of one of the parties. This is likely to cause difficulty for the party, which will have to fight its case in a foreign court under foreign law with foreign lawyers and perhaps in a foreign language. Thus, it naturally gives rise to apprehensions regarding neutrality in such cases.
On the other hand, in an arbitration, the disputes are determined in a neutral place instead of the home country of one of the parties. Both parties come together to select the tribunal. The tribunal may consist of a single arbitrator or three arbitrators. In the case of a single arbitrator, the arbitrator is chosen by the parties' agreement or by the institution as the parties agree. In the case of three arbitrators, two of them are generally selected by each party, and then those two arbitrators choose the third arbitrator, who shall be the presiding arbitrator of the tribunal.
The arbitrator is required to be independent as well as impartial. If it turns out that the arbitrator is not independent and impartial, then he or she may be dismissed. This is done to ensure the neutrality of the tribunal.
Enforceability
The arbitral tribunal, at the end of the arbitration process, comes out with an enforceable decision, which is called an award. Unlike mediation and conciliation, the arbitral process results in a binding decision. The award passed by the arbitral tribunal is final, which means that no appeal can be filed against it, unlike court judgments, although it can be challenged on limited grounds. The award is enforceable by the court of law both nationally as well as internationally. Thus, where one of the parties fails to voluntarily implement the decision, the other party can take the court's assistance to enforce the award.
In terms of international enforceability, an arbitral award has much greater acceptance than even a judgement of a court of law. This is because the international treaties that govern the enforcement have greater acceptance internationally than the treaties for the reciprocal enforcement of judgments.
Flexibility
Another advantage of arbitration is that it offers a great degree of flexibility to the parties and the tribunal. The arbitration process can be tailored as per the requirements of the dispute. This procedural freedom is not available in a court of law, which needs to follow fixed procedural rules thereby making the process of litigation rigid. Arbitration helps the parties in saving time and money.
Confidentiality
One of the most significant advantages which attract the parties to the arbitration process is the confidentiality and privacy of the proceedings, which would have otherwise come out in public had they been resolved through court proceedings. Companies and institutions often aspire for confidentiality due to a variety of reasons, which include anticipation of adverse publicity, revelation of trade secrets or competitive practices, etc.
Arguable drawbacks of Arbitration
While it can be seen that the process of arbitration as an alternative mechanism of dispute resolution offers several advantages, but at the same time, it has also drawn criticism with respect to cost and delay.
International arbitration is an expensive method of dispute resolution. The fees charged by the arbitrators are generally substantial. The parties may also need to pay the administrative fees and expenses of an arbitral institution, which again are very high. Apart from all this, the parties may also need to pay for secretarial services and for hiring rooms for conducting the arbitration.
Another often cited disadvantage of arbitration is delay. The delay is often seen either at the beginning or at the end of the arbitral process. In the beginning, it may take time to constitute an arbitral tribunal before the process can start. Towards the end, the delay is often caused by the tribunal itself in delivering the award.
Conclusion
However, we must remember that the main aim of international arbitration is not a quick and cheap decision but arriving at a fair, reasoned, and binding decision coming through a neutral tribunal. Earlier, international arbitration versus litigation was a matter of debate, but now the world has strongly moved in favour of international arbitration. In the area of international commercial activity, international arbitration is considered the only viable option.
