Advantages and Disadvantages of Arbitration

In this post, the author has described the Advantages and Disadvantages of invoking an Arbitration proceeding. Additionally, the post contains, a video and a sample agreement to facilitate in drafting an Arbitration Agreement.

INTRODUCTION

Conflicts are inevitable in any societal set-up. Earlier, the only way available to people was to hustle through litigation but with the advent of alternative dispute resolution methods, Arbitration gained prominence in India. It is a form of dispute resolution in which the parties choose their own adjudicator and mode and place of resolving their disputes whereby the arbitrator through the application of the laws of the land and after hearing both the parties speedily settle the dispute by passing an award in favour of the deserving party. The arbitrator hears both the parties and then relying upon the oral submissions and documents provided, issue a resolution.

KEYWORDS: Arbitration, Cost-effective, appeal, time, law

ADVANTAGES OF ARBITRATION

There are numerous advantages of going for arbitration over litigation. The major ones among them are as follows:

Cost effective

In arbitration, not much legal preparation is required. Most of the charges or costs incurred during the arbitration process are divided between both the parties. This makes this process much cheaper than the traditional litigation. 

Simple and informal procedure

In arbitration, the parties do not have to hire advocates to represent them. The parties can themselves present their issues and demands before the arbitrator. No formal mannerisms are used in this process which results in a comfortable environment.

Fairness

In traditional legal trial, neither part can choose the judge who will decide their case. However, in arbitration, both the parties have the liberty to choose arbitrator. This results in a fair outcome.    

Efficient and flexible

The traditional litigation takes too much time to resolve. It may also take years to solve a particular case. A legal resolution through arbitration is much quicker than litigation. Arbitration is more flexible in terms of scheduling. Arbitration hearings can conveniently be scheduled based on the availability of parties and the arbitrator

Convenience

In litigation, the date of hearing is to be determined by the Court. For this, the convenience of the parties is not kept in mind. Sometimes, the parties have to wait for long time to get court dates. However, in arbitration, parties have the right to agree upon a particular date as suitable for them and their witnesses.

Confidentiality

In Court, all the proceedings are open to public. However, in arbitration, any disclosure made by the parties in the proceedings is to be kept confidential. Therefore, the arbitration legal process is more private than litigation.

Finality 

The decision made by the arbitrator is final one. There is not any system of appeal in the arbitration process.

Agreeableness

In arbitration, neither party wins nor losses. Both the parties came to an agreeable outcome which is in compliance with their needs.

Full control of the process 

Both the parties have all the rights to determine by agreement the conduct of the proceedings. On the basis of it, the procedure is streamlined to suit the specific requirements of the case at hand.

How to draft an Arbitration Agreement? [Video]

DISADVANTAGES OF ARBITRATION

Every coin has two sides. Along with numerous advantages, there are a number of disadvantages of arbitration that the parties should keep in mind if they want to go for arbitration. The major ones among them are as follows:

No Appeals 

The decision given by the arbitrator is considered as final. There is no system of appeal in arbitration process. Even if one party feels that the outcome of arbitration process was unfair, unjust, or biased, they do not have the option to appeal it.

Cost

Arbitration is generally considered as a cost-effective process as compared to litigation. However, this feature does not hold any significance in those cases in which minimal money is involved.

Rules of Evidence

In a Court of law, a judge has to follow specific rules and regulations while accepting evidence. However, it is not so in arbitration. Arbitrators can utilise any information that is brought to them.

Limited powers of arbitrator

The Court possesses the power to punish the litigants who are obstructive or dilatory in their conduct of the proceedings. However, an arbitrator’s powers are not as strong as to find someone in contempt of court.

Questionable Fairness in Mandatory arbitration

If the contract itself states that arbitration is mandatory in case any dispute arises then the parties do not have the flexibility to choose arbitration upon mutual consent.

Lack of transparency

The arbitration hearings are generally not made open to public and are held in private. This can be a positive as well as a negative feature of arbitration. This lack of transparency may turn the process biased and ultimately result into injustice.

Inconsistently following the law

Although it is right that the arbitrator has to follow the law but the standards are not clear. It is highly possible that the arbitrator may consider the “apparent fairness” of the respective parties’ positions instead of strictly following the law. This becomes more significant when our party would be favored by a strict application of the law.

Sample Arbitration Agreement [PDF]

CONCLUSION             

Arbitration is an attractive method of alternative dispute resolution that can provide an attractive alternative to the traditional legal system. Arbitration has its own advantages and disadvantages. All these pros and cons along with the particular transaction and the needs of the parties should be taken into consideration before agreeing to arbitrate a dispute.