Litigation refers to the cases which are conducted in courts and are contested to resolve the conflicts or disputes in Courts. While arbitration, on the contrary, is also a method of resolving disputes, which is an alternative to the court and that is why it falls under Alternative Dispute Mechanism (ADR). In arbitration, a dispute is submitted by an agreement of the parties to one or more arbitrators who make a binding decision on the dispute and it is a private resolution mechanism chosen over going to the court.
It is believed that arbitration is cost-saving, gives faster outcomes, is more flexible, and most importantly, preserves the confidentiality of any dispute.
An American Supreme Court decided Steelworkers Trilogy in 1960 (363 U.S. 564) wherein the court implicitly praised Arbitration. It said that arbitration was a relatively speedy system of Justice that was mostly informal, and was therapeutic in the sense that it allowed workers to have their day in the court. Moreover, it was voluntarily binding and usually involved a judgment from someone well known and well respected by the parties. It was a relatively cheap and flexible process that could easily be changed to suit the parties and most importantly, it was an extension of collective bargaining that is, a private system of jurisprudence created by and for the benefit of the parties.
Comparison of Arbitration and Litigation
Arbitration is Consensual which means it only takes place if both the parties have agreed to it and once agreed, a party then cannot unilaterally withdraw from arbitration. So, it is very much necessary to think before you agree to Arbitration to resolve any dispute.
Litigation, on the other hand, is quite contrary. In litigation, whenever a case is filed against any other person no consent is required to initiate the proceedings. The court sends notices or summons to the opposite party/ies and the opposite party/ies have to appear in the court of law after receiving the notice, on the date and time fixed. In case of non-appearance, the case is persuaded against the interests of the opposite party, who fails to appear.
Choosing an Arbitrator
In arbitration, parties have the freedom to choose an arbitrator who can preside over the proceedings. The parties also possess the freedom to choose more than one arbitrator in odd numbers to deal with their matter by paying extra fees. While in Litigation, there is no choice given to select a judge. A case once filed, is allotted to a respective judge according to the procedure duly followed by the Courts.
A choice of an arbitrator ensures that a person who is an expert in a particular field is appointed as an arbitrator which further guarantees a full-fledged justice delivery system. If more than one arbitrator is proceeding with a case, then a more stable decision can be expected as more than one expert mind works on an issue before them.
The most important thing to note here is that, as court cases go on pending for years, and meanwhile if one judge dealing with a particular case is transferred, then a new judge takes over, who is not even well versed with the facts of the case. While on the other hand, in arbitration an arbitrator is specifically appointed to deal with the specific case and he is not changed till the disposal of the issue before him.
In Arbitration proceedings, the process is very simple and within the reach of the parties. The working hours of arbitration proceedings and conduct of arbitration proceedings are very much flexible to the parties at their convenience. Moreover, any witnesses can be called upon at any stage if it helps in furtherance of Justice, with prior short notice to the arbitrator as compared to litigation.
The courts in India follow Civil Procedure Code very strictly and the process therein results in complexity of the process and hence, the parties through their legal representatives, have to take even a small step according to the procedure laid down which increases the complexity of technicalities too. In court matters, one can not put up any witness or evidence before the court without prior notice to the court except in exceptional cases. Many cases have been dismissed on procedural points that have nothing to do with the merits of the case.
In Arbitration, there is flexibility with respect to the selection of venue and deciding upon the schedule. The parties are free to decide the venue to hold the arbitration proceedings according to their convenience and upon mutual consideration of both the parties and upon the viewpoint of their arbitrator. Sometimes arbitration proceedings can last for many hours as per the discretion of the arbitrator or until and unless there is some fruitful discussion.
Whereas, in the court proceedings, parties have to appear before the court as per the timings decided by the honorable judge or their legal representative. Moreover, usually, a judge would not spend more than 15 minutes to discuss a particular matter as they have to deal with piles of different cases fixed on that particular day.
In Litigation, a particular Court or a Judge dealing with a case may not be an expert in that field and that is because a judge who has general knowledge of all the subjects is on that seat as he/she has to deal with a number of cases and may not be having any specialized knowledge in that subject. So, if any decision is to be taken, then the judge himself would ask for a certain time to go through the information or research available or laws codified in that field to deal with that particular subject.
Whereas in arbitration, an arbitrator who is appointed to deal with the particular subject matter is an expert in that field, thus, knowing every minute detail and may not ask for extra time or extra hours to go through any book or information to decide on certain issues which arise in between. He/she can give a detailed decision with logical reasoning or an opinion on the spot as he has knowledge and expertise of that particular subject. This in turn, ultimately helps the parties in their respective cases. Moreover, certainly, this is also beneficial for the solicitors or the legal representatives, as they do not have to take extra efforts to explain every minute detail to an arbitrator, who is sitting; as compared to a judge sitting in the court, wherein advocates have to explain each and everything to make him/her understand the theme of the subject matter. A quality of being an expert, ensures a better quality of justice, specifically in cases that involve dealing with agreements that are more technical and complex in nature.
In arbitration proceedings, there is no bar of jurisdiction. The parties are free to decide upon the venue of the arbitral proceedings at their convenience. The only condition being is that it shall be a reasonable place to hold the proceedings, suitable for both the parties.
Whereas in litigation this is not the case because jurisdiction is very much important to be determined at the initial stage of filing any case before a particular Court. A jurisdiction may be a subject matter or appellate or territorial or pecuniary, which is an important point for the determination of a good and sound case. There have been many instances wherein cases are dismissed as they fall out of the jurisdiction.
Commonly, courts take years in order to settle an issue before them. Sometimes, a person has to fight a case in court during his/her whole life, and even after death, their legal heirs are bound to continue with the matter filed by their ancestors.
But in the case of arbitration, there are time limits fixed for the arbitration process. Section 29A of the arbitration act specifies that an award of arbitration shall be made by the arbitrator or arbitral Tribunal within a period of 12 months from the date of completion of pleadings which shall be filed before six months from the date of appointment of an arbitrator. So, it implies that an arbitration process can take up to one and a half years to dispose of the matter.
This is a notable advantage of Arbitration over Litigation because Arbitration in every possible way preserves the confidentiality of the party to the proceeding. In arbitration, the facts of the cases are not open to the public and they are discussed within four walls thereby, retaining a reputation of a company that is a party to the arbitration. If the details of an issue faced by the company are disclosed to the public then it might upset the consumers as they would know the problems faced by a company, which might even result in decreasing the value of the shares of the company.
On the other hand, in litigation the cases are being conducted in an open court except in exceptional cases where there is the reasonable justification given, to hold in-camera proceedings. Even the orders are uploaded on the website of a particular court thereby, making them accessible to the general public.
Relationship between the Parties
The most valuable advantage of arbitration is that it prevents hostility. In the arbitration process, the participants are encouraged to participate fully and sometimes even to help to structure the resolution and hence, they often work together more peacefully rather than escalating their hostility towards each other as often the case in litigation, where both the parties are hostile towards each other and play blame games through their legal representatives in an open court.
The decision of an Arbitrator is treated as the final decision and no further appeal lies on that decision while in Litigation, an aggrieved person has a chance to file an appeal to the higher court in the hierarchy within a reasonable period of time.
This may help the parties who want a final decision with no room left for an appeal. Because of this characteristic of arbitration, an arbitrator knows that his decision is of last resort to the parties and that is why, they focus more on the heart of an issue, unlike judges who may sometimes focus on wrong things so as to frame the decision as it might appear to an appellate court as they know that decision would be appealed by the losing party.
ICA – Indian Council of Arbitration
In India, the Indian Council of Arbitration (ICA) has turned out to be an Undisputed leader in dispute resolution services in India. It was established in 1965 as a specialized arbitral body under the initiatives of the Government of India and apex business organizations like FICCI. Its main objective is to promote amicable, quick, and inexpensive settlement of commercial disputes by means of arbitration regardless of location. Now in today’s time, ICA has been heading more than 400 domestic and international arbitration cases each year which clearly shows the popularity of this dispute resolving mechanism.
Here we are speaking about commercial arbitration with respect to business contracts. Each and every deal in business is signed in order to earn profit and to carry out trade smoothly, but disputes are an inevitable part of such business deals. If the disputes remain unresolved, the business will no longer run smoothly, and therefore, any business deal must have a written contract to avoid uncertainties, and most importantly, it must contain an arbitration clause. If at all arbitration Clause is not included then an arbitration agreement may be signed after a dispute arises. Court proceedings do not offer a satisfactory method of settlement of commercial disputes as it involves inevitable delays, heavy costs, and technicalities. Moreover, it can expose the internal and private affairs of the parties to the public, as we have seen above.
By now, it has been very clear that preferring arbitration over litigation is beneficial in many ways. The only disadvantage of arbitration in my view is that the decision of the arbitrator is the final decision and that even though it helps the parties who want a Final Decision without room for an appeal. For them, it is beneficial but if suppose, an award which is passed by the arbitrator is unfair or illogical, then the party against whom it is passed has to suffer and that is why, certain disputes which are related to the health and life of any individual are barred from dealing with arbitration and for such type of matters, exclusive jurisdiction to the courts is given.
Based on the current situation in India, the Indian Judiciary with respect to the pendency of cases and availability of judges one can opt for arbitration to resolve the disputes reasonably quicker. In litigation, serving notices to the parties and giving them opportunities to appear can take a year while in arbitration, the same matter can be disposed of within a year.
Arbitrators find themselves under tremendous pressure to produce high-quality opinions not only to ensure their future acceptability but also because they know that they are the judges of the Last Resort. As we have seen above, almost all the characteristics of arbitration are its beauty.
An arbitral award has the same weightage as the decree of a court as Section 36 of the Arbitration act says that an arbitral award shall be enforceable by the provisions of the CPC, 1908 in the same manner as if it were a decree of the court.
So, if Arbitration is preferred over litigation, the overburdening of courts can be reduced to a large extent and disputes will be settled out of the court in a quick manner.