Abstract
Litigation has always had a reputation as being expensive and time
consuming, and before the Civil Procedure Rules 1998, was notoriously expensive
and gave lawyers a bad reputation for running up huge fees.
The Civil Procedure Rules changed the way that litigation is dealt with and
introduced a new more conciliatory approach.
Litigators are now encouraged to settle cases rather than see them through to
trial and indeed some courts have begun trials whereby certain cases are
referred to the court mediation scheme.
The parties in those cases have to show the court good reason for not attempting
mediation.
So in this day and age of conciliation, settlement and substantial costs –
rather than litigation, arbitration, mediation – alternative dispute resolution
has become hot news and spells a whole new era for resolving all types of
disputes, but particularly commercial disputes based on contracts.
Anu Massey became a Partner of Vizards Wyeth
in October 2005
Introduction
It is becoming increasingly important for businesses to have options open to
them to resolve their disputes in an environment that is less adversarial than
the court room, which is economical, private, quick and impartial.
Also, with many businesses becoming global, and international contracting
becoming increasingly common given that the world is becoming a much smaller
place and communication becoming instantaneous, businesses are recognising the
difficulties they face in the event that a dispute arises with an international
customer or supplier.
Given that there are so many transatlantic and international deals being made
every day, it is important for each party’s rights to be protected.
Therefore, any agreement ought to be in writing and not only that, in order to
have some recourse in the event that things go wrong, it is important for the
agreement to be in a form of a formal contract.
But which country’s laws should govern the agreement? That question in itself
can lead to a dispute.
It is therefore extremely important for businesses to protect their interests
and have their dispute resolved in a forum that offers real protection.
The only way that will happen is if the agreement is legally binding and the
dispute is dealt with in a proper judicial way, and can then be enforced in
either party’s home territory.
Issuing proceedings in another country and having to deal with lawyers in that
country will never be easy, especially if there is a language barrier.
But say you get over that hurdle, the laws of the country that governs the
agreement may not actually provide the best protection for both parties and more
to the point, may not provide the best protection for you.
Not only that, if something does go wrong and a dispute arises, in the event
that the matter proceeds to litigation, the cost of instructing a foreign lawyer
is likely to be substantial, and lets not forget the cost of your time in
dealing with the lawyers and the litigation.
But even if English law governs an agreement even though the other party is
international, and litigation successfully leads to a Judgment, the problem of
course will quite often be enforcing the Judgment abroad.
The time and cost of actually recovering the money even after Judgment in many
cases will outweigh any benefit of obtaining the Judgment itself.
This therefore discourages businesses especially small ones from even attempting
to resolve the dispute through litigation, even though they may have a strong
case on the facts.
Alternative Dispute Resolution methods therefore offer a good, cost effective
alternative to litigation thus reducing all of the above difficulties.
It gives the parties the opportunity to air their dispute in an informal
environment with an independent party facilitating resolution and bringing
finality to the matter.
What is arbitration?
Arbitration is defined as “the process by which the parties to a dispute submit
their differences to the judgement of an impartial person or group appointed by
mutual consent or statutory provision, to consider both sides of the dispute and
then facilitate a resolution to the dispute.”
An agreement reached as a result of arbitration is legally binding on the
parties (although arbitration can also be non-binding in certain cases),
although either party can walk away at any time prior to the agreement being
reached.
Some types of contracts, particularly construction contracts actually contain
clauses referring the parties to arbitration rather than litigation in the event
of a dispute.
Arbitrations are private and confidential and the parties are directly involved
in negotiating the settlement.
The arbitrator is objective and can assist the parties in exploring alternative
and creative solutions in order to reach settlement.
Arbitrators have a wide discretion in crafting the remedies in the arbitral
decision. If, however settlement is not reached, then the matter can be
submitted to litigation.
The United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards came into force on 7 June 1959.
The United Nations Commission on International Trade Law (UNCITRAL) was
established by the General Assembly in 1966.
In establishing the Commission, the General Assembly recognised that disparities
in national laws governing international trade created obstacles to the flow of
trade but also the resolution of disputes.
Sixty countries, for instance, member states elected by the General Assembly
form the Commission, and the awards made are readily enforceable in over 130
countries.
Membership is structured so as to be representative of the world’s various
geographic regions and its principal economic and legal systems.
The convention and later UNCITRAL applies to the recognition and enforcement of
arbitral awards made in the territory of a member state, arising out of
differences between persons whether physical or legal.
The benefits of arbitration
One of the main benefits of arbitration over litigation is clearly the reduction
in costs.
More often than not, as no strict procedure has to be followed, as must be
followed when litigating, the main cost will be the arbitrator’s fees. This will
usually be a fixed sum.
Depending on the nature and magnitude of the dispute, lawyers can and may
sometimes represent the parties.
The advantage of an arbitration is that the parties have the opportunity to
choose an arbitrator themselves rather than the arbitrator being imposed on
them, unless the agreement specifically provides for a particular arbitrator to
deal with this dispute.
Obviously the arbitrator must to be an independent person, however the parties
have the opportunity to explore various arbitrator’s CVs until they find a
mutually acceptable arbitrator, who is experienced in the type of matter which
forms the nature of the dispute.
The arbitrator will quite often be a qualified Barrister or Solicitor, or
professional who is trained in arbitration.
Given that the arbitration will normally be dealt within a specific timescale,
the procedure for which is much less formal than in the Courts, the parties will
agree a fixed fee for that time period with the arbitrator and both parties will
share the cost of the arbitrator at the outset unless the settlement provides
otherwise.
Therefore, it is much easier to factor in the cost of the proceedings to bring
the matter to a resolution into the settlement and also to consider the benefit
of resolving the dispute by way of formal means.
If the arbitration is “binding” arbitration the agreement reached at the end of
the arbitration is legally binding on both parties and can only be appealed in
very limited circumstances, unlike legal proceedings through the Court.
However, a binding arbitration generally means that the winning party can take
the arbitral award to a court of law in the event that the other party does not
comply with it.
Also, given the fact that the arbitration is conducted by an independent person,
chosen by both of the parties to the dispute, the proceedings are much less
adversarial and conciliatory and gives the parties a better picture of the other
parties’ point of view.
Therefore, this helps to maintain the relationship between the parties, and the
possibility of continuing their business relationship after resolving the
dispute.
The rules of evidence do not apply in arbitrations and there are no set rules as
to how arbitration is conducted, so that the parties can produce whatever
evidence they wish to produce.
Quite often, litigation can attract unwelcome media attention, specially for a
losing party. Arbitrations are private and confidential and not in the public
domain, so any adverse publicity can be avoided.
Therefore, there is no reason why the parties’ reputation will be affected
particularly in their industry.
Also, in America for example, certain types of cases may be determined before a
Jury.
Of course in England and Wales, all commercial disputes are dealt with at trial
by a Judge alone.
Therefore, the outcome of a case litigated in America could be very different to
that in England and Wales.
The decision of the arbitrator however will always be fair and independent.
Furthermore, bearing in mind the fact that arbitration is a private process,
there is no public record of the proceedings and the decision of the arbitrator
is only binding in that particular case and therefore does not set a precedent
for the way in which other such disputes have to be dealt with.
Arbitration therefore offers a real and viable alternative to litigation and
more and more contracts may begin to include arbitration clauses, providing for
this forum to be used to resolve disputes.
As for whether such an alternative spells the end for litigation, only time will
tell.
Source:
Credit Control Journal (Volume 27, No 6,
2006) |
