Arbitration and mediation are different methods of dispute settlement that can be broadly placed under the category of alternate dispute resolution (ADR) methods. These methods involve out-of-court settlements to avoid unnecessary litigation and receive quick settlement of disputes.
Business is one of the most widely seen professions. Thus, it is quite natural that there would be a slew of business disputes wherever one looks. Right from contractual interpretations to breach of obligations, there are bound to be disputes whenever parties come to deal with each other. Business conflicts can arise from nearly any aspect of it, although, some are more common than others. Businesses that are into providing services may feel that they were not paid enough for the quality of services they had rendered, one party may feel like it has received inferior goods than what was originally contracted for, there may even be disputes between businesses and consumers – business disputes are a quite unavoidable aspect.
ADR methods have started becoming popular due to the ease and speed of dispute settlement. Litigation for long has been the only way for settling business disputes. However, with the acceptance of alternative methods like arbitration and mediation, more and more businesses have started opting for these methods.
Arbitration is a method of settling disputes without either party having to go to court. This involves a neutral third party who receives evidence, hears the arguments and then passes an order known as an award. The award is final and impartial. Usually, agreements entered into by businesses contain an arbitration clause that states that any disputes arising of a contractual nature between the parties would be referred to a select arbitrator in a select location. Arbitration is an excellent alternative to litigation. Mandatory arbitration is also becoming popular now where contracts state that jurisdiction over disputes would only be settled by an arbitrator and not by a court.
In India, arbitration is backed by the Arbitration and Conciliation Act, 1996 which was amended by the Arbitration and Conciliation (Amendment) Act, 2015. This Act is based on the UNCITRAL Model Law on International Commercial Arbitration 1985 and the UNCITRAL Arbitration Rules 1976. The Act provides for a fair chance for both parties to be heard and to settle on the procedure that would be followed. When the time to file an application to set aside the award has passed or application has been refused, the award has to be enforced under the Code of Civil Procedure, 1908, same as that of a decree of a civil court .
The Act mandates that arbitration proceedings have to be completed within a period of twelve months , however, if both the parties to the arbitration consent to the extension of time, then the period can be extended further by six months.
The Act also makes provisions for fast track arbitrations. Parties to an arbitration agreement may decide to mutually appoint a sole arbitrator who passes an award on the sole basis of written pleadings, submissions and documents . Oral submissions may not be required for the sake of faster disposal of the dispute. Such an award has to be passed within six months.
Impartiality of an arbitrator is the most important aspect of arbitration proceedings. Section 12 of the Act mandates that an arbitrator must submit in writing any reasons he believes would hamper his impartiality or independence.
The following are the benefits of arbitration for settling business disputes:
1. Cost effective: Litigating a dispute in court is an expensive process. Arbitration is a much more cost-effective way of settling disputes .
2. Speed: Speed is another factor of arbitration. Usually, there are well defined time limits to pass awards, resulting in quick disposal of the matter. Arbitrators do not have to face big crowds and so have lesser caseloads.
3. Fairness: Arbitrators are usually appointed by both the parties to the agreement resulting in a fair selection of the arbitrator. No single party will have the final say over who the arbitrator should be.
4. The finality of Award: Finality of an award is another reason to opt for arbitration. Since awards passed are final in nature, it puts the disputes between the parties to rest and allows them to move on.
5. Simple Procedure: Since arbitration does not involve courts, they are not bound by any procedural laws of the land. They are free to take on their own procedure to hear arguments, receive evidence and pass awards.
6. Confidentiality: This is one of the most primary reasons to choose arbitration. Arbitration proceedings are confidential, that is, there is no public record preserved of the dispute. This makes whatever trade secrets or confidential details of the business remain between the parties themselves.
7. Specialization: Parties can choose an arbitrator skilled in the law they are facing disputes over, for example, patent law. Courts do not assign judges on the basis of specialty in law but in arbitration, this may be the case .
Mediation is another method of resolving business disputes. It is the effort between conflicting parties to reconciliate their differences and to make compromises . A mediator must understand both parties to the dispute and their rights and interests and thus put forth workable solutions that can be agreeable to both parties. Mediation usually involves the disputing parties, their legal counsel and a neutral third party who facilitates the discussions .
There are usually three different types of mediation :
1. Facilitative: In this type, the mediator has to steer the parties towards a mutually agreeable solution.
2. Directive: This type requires the mediator to be much more involved in the solution finding process. He has to give options to the parties and remain more proactive.
3. Transformative: This type requires the parties to steer the talks and the direction in which they want to head and the mediator has to follow their lead and model ideas based on their discussions.
Mediation is the step before litigation. Instead of resorting to expensive courtroom visits, it is better to discuss the problem before an impartial third party and consider the options that are available and agreeable to both parties.
The following are the benefits of choosing mediation as a way to resolve business disputes:
1. Preferable Outcome: The goal of mediation is to come up with options that are beneficial to both parties. Unlike arbitration, the goal will not be detrimental to either party since both parties are involved in the discussions instead of just an arbitrator in arbitration.
2. Lower Costs: Mediation is not a long drawn-out process since it involves only discussions between parties and a third party. Costs are much lower since parties do not need to engage legal counsel over a long period.
3. Preservation of Relationships: Since both parties work together in order to achieve an agreeable solution to their dispute, the environment is much less hostile than it would be in a litigation. This leads to both parties taking on a friendlier approach towards each other.
4. Confidentiality: Discussions under mediation are completely confidential. They take place in a private room only between the parties and their mediator. It protects trade secrets and other confidential documents that would otherwise be open to the public as a case in litigation.
5. Flexibility: Parties are allowed to mold the discussions in a way most suitable to them. The mediator has to follow the path laid down by the parties and not the other way around. Parties decide when to meet and what kind of solution they are looking for.
Arbitration v/s Mediation
Since both options looks appealing to resolve business disputes, there is a need to distinguish between the two:
1. Mediation is when a neutral third party aims to assist the parties in arriving at a mutually agreeable solution whereas arbitration is like litigation which is outside the court and which results in an award like an order.
2. Mediation is not binding on the parties whereas arbitration is.
3. Mediation is more collaborative, arbitration is more adversarial .
4. The process of mediation is more informal than that of arbitration.
5. The outcome in mediation is controlled by the parties whereas in arbitration it is controlled by the arbitrator.
6. In mediation, the dispute may or may not be resolved whereas in arbitration it is always settled in either party’s favor.
From the above, it is evident that mediation and arbitration are two very distinct forms of alternative dispute resolution methods. Mediation is more discussion-oriented and arbitration is more litigation based. Mediation is a good first step in trying to resolve business disputes. It is an easy and cost-effective step that seeks to maintain business relations between the parties by putting forth an agreeable solution. Moving straight to arbitration is a way of acknowledgment of loss of control over the situation. Arbitration is a good way to settle the dispute if mediation does not work effectively or the parties cannot bring themselves to work out a solution that benefits both of them. Thus, both are an essential step in resolving business disputes. Arbitration should follow meditation.