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Why arbitration is good for your company

Arbitration Insights: Jacob Mutevedzi

In recent years, the popularity of arbitration as the preferred dispute settlement mechanism has spread like a veld fire. The flames of arbitration have licked and singed all facets of contemporary existence because of its clear advantages over court litigation. It is a versatile procedure that can be tailored to suit a heterogeneous range of disputes. This infinite flexibility is its crowning glory, but by no means its only attraction. Arbitration owes its success and popularity to a plethora of advantages as will be shown below.

Party autonomy
Commercial disputes frequently straddle multiple jurisdictions and involve extremely technical matters and complex laws. Predictably, parties will prefer a dispute resolution mechanism that is tailor-made to address these particular characteristics. In comparison, litigation in courts tends to be rigid and parties scarcely ever have the discretion to adapt the process to their particular needs.

By contrast, arbitration gives parties the latitude to tailor a bespoke arbitral process. Parties are free to agree to convene at a neutral location, submit to an arbitrator of their choice and to play by the rules and procedures that they have modified to meet their specific needs. This freedom from the often ironclad adjectival laws applied in courts is one of the main attractions to arbitration.

Single process and jurisdictional neutrality
The proliferation of cross-border trade means that commercial disputes are likely to span across multiple jurisdictions. For example, intellectual property (IP) rights can concomitantly exist as separate pieces of property under distinct municipal laws in a number of jurisdictions, notwithstanding the operation of international treaties that harmonise the registration of IP rights, such as copyright, trademarks and patents across signatory countries. As a result, in the event of IP litigation involving various jurisdictions, litigants might be forced to institute separate proceedings in those jurisdictions to enforce IP rights existing under each of them. Such proceedings may be potentially plagued by complex conflict of laws considerations. By comparison, arbitration accommodates manifold issues and rights emanating under different jurisdictions to be dealt with in a single process which results in a binding settlement.

Parties embroiled in cross-border commercial disputes place a premium on jurisdictional neutrality. Usually, none of the parties is agreeable to having the dispute determined in their adversary’s country. Arbitration affords parties that jurisdictional neutrality over national courts. Parties are free to elect a neutral forum for arbitral proceedings. They can also choose a neutral arbitrator who does not come from the same jurisdiction as the parties.

Specialised expertise
The subject matter of international commercial disputes cuts across an assortment of sectors. For instance, energy, construction, entertainment, mining, intellectual property and aviation, among a lot of other industries. Most of these disputes often involve very technical matters and sophisticated legal issues.

However, not every country has specialised courts or judges. Therefore, when courts lack the expertise to fully appreciate the complex factual, technical and legal issues at stake, a significant amount of time and resources may be required to break down the relevant technologies and laws to the courts.

Arbitration allows parties to choose arbitrators with specialised expertise. Specialists in law, technology or specific industries can be appointed as arbitrators.

Simple and flexible
The procedure of arbitration is often procedurally simple and versatile in comparison to litigation. Parties are free to agree on how the process will be conducted and they can choose suitable procedural rules.

Time and cost-saving
Litigation usually tends to be protracted and costly. Delays put parties at a disadvantage. For instance if intellectual property rights are of limited duration, such as patents, they may expire before the courts deliver judgment. Further, litigation is expensive and lawyers charge by the hour. The longer it takes to finalise the litigation the heftier the legal fees.

Most courts are clogged with backlogs and stretched to their limit. Matters take months, and sometimes years, to be finalised. Parties can avoid overloaded courts by going to arbitration. In arbitration, there is no need to render time-consuming explanations of the technical and legal issues at stake because the expert arbitrators are already conversant with the complexities involved. These time savings keep costs down.

Frequently, parties are spooked by proceedings in public courts when trade secrets or confidential information, such as experimental results from research and development, are involved. Such sensitive information can be divulged to the public through the discovery process. This exposure can ruin parties’ business prospects.

Arbitration allows the parties to regulate disclosure and access to sensitive information. Parties can keep information confidential through non-disclosure agreements. Arbitral tribunals can also issue protective orders to bar parties from having access to confidential documents. Moreover, unlike litigation which is conducted publicly, the entire arbitral process and the award can be kept confidential.

Invariably, arbitration begets binding awards which provide a certain and conclusive settlement of disputes. Court judgments can be reversed on appeal and in jurisdictions where the jury system is still used; lay jurors without technical know-how may make wrong decisions.

On the other hand, arbitration awards are crafted to be final and conclusive.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, known as the New York Convention has been described as the single most important pillar on which the edifice of international arbitration rests. It allows arbitral awards to be enforced in most countries around the world. In total, 157 states are party to this agreement thus making arbitral awards almost universally recognisable and enforceable.

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