Advantages and Disadvantages of Arbitration

This article discusses the advantages and disadvantages of Arbitration. Arbitration has been a major part of the history of India. Previously, the parties in a dispute would submit their arguments to a group of wise men, which later came to be known as the Panchayat system.

[1]In the international sphere various separate laws have established a culmination that was reached with the creation of the Permanent Court of Arbitration. With its establishment the commitment of the international community towards a peaceful resolution of disputes was evident.

There are various types of arbitration, such as ad-hoc arbitration and, institutional arbitration, domestic and international arbitration. The popularity of ad-hoc and institutional arbitration has been debated on which in a study, “Corporate Attitudes and Practices towards Arbitration in India” conducted by Price Waterhouse Coopers (PWC), it has been revealed that “the majority of the companies in India that experienced arbitration preferred ad-hoc (47%) over institutional arbitration (40%).

[2] Singapore and its institutions have emerged as the most popular arbitral institutions in the world which are followed by the London Court of International Arbitration.

There was a further increase in the popularity of arbitration after the UNCITRAL model Laws on International Commercial Arbitration were devised. The UNCITRAL model laws triggered a series of municipal laws to be formed based on these laws.

The popularity of arbitration was accepted by almost the entire international community. However, the reason for the growth in popularity was kindled by the advantages that arbitration has over adjudication or other forms of dispute resolution. The article is intended to discuss the advantages and disadvantages of arbitration.

Advantages of Arbitration

1. Fairness

There is an element of fairness that prevails in the arbitration process from the very inception. The parties have a say in the selection of arbitrators, the parties are heard individually in an arbitration proceeding, and even more importantly, the very establishment of the process of arbitration is on the basis of the fact that the parties decide to settle their disputes amicably.

2. Preserves time

The process of arbitration preserves the time loss not only for the parties but also saves the time of the court. Most civil cases take a lot of time to be resolved by the courts. Often a generation lapses before the completion of the arbitration process. The emergence of the processes of alternative dispute resolution had been to reduce the time of the adjudication process. In addition to it, there is a requirement to resolve commercial disputes in the fastest way possible.

Therefore businessmen prefer choosing arbitration for resolving disputes in comparison to other forms of dispute resolution. Arbitration is also a flexible process whereby the selection of the venue and the time for the proceeding are chosen by the parties themselves.

3. Cost-effective

The time saved in the process of arbitration also saves the money involved in the process. Compared to adjudication, the costs involved in arbitration are minimal. The quality of its being cost-effective is one of the reasons that the parties prefer using arbitration as a means to resolve their disputes.

4. Confidentiality

Another factor leading to the popularity of the process is the importance given to the confidential information involved in the process. During the term of the process, it is kept in mind that the confidentiality of the parties is not tampered with. The recent amendment to the Arbitration and Conciliation Act in the year 2019 in India makes the parties in the arbitration duty-bound to keep the utmost confidentiality of the process.

While deciding the venue privacy is kept in mind. This ensures that the parties have the utmost confidence in the process of arbitration and that they can disclose their information without fear.

5. Binding

The decision made at the end of the arbitration process draws a sense of culmination because of several factors, such as the agreement between the parties, the inclusion of legality, the non-appealable conditions of the arbitral award, etc. Therefore arbitration is preferred over most of the other forms of ADR because it provides a sense of surety. Furthermore, the arbitral awards are enforceable, which makes arbitration a binding process.

6. Award based on an agreement

Arbitration is often a result of an absolute agreement between the parties, as no win-win situation can occur until the parties are not in agreement with each other.

7. Simplified Procedures

Legal outcomes are more adaptable to the two parties present in the dispute. Each party does not have to hire an attorney for representation.

8. Informal process

In the process of arbitration, the selection of the arbitrator is based on the choice of the parties. The setting during the time of the procedure is informal and suitable for discussion. Unlike the courtroom, where a level of formality has to be maintained, arbitration allows the friendly exchange of words without many mannerisms to be followed.

9. Prevention of hostility

Since the process of arbitration includes within its scope discussion and solving the issue at hand amicably, therefore hostility is prevented. Unlike the process of the court, where there are open argumentation and hurling of accusations, arbitration incites amicable discussion.

10. Control

The parties in a dispute have greater control over the process of arbitration than that of any other dispute resolution process this is because the fact that from the start, the parties are in a position of control. The parties are directly involved in the decision-making process through their consent to the agreement.

Disadvantages of Arbitration

1. No Appeals: There is a small scope of appeal in the arbitration award. The fact that there is less scope for appeal in awards is one of the most glaring disadvantages of arbitration. whenever there is a problem with the award, there would be no scope for appeal or correction.
2. There are varied guidelines for arbitration, and it is very difficult to choose among those guidelines. Similarly, there are a number of institutions providing the facility of arbitration, it becomes very difficult to choose among the organizations.
3. In some countries, there are different statutes for domestic and international arbitration. This makes it difficult to ascertain the applicability of the laws relating to international arbitration.
4. One of the major issues faced during arbitration is the cross-cultural language barrier. There is always a discrepancy in the language and culture of the two regions. It becomes very difficult to bridge the gap and come to a unified solution.

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[1] Metha, U. Vijjay, Institutional Arbitration: The Emerging Need for a Robust Dispute Resolution Mechanism in India, (2018) PL March 76.

[2] Corporate Attitudes and Practices towards Arbitration, (https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and- practices-towards-arbitration-in-india.pdf)

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1. International centres of Arbitration(Opens in a new browser tab)
2. Regional Arbitration Centres (Opens in a new browser tab)