Individuals in the corporate world, often find themselves in deadlocks arising from corporate disputes. Therefore, being able to resolve these conflicts in a timely and efficient manner is a priority for maintaining a strong business continuity.
This article seeks to highlight the importance of Arbitration and Mediation when resolving corporate disputes in the business world.
- Alternative Dispute Resolution (ADR)
ADR which stands for “Alternative Dispute Resolution”, is a well-known method designed to support individuals about legal disputes. Despite the corporate dispute, individuals can choose from a wide variety of ADR tackling methods with the aim of avoiding the lengthy and unpredictable court-system.
ADR can be used in commercial and international transactions by using neutrality, confidentiality, and flexibility. Although there are various methods of ADR, this article will focus on Arbitration and Mediation.
Arbitration is an ADR method whereby the parties can agree to appoint one or several third parties as arbitrators, with the aim of resolving their dispute. In case of a corporate legal dispute, the arbitrator will listen to both sides and will issue an arbitral award which is binding and enforceable. Its unique characteristics such as, neutrality, privacy, and flexibility, make Arbitration a popular ADR method for individuals in the business world to choose it when tackling their disputes.
Advantages of Arbitration:
- Enforceable: A rbitral awards are binding and can be enforceable against the losing party.
- Flexibility: The parties have the right to choose the arbitrator, the location, and the rules of the Arbitration, which guarantees greater flexibility.
- Neutrality: Its neutrality can guarantee confidence, integrity and comfort which are essential especially in international commercial disputes.
- Professionalism/Expertise: Disputes which require expert knowledge such as, construction, Tech etc. can be addressed by an appointed Tribunal expert in each relevant field.
- Privacy/ Corporate secrets: Arbitration is ideal for individuals who want to keep their conflicts private especially, when this comes to business confidential information vital and sensitive for competition matters.
- Time Efficiency: Individuals who use Arbitration have the benefit of controlling the timeline of their dispute, as well as having a faster resolution than using litigation.
- Cost Effective: Arbitration can sometimes be costly but not as much as litigation.
Disadvantages of Arbitration
- Cost: Although Arbitration can be cost effective, it involves of several fees (administrative fees, arbitrators fees etc.), especially in complex cases.
- Court intervention: The court can intervene in several circumstances. For example, when one of the parties want to either, challenge or enforce the arbitral award.
- Lack of precedent: The arbitral awards that result from Arbitration are not set as legal precedents.
The applicable legislation in Arbitration proceedings is The Arbitration Act (Cap.4) and the International Commercial Arbitration Law of 1987 (101/1987) which is based on the UNCITRAL Model Law which adopts in the New York Convention for recognition enforcement of Foreign Arbitral Awards.
Mediation is a voluntary process and similarly to Arbitration, the parties will appoint a neutral third party to help them in solving their dispute. However, the appointed individual also known as mediator, will only facilitate in the communication between the parties and will not provide a binding decision. The mediator will listen to both sides and help the parties in reaching a mutually beneficial solution.
Advantages of Mediation:
- Cost effective: Mediation is of the most cost-effective ADR methods. Its simplicity and short procedure make it an attractive method for tackling corporate disputes.
- Effective Procedure: Mediation ensures a simple and cost-effective procedure. Also, the decision is not binding unless the parties intend to enforce it.
- Privacy: Mediation is a private resolution and usually cannot be used as evidence in the court.
- Protection of businesses relationships: Mediation is very important in corporate disputes as it is vital to protect the parties’ relationship. Therefore, the mediator will push for open communication and cooperation.
- Success Rate: Mediation guarantees a high success rate, as well as high compliance with the agreements reached.
- Time Efficiency: Parties who use Mediation can get a faster solution, especially if they want to preserve their business relationship.
Disadvantages of Mediation
- Limited powers of the mediator: In certain cases where the dispute is very challenging and complex, the mediator might not be able to help the parties. As a result, the parties will need to find another way to resolve their dispute.
- Limited areas of dispute: Mediation cannot resolve disputes which deal with violence, abuse etc.
- Parties’ willingness: For Mediation to be successful, both parties should be willing to resolve their dispute. Otherwise, if one of the parties is hesitant to cooperate then the chances for a successful Mediation are limited.
Mediation is regulated by the Certain Mediation Civil Disputes Act of 2012 (159 (I)/2012).
- Arbitration or Mediation?
When having to decide which of the two methods of ADR to choose from, individuals need to consider the type and specific peculiarities of the dispute in hand. Depending on the objectives, intentions, and type of relationship between the parties, the appropriate ADR method will be chosen.
In the last few years, Arbitration and Mediation have gained a significant attraction when it comes to resolving corporates disputes. Both methods can assist in the resolution of corporate disputes while ensuring confidentiality, efficiency, neutrality and protection of the parties’ relationship. Whether it is better to choose one of the two or a combination of both, is a matter which affects the parties and their willingness to cooperate.