Taking counsel

  • 2005-05-04
  • By Renata Berzanskiene, attorney–at–law and partner at Sorainen Law Offices, and an arbitrator at the Vilnius Court of Commercial Arbitration
Litigation or arbitration?

The settlement of commercial disputes by arbitration is becoming more and more popular. However, the statistics in all three Baltic states differs significantly. In Lithunia, approximately 15 arbitration disputes are solved yearly, in Estonia 's 30 and in Latvia 's more than 7,000. This comparison shows very different arbitration practice and culture. I've often heard Latvian commercial lawyers say that they advise litigation. In a situation where arbitration in Estonia and Lithuania is only gaining momentum, the chaos in Latvia led to a violation of the basic principles of arbitration in some cases. Arbitration itself has significant advantages in solving commercial disputes, and the improper application of this tool cannot limit it as such.

A principal characteristic of arbitration is its flexible procedure. If arbitration loses its flexibility, it loses its biggest advantage. In litigation, procedural rules leave very little or no areas in which the judge can deviate from the civil procedure structure. Major arbitration regulations empower arbitrators to determine the procedure that they consider appropriate for any particular case, subject always to party agreement.

Another important feature of arbitration is that, as a rule, the arbitral awards are to be final and binding. Judicial review of awards is narrowly limited to issues of fairness, jurisdiction, and public policy. It reduces litigation costs and delays, however is not possible to correct wrong arbitral awards. Arbitral awards are generally more easily enforced in foreign states than forum selection clauses or a national court judgment. More than 130 states have acceded to the New York Convention, which obliges contracting states to enforce arbitration agreements and awards (subject to limited exceptions).

The principle of confidentiality is of utmost importance in settling commercial disputes, differentiating the arbitration procedure from the court procedure, since the latter is public. Arbitration hearings are confidential, and no media/public people are allowed to attend private hearings. The arbitral awards are not published, nor are they directly accessible. This is particularly useful to the businesworld, where confidentiality issues are extremely important nowadays. However, the effectiveness of this confidentiality largely depends on the goodwill of the parties, since most arbitration rules never explicitly obligate the participants in the arbitration to protect the confidentiality of proceedings.

Fourth, the court system may simply lack competence and experience in resolving international disputes, especially in lower courts. By contrast, the parties can select arbitrators with substantial experience. However, parties are often unable to agree directly upon the choice of a sole or presiding arbitrator, thereby requiring appointment by an appointing authority.

Arbitration is often praised as a prompt and inexpensive means of dispute resolution. However, difficulties in scheduling hearing dates, the need to agree on various procedural steps and other factors may result in lengthy arbitration. In addition, incomplete or otherwise defective arbitration clauses may result in proceedings where the scope or enforceability of the provision must be litigated, which can entail additional costs and delays. Nonetheless, due to the fact that there is no backlog of cases and only limited grounds to review the award, in most cases arbitration proceedings are still quicker than litigation in national courts. One should bear in mind that both arbitrators and such institutions must be paid by parties. Nonetheless, these expenses will generally be less than legal fees and other expenses required for lengthy appellate proceedings and difficulties in obtaining effective enforcement of a foreign judgment. However, it should be said that the principle of efficiency should not prevail over the goal of having the dispute resolved fairly and properly. In order to reach the compatibility between the principle of efficiency and the fairness of the procedure, the parties should bear responsibility of cooperation and the stimulation of the proceedings.

Based on the above, you could conclude that such commercial disputes are preferable to be solved by arbitration. However, the particularities of the arbitration practice, depending on the country and the institution should be taken into consideration.