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Arbitration can be better value for money
November, 23rd 2006
Flexibility of procedure, enforceability of awards, privacy and neutrality are some of the reasons why organisations are choosing international arbitration over litigation.

MR ASHWANI PURI, Executive Director, PricewaterhouseCoopers

Why do we need alternative ways to resolve disputes? Aren't disputes avoidable in the first place?

Realistically, it is not always possible to avoid disputes though foresight, planning and consultation can certainly minimise them, says Mr Ashwani Puri, Executive Director PricewaterhouseCoopers.

"Disputes may arise due to change of circumstances and perspectives of parties or even when the people working in organisations change," he explains. With a sharp rise in cross-border deals and international trade as a result of globalisation, there are also more disputes between companies from disparate geographies, where the legal systems are very different. "This gives rise to the need for alternative ways of resolving disputes, more commonly known as Alternative Dispute Resolution (ADR) system, to achieve speedy and discreet resolution rather than going through a court process," says Mr Puri. Here is his take on a few questions from Business Line:

Aren't developments in law and judiciary ensuring quicker resolution of issues?

ADRs are a supplement to the judicial system in any country. Though there have been positive developments in law and judiciary to expedite the settlement of cases, the number of outstanding cases in our courts continue to rise.

ADRs are a popular means of dispute resolution, especially for international business transactions where parties are often unfamiliar and, hence, uncomfortable with foreign legal systems.

Do organisations resort to the international arbitration route, rather than litigation, as a means of resolving cross-border disputes? Why? Any recent examples?

More and more organisations (nearly 73 per cent of those surveyed by PwC in a recent study on international arbitration) prefer international arbitration as a means for resolving cross-border disputes, either alone or in combination with other ADR mechanisms, such as mediation, negotiation and voluntary settlement. Flexibility of procedure, enforceability of awards, privacy and neutrality are some of the reasons why organisations are choosing international arbitration over litigation. Examples abound. The dispute between Jet Airways and Sahara is currently going through an arbitration process. Many family business disputes which cannot be resolved through discussion or mediation and conciliation end up in arbitration.

How do costs compare between international arbitration and transnational litigation? And what is the time involved in the two?

The generally held perception that international arbitration results in significant cost and time saving over transnational litigation is true only to a degree, and the PwC survey finds that these are no longer the primary drivers causing businesses to seek dispute resolution through arbitration.

Costs related to arbitration primarily comprise arbitration costs and counsel's fees, the latter often accounting for the bulk. Although many companies perceive international arbitration to be less expensive than transnational litigation, our survey found that the former is today often as expensive as the latter for small- and mid-size cases. In larger, more complex cases, international arbitration generally works out to be less costly and, therefore, represents better value for money. In a majority of the cases, international arbitration proceedings get resolved quicker than transnational litigation cases. However, the proceedings in some recent cases of international arbitration have simulated court proceedings, resulting in equal or more time in completing an arbitration case.

What are the stages in the lifecycle of an international arbitration?

The key stages in an international arbitration are Drafting of Arbitration Agreement (including analysis of the arbitration agreement and pertinent drafting considerations, such as the international treaties and model laws on international arbitration); selection of the arbitral tribunal in the event of dispute, selection of judicial assistance and experts; discovery and the presentation of evidence and interference with the arbitral process; and enforcement of the arbitral award.

Are there any preferred venues for international arbitration? If so, why?

The venue of international arbitration determines the procedural law which, in concert with institutional or ad hoc rules, will govern the conduct of arbitration proceedings. Among the most popular venues of international arbitration are the UK, Switzerland, France and the US. Legal considerations (the court system and country's commitment to accept and enforce arbitration awards), convenience, neutrality of venue and proximity to evidence and witnesses are the main reasons for companies choosing a specific venue.

What are the benefits of having a dispute resolution policy in the contracts?

A well-crafted dispute resolution clause in the contracts can provide a distinct advantage, and safeguard the interests of the company in the event of a dispute. It may be possible to include advantageous terms should the dispute end up in arbitration proceedings (such as choice of seat and selection of arbitrators). It is considered a best practice to include an international arbitration clause, including a choice of location and the law that will be applied in arbitration.

Does arbitration make use of inputs from experts? What are the top skills in demand?

Arbitration proceedings can be complex. They often resolve around complex business/accounting issues. For example, in cases involving Intellectual Property Rights, there may be complex valuations involving damages on multiple accounts. The parties in arbitration usually seek professional help in additional to representative lawyers from chartered accountants, chartered engineers and industry experts. Specific issues should be kept in mind while selecting experts for the arbitration process. In cross-border disputes, where national or cultural tensions may be high, the selection of an objective, internationally-recognised expert, who will be credible before any arbitration panel, should be strongly considered.

Any statistics on the extent of arbitration use?

While the use of arbitration is certainly increasing, statistics are difficult to come by. Parties may resort to arbitration under the rules of an arbitration institution (institutional arbitration) or mutually agree on their own process (ad hoc arbitration). The Indian Council of Arbitration (ICA) receives on an average 50 new cases each year. The number of cases referred annually to the Hong Kong International Arbitration Centre, one of the preferred venues of international arbitration in Asia, has increased from 54 in 1990 to 281 in 2005. The International Chambers of Commerce and the London Court of International Arbitration receive many times the references received by Hong Kong.

Is the current legal framework supportive of international arbitration? We have recently seen cases where parties to a business dispute approached the court despite there being an arbitration clause in the contract.

In India we have in place the Arbitration and Conciliation Act 1996 (which is now due for revision by an amendment bill), which provides legal support to international arbitration. However, a few additional steps are required to build confidence in arbitration and make arbitration a preferred mode of dispute resolution in the country. The key steps required are institutionalising arbitration along the lines suggested by a recent Parliamentary Standing Committee Report, having a pool of experienced arbitrators and experts, having quality infrastructure and running arbitration proceedings like normal court proceedings with timelines rather than as a part-time affair as is currently often done.

What is PwC's role in international arbitration? How are you investing in this?

PwC works with its clients globally on a host of complex issues. We are being increasingly instructed to provide expert evidence to quantify loss and damage or give opinions on valuation, economic or accounting issues arising in international arbitration cases around the world. At times, PwC partners are called upon to act as arbitrators in relation to a dispute.

To respond effectively to our client needs, we have developed a network of subject matter and industry experts, experienced in dispute analysis and litigation support. Internal consultations, sharing of experiences, guidance material and training help our professionals working on these engagements deliver better value to our clients.

Our deep involvement with assisting clients in international arbitration, and a desire to look beyond anecdotal knowledge also led us to sponsor research from the world-renowned School of International Arbitration, Queen Mary, University of London. The findings of this research, the largest independent statistical study on international arbitration and the first one to use empirical methods, were published recently.

In India, PwC partnered with FICCI to publish a paper on Alternative Dispute Resolution in India and were the Knowledge Partners for FICCI's Arbitration and Conciliation Tribunal (FACT) in organising a seminar on Conciliation and Arbitration in IPR and IT Disputes.

D Murali

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