IS ARBITRATION REALLY COSTLY?
One of the most recurrent criticisms of arbitration is its cost. However, the cost of arbitration must be put in context, considering its benefits versus the reality of the judicial alternative.
Indeed, it is undeniable that the use of arbitration entails costs that are not incurred in a common judicial process, such as the payment for the administration of the arbitration of the arbitral institution chosen, and the arbitral tribunal fees. As for attorneys’ fees, in both cases, these have to be covered.
Regarding the international context, the arbitration option is undoubtedly the solution for excellence since, otherwise, we are exposed to debate on which the court has jurisdiction to hear the dispute. This aspect alone can take a considerable amount of time and cost from the company. Subsequently, if it turns out that the competent court is the foreign court, we run into issues of differences in ours and their legal systems, languages, culture, and even issues about the quality and independence of the judicial system that is competent.
Both national and international arbitration reside on the has their reason of being in the PRINCIPLE OF PARTY AUTONOMY. Therefore, to submit a dispute to arbitration, an ARBITRAL AGREEMENT is required. From this PARTY AUTONOMY, another fundamental principle is derived, THE RIGHT OF THE PARTIES TO DETERMINE THE PROCEDURE OF THE ARBITRATION, since the procedure chosen by them, including the form of appointment of the arbitral tribunal, takes precedence. In other words, the arbitral tribunal is subject to the procedure chosen by the parties. The arbitral proceedings must be carried out following that procedure, and only if the parties have not contemplated an specific issue and disagree on the determination of the procedure to be followed, the arbitral tribunal may decide procedural issues, with a clear limit, established in the PRINCIPLE OF EQUITABLE TREATMENT, which is nothing more than the right to due process, the right to defense and contradiction.
In addition to the above, the arbitration process is characterized by its INFORMALITY and is limited in the RECOURSES of the decisions of the arbitral tribunal and the award, as opposed to what happens in a traditional judicial system, which is based on a rigid procedure that cannot be modified by the parties and which contemplates a diversity of recourses and appeals and instances that causes that the final resolution can extend in time and is exposed to the vicissitudes of traditional justice, such as congestion of the system, diversity of judges intervening in the different stages of the process, among others.
On the other hand, arbitration is characterized by the principle of MINIMUM INTERVENTION OF THE JUDICIAL AUTHORITIES, which only occurs in the cases expressly indicated, which leads us to another of the characteristics of arbitration – its more EXPEDITE. Arbitration is designed to be a much faster process than ordinary justice. The appointed arbitral tribunal normally handles only that case, and in principle, it is the arbitrators that are part of the arbitral tribunal, themselves are involved from start to finish of the arbitral procedure. Furthermore, one of the main obligations of the arbitrators when accepting a designation, is the duty of disclosure that the arbitrators must render and in which they must disclose if they have the necessary time in their agenda for the prompt and due attention of the case.
Another principle that characterizes arbitration is the PRINCIPLE OF FAVORABILITY OF ARBITRATION, which is embodied in two stages of the arbitration proceedings: The first one , in reflected in the obligation of regular courts, when requested by one of the parties, to refer the parties to arbitration when the dispute is part of an arbitration clause and the other, at the time of the recognition and enforcement of the award, in which the burden of proof is on the party against whom the recognition and enforcement of the award is sought. The award must be recognized and enforced unless that party proves any of the grounds for non-recognition and enforcement of an award established in the New York Convention of 1958.
Another advantage that is attractive to the parties and why they resort to arbitration is that of SPECIALITY. When faced with complex issues or disputes that require specialized knowledge, the parties can choose to designate an arbitral tribunal with arbitrators that have specialized knowledge in the dispute in question, which does not happen in the regular judicial system, in which the dispute reaches the judge by role, turn or territoriality.
Finally, as a particular feature of arbitration, the only legal recourse against the award is that of NULLITY OR ACTION TO SET ASIDE. It is heard by the judicial authority defined according to each legislation; however, the latter cannot change the merits of the arbitral tribunal’s decision. The grounds for annulling an award are related to the violation of the PRINCIPLE OF EQUITABLE TREATMENT, in addition to others that have to do with cases of ultra and extra-petita, the arbitrability of the object of arbitration, validity of the arbitration agreement, and public order.
Having pointed out the advantages of arbitration, we must also point out that this is not the appropriate means for all cases, so it is important that the parties when agreeing on an arbitration clause, recur to the advice of lawyers with the right knowledge of arbitration and not just include a standard arbitration clause in their agreement without weighing the particularities of the dispute.c Furthermore, when opting for arbitration they should understand that it is a process that has a different cultural and legal handling where the PRINCIPLE OF GOOD FAITH is of special importance.
Arbitration should be seen as an option to resolve a dispute under a procedure diametrically opposed to the one applicable in regular courts, which may prove to be COST-EFFECTIVE in the long run, if one takes into account the lengthy process of a judicial proceeding, which can take a long time, and which in many occasions is delayed due to the congestion of the courts and where unfortunately the PRINCIPLE OF PROMPT AND COMPLETE JUSTICE is not always honored, causing the final result to be ineffective.
In conclusion, despite the criticism that arbitration is costly, and that here we are trying to demystify, we are aware that this additional cost is a reality, the system and the national and international arbitration community are making enormous efforts to address the issue and seek ways to reduce costs , and making arbitration a COST-EFFECTIVE option.
As they say…… CHEAP CAN BE EXPENSIVE!