There are many ways to solve disputes
This article is published in journal of North Karelia Chamber of Commerce.
The court of law procedure
In general, in court of law system parties can bring a matter to a court to be solved irrespective of other party’s opinion. In court of law procedure disputes will be solved according to legislation and therefore all parties will be treated same way regardless their funds or status. The benefit of court of law system is that hearing is mainly public and judges are competent to settle disputes.
Despite of that, court of law system’s functionality has been criticized for a long time. General court of law procedure has been criticized e.g. for the duration of process and high costs. Parties do not necessarily get their matter tried as fast as it should be. The slowness of court law system is problematic especially in business disputes, because getting the final decision can take several years. And this is unsustainable e.g. in disputes concerning corporate acquisitions. The court of law procedure is expensive especially for the losing party and the risk of losing may have an influence on parties’ willingness to bring their matter to litigation in the first place.
In court of law system it is not possible to take into account all the interests and needs of all the parties and therefore it is possible that the parties might be disappointed with the decisions of the court. Although judges’ professional skills are good, their expertise do not necessarily be enough in the field in question. The court of law system is quite complicated and could seem difficult to understand so the experience of fairness in hearing could become weaker.
The alternative for court of law procedure is arbitration
There are also alternative options for solving disputes, either arbitration in the court or in private procedure, for example in Finnish Bar Association’s arbitration or Central Chamber of Commerce’s arbitration in which its own arbitration regulations will be applied. In the arbitration procedure of Finnish Bar Association they can handle disputes in which out-of-court settlement can be amenable. The parties of the dispute choose together or ask Finnish Bar Association to suggest a lawyer who is specialized in arbitration and who works as arbitrator between the parties. An arbitral tribunal supervises arbitration according to arbitration rules by the Central Chamber of Commerce, which assists parties to start the arbitration, suggest arbitrators for parties when needed and nominates the arbitrator when parties are not able to agree on the person. Therefore the parties can get an arbitrator who has precisely the expertise and knowledge needed in their case.
To court arbitration can be taken disputes and petition matters and they will be arbitrated by judge.
The court arbitration can be done while dispute is pending. The trial is waiting until the arbitration is concluded and the arbitration will be conducted by other judge than in trial. Settlement is also possible in court hearing but that is not considered as an actual arbitration.
Mutual feature for arbitration procedures is flexibility of the system. The aim of arbitration is to make it possible for the parties to reach their own solution which does not need to be substantively or legislative correct. The procedure is informal and based on voluntariness. In the Finnish Bar Association’s arbitration the parties commit to follow the rules of arbitration but the course of arbitration is not defined by details. The parties should try to solve their matter in arbitration and the arbitrator should help the parties to find a solution which satisfies both. In the arbitration of the Central Chamber of Commerce, arbitrator and parties can agree quite freely about the arbitration and the proceedings according to the special needs.
The court arbitration is basically public, but parties can ask if arbitration could be done without outsiders present, whereas arbitration in Central Chamber of Commerce and in Bar Association is always confidential. The benefit of arbitration is its simplicity and the swiftness of process. Parties do not need to wait their matter to be tried as long as in general court of justice. Arbitration is often cheaper than handling the matter in general court. Due to that, process threshold is lower because parties are not taking as high financial risk when they choose arbitration.
In court arbitration the parties can ask arbitration resolution to be confirmed to make it valid and enforceable and the payment basing on the contract can be collected in debt recovery procedure when needed. The arbitration resolution can be confirmed enforceable in court of justice also in cases when the parties have used out-of-court arbitration e.g. arbitration of Finnish Bar Association.
In arbitration procedure parties’ individual interests and needs can be taken into account better than in trial. Hearing is mainly future-orientated and therefore in the hearing parties try to find settlement in which also the situation after the dispute will be taken into consideration. The target of the arbitration is to get everybody satisfied with the final resolution. Relationship between parties remains often better in arbitration which might be important in business relations. Because parties can affect the final solution of arbitration by themselves, they might experience arbitration to be fairer than trial which is strictly tied to law. Rightful experience makes parties to keep agreements better.
Arbitration has also disadvantages. One of them is for example risk of loss of a right, because the resolution does not need to be substantively right. Because arbitration and its final solution are not tied to law, the arbitration might lead to the opposite than it would have been in court of law. Besides, the party whose knowledge or funds may be less than the other party’s, might be forced to accept an agreement, which is not necessarily beneficial for him. Success of arbitration procedure requires equal basis and knowledge from the parties and understanding about their rights and obligations. Using a lawyer might be recommendable in the arbitration process.
The alternative for court of law is arbitration
Using arbitration is based on freedom of contract. Civil law dispute, in which settlement is amenable, can be let for arbitrators to be solved rather than take the matter in litigation. When parties have agreed to use arbitration to solve their disagreements, they cannot back off without consequences like in settlement. On demand of the other party, the arbitration is compulsory.
The arbitration is, however, flexible in many ways like settlement. Basically arbitration award will be based on law but the parties can also agree otherwise. If parties are unanimous, they can for example perform witness hearings in writing and/or orally. The possibility to customize procedures to match the dispute in concern leads to more practical and effective solution.
A significant benefit of arbitration compared to court of law trial is swiftness. The resolution of arbitration is final and parties cannot appeal. Because of that parties do not get themselves into a long appeal procedure. Getting the final resolution takes practically six to ten months. Whereas getting legally valid sentence after all appealing stages can take several years.
Confidentiality is typical for arbitration which is often advantageous for parties in business life. Trial in general court of law is mainly public. Although it is possible to deviate from this, even the awareness that the parties have a pending dispute, might harm the parties. In arbitration process the ongoing matter can be hold under wraps. Another benefit of arbitration is also the expertise of the arbitrators. Arbitrators are often nominated after their expertise to corresponding cases and therefore they have unique expertise to conduct the matter. Parties are also entitled to affect to the selection of arbitrators.
The costs can better be predicted in arbitration than in trials in court of general jurisdiction. Although the fees of arbitrators increase the costs of arbitration compared to those of general court of law, the costs do not raise as high as in trial with all possibilities of appeal.