Law 

Court versus Arbitration Proceedings: Do You Know How to Tackle Business Disputes Efficiently?

Most probably, all entrepreneurs have experienced some kind of business conflict in conducting their day-to-day business. Even though some industries are more prone to dispute than others, all businesses, from the smallest family firms up to large multinational corporations have to deal with disputes. Business conflicts that go much further beyond the regular terms may even jeopardise a firm’s existence per se. Therefore, there is a question of how to tackle such disputes efficiently.

As the saying goes, forewarned is forearmed. And the same applies to business disputes. Strictly speaking, even contract structuring as the starting point may affect whether proceedings will occur in the future and how their actual course will be. However, a well prepared contract may not be a sufficient preventative means. As contractual compliance by both parties is what matters. Also, the selection of the business partner with whom the deal is made is of vital importance, for instance with regard to the business partner’s reputation and history. Furthermore, it is essential to put in place appropriate warrants and guarantees such as contractual fines or bank guarantees prior to contract conclusion and to take into account whether the contractual performance or the agreed guarantee can be collected and enforced from the contractual partner if necessary.

A dispute’s life cycle, or how to reach seizure in five steps

  1. Contractual phase (selection of the contractual partner, stipulation of the contractual terms, etc);
  2. Phase prior to the dispute (compliance with statutory and contractual terms, etc);
  3. Phase prior to the start of proceedings (dispute identification, assessment of the procedural situation, etc);
  4. Procedural phase (course of the proceedings as such, focus on their efficiency); and
  5. Ruling execution phase (seizure, acknowledgement on an international basis, ruling execution, etc).

In the event that all measures fail and proceedings are inevitable, special attention ought to be paid to the decision whether the dispute shall be tackled by way of court proceedings or arbitration proceedings. Both these alternatives have advantages and disadvantages. However, the actual aptness of one or another depends on the aspects of the actual case. Generally speaking, arbitration proceedings are faster. Moreover, thanks to the option to select the arbiter, the proficiency factor is secured. On the other hand, court proceedings are generally less costly and provide legal coercive means (such as witness summons).

Non-public, less costly, or fast?

Major differences between regular court proceedings and arbitration proceedings:

COURT PROCEEDINGS

  • Public
  • Generally slower
  • No option to select the judge (ie absence of specific proficiency)
  • Formal
  • Lower expenses
  • Coercive means (such as witness summons)
  • Limited enforceability abroad (especially outside the EU)
  • Legal remedies (ie better foreseeability of the ruling)
  • Lower degree of confidence in national courts in international transactions

ARBITRATION PROCEEDINGS

  • Non-public
  • Generally fast (the option of fast-track proceedings)
  • An option to select the arbiter (that possesses the relevant proficiency)
  • Flexible procedural rules
  • Greater expenses (in particular for international arbitration proceedings outside the Czech Republic)
  • Limited number of coercive means
  • Greater ruling enforceability abroad, in line with the New York Convention
  • Limited options for remedying poor-quality/surprising rulings

In addition, international disputes are a special category. In resolving international disputes, arbitration proceedings are the rather more apt option, as enforceability under arbitration proceedings is covered by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is internationally valid. In assessing international disputes, foreign legal systems are the most critical factor. However, frequently, the legal systems are different from the domestic jurisdictions of the dispute parties. Another significant aspect in resolving international disputes includes genuine commercial practice. And last but not least, the equity principle may be applied in resolving international disputes, which is based on the general understanding and interpretation of justice. Moreover, similarly as in “domestic” arbitrations, the possibility of the lack of the arbiter’s impartiality is a threat to international arbitrations.

Are you planning on concluding a contract with a potential business partner, but do not feel confident about his reliability? Or do you have a large number of business partners and wish to verify them all at once? Use support via the Maják software instrument by Deloitte that will help you with ongoing checks of your vendors and customers.

The article is part of dReport – August 2019, Legal news.

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Law 

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