Business disputes. Lithuanian companies discover arbitration

Litigation and arbitration are two different dispute resolution methods businesses and private individuals choose. We have seen an increasing interest in arbitration among businesses, although there are not many such cases yet

According to the latest data from the Vilnius Court of Commercial Arbitration (VKAT – Vilniaus Komercinis Arbitražinis Teismas), the most frequent users of this legal procedure are businesses in the construction and trade sectors – 18% and 27% of all proceedings, respectively. In Lithuania, the ratio of international to national cases has been more or less the same in recent years. In 2022, Eastern/Central Europe was the predominant area of origin of litigants in international cases. On average, the cases were completed within eight months. It is precisely this promptness that businesses seek when choosing arbitration over court. Arbitration is also often more rapid than court proceedings because it does not involve lengthy appeals processes, and the decisions are final. This offers the opportunity to achieve the desired result more quickly and thus save time.

The competence dimension also distinguishes arbitration. Arbitrators are often professionals in their field, with an in-depth knowledge of the specific area of dispute. This enables complex issues to be resolved more efficiently. Although highly qualified, judges cannot always offer this level of concentrated specialisation. The arbitration process allows the parties to choose their specialist in the field of the dispute as arbitrators, ensuring that an expert in the respective field hears the case. For example, in a dispute concerning the quality of specific products, the arbitrator may be a professional in that field. It is worth noting that the arbitrator is not necessarily required to be a lawyer.

Confidentiality is another significant advantage of arbitration. Unlike courts, which are usually public, arbitration proceedings are confidential, and the decision is usually not disclosed to the public. This is especially important in business litigation, where preserving trade confidentiality or business reputation may be essential. Privacy in arbitration certainly helps to protect commercial business confidence.

In arbitration, the parties have great flexibility regarding the number of arbitrators, the language of the proceedings, the law to be applied, and the place and time where the dispute will be resolved.

The arbitral award becomes final when issued and must be enforced by the parties. Disputes may occur regarding the legality of the arbitral proceedings themselves in an attempt to challenge the arbitral award before the Lithuanian Court of Appeal, but such disputes are not frequent.

Arbitration – it is well worth it

Preparing for arbitration is almost no different from preparing for court proceedings. However, it is only one process (there is no appeal), so it reduces the time legal advisors spend on it.

Arbitration can be more expensive for low-value cases. Still, given the length of the trial and the need to go through several instances, the final cost may be similar or even lower if arbitration is chosen. It is estimated that the costs of arbitration can amount to between 2% and 3% of the claim amount. Arbitration is most often used for disputes involving large sums of money.

In the context of international cases, arbitration is valued for its lower formality and faster process. This is particularly important in an international environment where legal systems and processes can differ significantly between jurisdictions.

Although tendencies show that arbitration is becoming more widely discussed and popular among business entities, there is not yet a widespread preference for this method of dispute resolution. In Lithuania, only around 30 cases a year are heard in arbitration. However, businesses appreciating the advantages of arbitration, particularly its efficiency, speed, confidentiality and competence, are increasingly turning to this method to seek more effective and accurate dispute resolution. According to the Vilnius Court of Commercial Arbitration (VKAT), 22 cases were received in arbitration in 2022, 27 in 2021 and 25 in 2020.

Equally important, arbitration awards are recognised and enforced in more than 130 countries worldwide that have acceded to the 1958 New York Convention, and the number of these countries is growing yearly.

Inga Kostogriz-Vaitkienė, Managing Partner, CEE Attorneys

Inga Kostogriz-Vaitkienė

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