Arbitration vs Litigation
Finding an efficient and cost-effective resolution for your commercial disputes not only preserves time and resources but also shields you from significant stress. While litigation is a widely recognised approach for resolving such disagreements, it’s not your only option.
Arbitration – a method of alternative dispute resolution (ADR) – offers an alternative avenue for securing a legally binding decision in business disputes. But, when it comes to litigation vs arbitration, which is best?
Unfortunately, there is no straightforward answer to this question. While arbitration offers several advantages, its appropriateness depends on the specific circumstances of each case. And in some instances, a robust court strategy is the best approach.
In this quick guide, we take a look at the pros and cons of arbitration vs litigation to identify the best approach for your particular circumstances.
What is arbitration?
Arbitration is a viable alternative to court litigation. Through this ADR method, parties embroiled in a legal dispute willingly choose to present their case before an impartial third party, known as an arbitrator (or a panel of arbitrators).
The arbitrator makes a judgement based on the evidence presented at a tribunal. Unlike other ADR methods, such as mediation, arbitration culminates in a legally binding award.
Many commercial contracts proactively incorporate arbitration clauses, which dictate that any disputes will be subject to resolution through arbitration. If you are subject to such a clause, it is unlikely that you will be able to opt for litigation instead of arbitration.
Today, arbitration is being used to settle a wide range of disputes, and over the last few years, it has become increasingly popular. Indeed, most leading arbitral institutions reported a record – or close-to-record – caseload in 2023.
To learn more about arbitration as a form of ADR, please read our arbitration legal guide here.
Top 5 benefits of arbitration
- Choice.
Both parties can jointly choose their arbitrator, the rules governing the process, the site of the arbitration, and more. - Cost.
Arbitration tends to be less costly than litigation. The efficiency of the process often results in a speedier resolution, resulting in reduced legal fees and expenses. - Speed.
Most arbitration cases are resolved quicker than traditional court litigation. - Expertise.
When pursuing litigation via the court, the appointed judge may not have a complete understanding of the technicalities involved. Arbitrators are often selected due to their expertise in the disputed subject matter. - Privacy.
Unlike with court proceedings, arbitration hearings are usually private, with the evidence and award confidential.
What is litigation?
Litigation is the traditional and best known method of dispute resolution. It involves one party taking legal action against another. With litigation, a judge will hear your case and provide a legally binding ruling.
The goal of litigation is to obtain a legal remedy, such as monetary damages, a specific action, or injunctive relief. With litigation, proper legal representation is necessary to ensure all the required documents are in order and to present the most robust possible case in court.
Litigation is often considered to be “the last resort” in dispute resolution, and the courts encourage the parties involved to resolve any disputes between themselves wherever possible. Where efforts are not made to do so, the court may penalise the unwilling party (e.g. make them pay all the legal costs).
Top 5 benefits of litigation
- Discovery.
Litigation allows for more extensive discovery than arbitration. This can help in uncovering evidence and building a comprehensive case. - Right to Appeal.
Parties have the right to appeal a court decision to a higher court if they believe there was an error in the legal process or judgment. It is only possible to appeal an arbitration award in very limited circumstances. - Transparency.
Unlike arbitration, litigation is typically a matter of public record, with court proceedings, filings, and judgments publicly accessible. This provides transparency and accountability, which can be advantageous in certain cases. - Enforcement.
Litigation court mandates both parties to be cooperative, while arbitration has no inherent power or jurisdiction in commercial disputes. However, the ease of enforcement depends on the legal framework and international conventions in place. - Remedies.
Certain legal remedies available via the court, such as specific types of injunctions, may not be within the authority of arbitrators.
How does arbitration differ from litigation?
Arbitration and litigation are both legally binding methods of resolving legal disputes, but they differ in several key aspects. The primary being that arbitration is a form of ADR, whereas litigation involves going to court.
But that’s not the only distinction. The nature of the process, the decision-makers, and the enforceability of outcomes differ between arbitration and litigation.
As such, it’s important to consider the advantages and disadvantages of each before deciding on the most suitable approach for your particular situation.
Here are some other crucial distinctions between arbitration and litigation:
- The decision maker. While litigation is overseen by a state-appointed judge, the arbitration tribunal is selected by the disputing parties or a relevant institution.
- The law. With litigation, the law of the country where the dispute takes place will apply. With arbitration, the law can be chosen by the disputing parties. Alternatively, an award can be made according to what the arbitrators perceive to be fair, regardless of any national laws.
- The process. Litigation is a formal legal process as set out by the courts. Arbitration is more flexible and informal, and it often involves more streamlined procedures and processes.
- Speed and efficiency. Litigation can be time-consuming, especially when points of law are challenged or an appeal is made. The formalities of the court system may also contribute to a longer timeframe for resolution. Arbitration can be quicker than litigation with agreed timetables, fast-track options and a binding decision (in most cases).
- Privacy. Court proceedings are generally open to the public unless a court orders otherwise. In most cases, arbitration, the fact it is happening, and the award can be kept private.
- Enforceability. Litigation court mandates both parties to be cooperative, while arbitration has no inherent power or jurisdiction in commercial disputes. However, The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards facilitates the enforcement of arbitration awards in over 160 countries.
- Costs. Litigation costs can be high due to formal court procedures, discovery processes, and potential trial expenses. Parties may also incur fees related to court filings and other legal requirements. While arbitration can be more cost-effective, both parties must pay legal fees, the arbitrators, the hearing venue, and other costs.
Arbitration vs Litigation: Which is right for your business?
Determining whether arbitration or litigation is suitable for your business depends on various factors. Arbitration is preferable in certain commercial disputes, while litigation is often more suitable for cases requiring a formal legal process.
You must carefully consider the advantages and disadvantages of each method, but you don’t have to do this alone. At Summit Law, we ensure you understand the pros and cons of each approach.
Amongst other things, we will consider:
- The nature and complexity of the dispute
- The likely enforceability of any award
- Any privacy concerns you might have
- Your budget and cost sensitivity
- How the dispute is likely to affect your business
- Whether you want to maintain an ongoing relationship with the other party.
Ultimately, we will carefully assess your business’s specific needs before recommending the best approach, tailored to your circumstances. And, if the nature of your dispute involves an overseas element, we can consider an international arbitration route.
Let us take it from here
At Summit Law, our dedicated team of arbitration lawyers provides experienced, practical, and commercial representation in arbitration and litigation cases. With a focus on achieving the most desirable result for your business, our team possesses extensive expertise in achieving a swift, successful resolution.
Favouring a non-confrontational approach, we emphasise mediation and arbitration over litigation wherever possible. Our team comprises ADR specialists, and we have stacks of experience helping our clients achieve a favourable resolution without having to go to court.
Ultimately, we aim to ensure a swifter and cost-effective process, allow parties to maintain positive relationships, and ensure a less stressful resolution process for everyone involved.
Our expert solicitors provide legal services for individuals and businesses in London, the UK, Europe, Middle East, South America, and the USA. To find out more, contact us today on 020 7467 3980 or complete our website enquiry form for your free initial consultation.