When a commercial dispute arises, the most important question is how can it be resolved effectively? It is necessary to consider which method of dispute resolution is most suitable for the dispute in question and meeting the parties’ needs. In this article, we explore the key differences between two common methods of dispute resolution – arbitration and litigation.
What is Litigation?
Litigation is the formal process of resolving a dispute through the Court system. During a hearing, each party presents their case to a judge and following the hearing, the judge will make a final judgment. Litigation in the High Court is often used to resolve high value commercial disputes, with smaller disputes being resolved in the County Courts.
What is Arbitration?
Arbitration is a form of alternative dispute resolution (ADR), where the dispute will be resolved out of Court by an impartial arbitrator (or a panel of arbitrators, known as an “arbitral tribunal”). Arbitration is a consensual process, meaning that a dispute can only be referred to arbitration if all parties have agreed to it. If the dispute arises from a contract, it may already include an agreed arbitration clause that requires the parties to resolve any disputes under the contract through arbitration. Alternatively, if there is no arbitration clause, a dispute can be submitted to arbitration by the parties’ agreement.
Arbitral proceedings can be administered through a number of recognised institutions or trade associations (e.g. London Court of International Arbitration (LCIA), International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC), Grain and Feed Train Association (GAFTA), to name a few). Equally, the parties can agree their own arbitration process (known as an ad hoc arbitration).
10 Key Differences
1. Confidentiality
One key difference between litigation and arbitration is that arbitration isn’t held in open court, instead it takes place privately. This means that there will be no public record of the case. The hearing, documents relating to the case, and the final award will not be accessible to the public. This can be an important factor for clients wanting to keep sensitive matters confidential.
In contrast, if litigation takes place in open court, the principle of open justice applies. This means that the media and public can usually attend the hearing and can request access to any document referred to during proceedings in open court. The judgment will also be publicly available.
2. Flexibility
Arbitration has more flexibility in the process compared to litigation. The parties can tailor the arbitration procedure, by agreement, to suit their needs. This can benefit parties who have unique circumstances. On the other hand, if one party is uncooperative or not willing to engage in the process, the stricter procedural rules and formality of litigation may be more suitable.
3. Speed
One of the benefits of arbitration is the speed of the process compared to litigation. The process is often more streamlined and there is more flexibility in the timing of the hearing. In comparison, litigation can take longer due to the procedural requirements, deadlines set by the Court for key stages (such as disclosure, witness evidence, expert evidence) prior to the hearing, and the Court’s availability to list the hearing.
4. Cost
Overall, arbitration is usually less costly than litigation. This is due to the process being more flexible and having fewer procedural steps. Costs will involve arbitrator fees and/or arbitral institution fees, venue hire fees, legal fees and other disbursements.
Litigation can be more expensive due to the length of the proceedings and potential for additional procedural steps, such as disclosure or interim applications. Costs will involve legal fees, court costs and other disbursements.
5. Type of Dispute
It is necessary to consider the type of dispute and what may be required in its resolution. For example, if it would benefit from the parties (or third parties) being ordered to disclose documents relevant to the case, litigation would be more appropriate. Similarly, if it is likely that other parties will need to be joined to the claim, litigation is preferable.
Alternatively, if determining the dispute requires expertise in a specific field, arbitration may be better suited, as it allows the selection of an appropriate arbitrator.
6. Selection of Arbitrator(s)
In arbitration, the parties can select a sole arbitrator or a panel of arbitrators. The method of selection depends on what was agreed between the parties in the arbitration agreement. The parties may, for example, have agreed on a sole arbitrator to be selected by agreement of the parties, or a three-member tribunal, with the parties appointing one arbitrator each, and the two party-appointed arbitrators then appointing a chair arbitrator (also called a presiding arbitrator). Alternatively, it may be governed by the institution’s rules, if adopted by the parties, and the institution may appoint an arbitrator.
In contrast, litigation does not allow for the selection of a judge. The court will allocate the case to an appropriate judge. The parties have no control or choice over this selection in the way that they can in arbitration.
7. Powers
In litigation, the judge has wide powers backed by state enforcement and can exercise discretion in accordance with the Civil Procedure Rules to manage the proceedings. Whereas arbitrators derive their authority from the parties’ arbitration agreement, the Arbitration Act 1996 and any institutional rules. For this reason, judges have stronger powers in certain circumstances, such as for third party orders or for enforcing orders they have made. In arbitration proceedings, it can therefore be necessary to seek the Court’s involvement in certain circumstances where the Tribunal does not have power or is unable to act.
8. Disclosure
If disclosure is required (the parties reviewing, disclosing and producing documents relevant to the case), there is a prescribed formal process, supervised by the court, in litigation. While disclosure (also called discovery) is possible in arbitration, it can be more flexible or narrower in scope, and it is usually governed by the arbitral tribunal and institutional rules which vary. Hence, there can be less predictability with disclosure in arbitration compared to in litigation.
9. Appeal
In litigation, judgments can be appealed to a higher court. If successful, the judgment can be reviewed by a different judge (or judges) and overruled. Whereas, in arbitration, the award is final and binding. There is a very limited ability to appeal, or the Court’s involvement may be necessary.
10. Enforcement
The enforcement of arbitral awards in foreign countries is usually easier, due to international agreements (such as the New York Convention) in place. However, in litigation, the enforcement of an English judgment depends on the domestic law and process of the country you are seeking to enforce in, and any international treaties it has entered into with the UK.
Conclusion
When a legal dispute progresses, the parties should consider the above factors, in the context of the nature of the dispute, the needs of the parties and the desired outcome, to decide the appropriate method of resolution.
The Dispute Resolution team at Gardner Leader have vast experience in litigation and arbitration. If you require advice in relation to the dispute resolution options available and to evaluate the best option in your circumstances, please contact our team here.