Arbitration vs Litigation
When disputes arise, choosing the best route to resolve them can be challenging. Two potential options are arbitration or litigation, each with pros and cons depending on the specific legal issues and circumstances.
Deciding which route to take can significantly impact a case’s outcome. It’s also essential to consider the legal and procedural rules that must be complied with regardless of the chosen resolution method. In most cases, the court expects parties to attempt a settlement between them before pursuing formal proceedings.
This article explains arbitration and litigation and explores their benefits and key differences.
What Is Arbitration?
Arbitration is a form of alternative dispute resolution (ADR), meaning it occurs outside of court.The parties may agree to arbitration by inserting an arbitration clause in their contract or by mutual agreement after the dispute arises. It involves parties agreeing to appoint a neutral third-party arbitrator who hears each party’s position before making a legally binding decision to resolve the dispute. It has multiple benefits:
Speed
Arbitration can be a much quicker way to settle a legal dispute. Participants can usually agree to schedule their first date within a few weeks and conclude the process within a few months. Although the timeline may be longer for more complex matters, parties can agree on deadlines to minimise delay.
Costs
It tends to be a more streamlined process, minimising the high costs that often come with formal proceedings. While parties must still pay their arbitrator and legal representative’s fees, the procedure’s efficiency means they usually pay less in legal and administrative costs.
Privacy
The law usually considers this form of ADR private and confidential. This privacy can be hugely beneficial in commercial contexts where businesses want to resolve disputes without damaging their reputations.
However, a recent court case in 2024 reiterated that there is no absolute right to confidentiality in arbitration; in some cases, waiving such a right will be in the public interest. Parties can also agree to dispense with confidentiality if, for example, they consider it in their best interests.
Impartiality
Arbitrators are impartial and selected by the parties. They’re usually chosen for their expertise in the relevant legal issues and lack of bias. Those subject to the process may apply to remove the arbitrator or challenge their decision if they reasonably believe the arbitrator is biased. These powers provide greater confidence that the process is fair.
Autonomy
Arbitration is voluntary, and parties have significant control over the process. They can agree on the procedure, location, timelines, and identity of the arbitrator. Therefore, they can tailor the process to their needs and maintain flexibility.
What Is Litigation?
Litigation involves dealing with a legal dispute through the courts. It begins when one party formally issues proceedings through a court application. The claimant and defendant usually attend multiple hearings to present their positions, and a judge decides the outcome. Its benefits include:
Transparency
Most litigation hearings occur in public courts, meaning anyone can observe, and judgments become public records. This transparency can lead to greater accountability and external scrutiny, making parties feel more confident that they achieved a fair decision.
Evidence
England and Welsh law has strict rules on evidence, requiring the claimant and defendant to disclose all information relevant to the case. They can also ask the court to make orders forcing disclosure, ensuring the judge has the complete facts before ruling. Procedural rules also prohibit the filing of unnecessary or last-minute documents, improving efficiency and preventing abuses of process.
Cooperation
Once legal proceedings are underway, parties are bound to follow the court’s timeline. This means they must cooperate to ensure compliance with procedural rules and meet deadlines. Additionally, the court expects parties to continue trying to settle matters between them, avoiding the need for hearings. These requirements encourage collaboration while minimising the risk of one party being obstructive or causing delay.
Enforcement
Litigation outcomes arguably carry more legal authority, making them more straightforward to enforce. Particularly in national courts, the enforcing party can often seek immediate actionable remedies, such as freezing orders. Judges can attach different enforcement mechanisms to court orders, streamlining the procedure for applicants.
Right to Appeal
Court proceedings usually include the right to appeal unless the court denies this. If a party believes the judge made a legal or factual error, they can ask a higher court to reconsider the ruling. This permission acknowledges the possibility of bias or mistakes and helps protect against unjust outcomes.
What Are the Key Differences Between Arbitration and Litigation?
Cost
Due to court fees and delays in proceedings, litigation tends to be more expensive than arbitration. For example, most court applications require payment of a court fee upon filing, which can quickly add up in a long-running dispute. However, in complex cases, arbitrator fees can still be substantial. It’s advisable to seek independent legal advice on the most cost-effective route before pursuing either option.
Speed and Efficiency
While arbitration is generally faster than going through court, formal proceedings usually have more structured timelines and stricter procedural rules. Therefore, the former is likely to be a quicker way to achieve resolution, but it may also be less efficient than court litigation. Any form of ADR is most efficient when all parties openly cooperate, but this isn’t always guaranteed, and some parties use it to drag out a resolution.
Privacy
The law treats different routes in terms of confidentiality, which means they may not always be suitable for particular circumstances. For example, a reputable business might prefer arbitration to avoid losing customers, while a negligent government body should be subject to public scrutiny. However, it’s essential to note that there’s no automatic right to privacy in arbitration.
Finality
It’s much harder to challenge an arbitral award as the grounds for appeal are more limited. Therefore, arbitration is more final than litigation, which benefits parties keen to achieve a resolution. The ability to appeal litigation rulings can significantly extend the process (and, therefore, costs), but it also reduces the risk of unfair outcomes.
Voluntariness
Parties must agree to engage in arbitration, in their contract or after the dispute arose, whereas they don’t have a choice but to cooperate once an applicant commences court proceedings. The voluntary nature of the former can result in reduced hostility and enduring business relationships, whereas litigation can lead to increased animosity.
Frequently Asked Questions
How Is Arbitration Cheaper Than Litigation?
Arbitration is often cheaper than litigation because it avoids court fees, compliance with complicated procedures, and court delays. Parties can also decide their timelines and how they present evidence, making it less expensive. However, costs can quickly mount in arbitrations involving complex legal matters.
What Is the Difference Between Arbitration and Dispute?
A dispute is a fundamental disagreement or conflict between parties, often involving legal issues. Arbitration is a form of alternative dispute resolution (ADR) that resolves such legal disputes without the need for court proceedings. Other forms of ADR include mediation and negotiation.
Final Thoughts
Arbitration and litigation offer different paths to resolving legal disputes, each with benefits and challenges. The former is typically faster, more cost-effective, and private, making it ideal for parties seeking a flexible and confidential resolution process. On the other hand, litigation offers greater transparency, stricter procedural rules, and the opportunity to appeal, providing parties with a structured and authoritative approach.
The decision between arbitration and litigation depends on the specific circumstances, the nature of the dispute, and the parties’ priorities. Litigation is usually a last resort, so parties should explore other forms of ADR before pursuing formal proceedings. Seeking legal advice is crucial to understanding which route best suits your needs.
If you’re facing a legal dispute and need guidance on the most effective resolution method, contact Helix Law today. Our experienced team can advise you on the appropriate next steps to suit your circumstances so you achieve the best possible outcome for your case.
