Arbitration And Litigation: What’s The Difference?
Arbitration is a form of Alternative Dispute Resolution (ADR) which can be a good alternative to litigation. Find out more in this article.
Commercial disputes are generally costly, time-consuming, and animosity-building exercises. While never ideal, they are often a corollary to vigorous market competition. This article discusses the differences between key mechanisms of arbitration and litigation. It is essential to understand these mechanisms so parties can resolve disputes in an equitable, speedy, and cost-effective manner.
Dispute Resolution Generally
Courts today have indicated a strong preference for Alternative Dispute Resolution (ADR). This is because issues are often highly complex, a factor that contributes to court backlogs and delays in administering justice. Because of this, judges often encourage or order parties to engage in Arbitration proceedings to try and resolve the matter out of court.
In recognition of this, contracts between parties frequently contain an arbitration clause. This clause should set out the following;
- Commitment to Arbitration
- Prescribed rules
- Location of hearing
- Language to be used
- Number of Arbitrators
Rules applying to arbitration proceedings depend upon the parties’ location. Parties can, however, submit to rules of their choice. For example, parties submit to the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules for international disputes.
Often, commercial disputes concern issues relating to intellectual property, trade secrets, or other matters parties may not wish to be released into the public domain. Litigation is a process where documents are usually open to the public. Therefore, arbitration may be preferred if parties are looking to preserve the confidentiality of the subject matter. Additionally, whilst arbitration proceedings are subject to specific rules, these are generally more flexible than those presiding over litigation proceedings. This lends the process to efficiency gains.
Selection of Decision Maker
Commercial disputes may be highly complex in nature. Arbitrators to disputes are chosen because they have strong specialist knowledge in the relevant field. In contrast, judicial officers may not possess this knowledge and therefore may take some time to be acquainted with the case. Parties may negotiate to submit to a specialist arbitrator, however, they cannot choose their judge. Proceeding with arbitration may therefore translate into significant time savings.
It is reasonable to suggest faster resolution in legal proceedings is tied to reduced costs. Therefore, arbitration on matters easily decided by experts has clear cost advantages, particularly as the procedure is simplified. With that being said, for particularly complex proceedings it would be inappropriate to surpass processes such as the discovery that are essential in unpacking complex legal issues. In effect, a rushed arbitration may result in applications to have the award set aside, resulting in parties resorting to litigation anyway. This would be more far more costly than litigating the dispute in the first place.
In areas such as construction, there are also judicial officers with specialised knowledge. This makes litigation in these areas more efficient. In general, a dispute resolution lawyer can provide valuable insight into which mechanism is most appropriate.
The downsides of Arbitration
Arbitration is not without its’ weaknesses. Arbitration as a process does not have an appeals mechanism. If unhappy with the decision, the only recourse for parties is therefore to apply to the court to have the arbitral award set aside. Parties may then proceed to litigation, resulting in greater accrued costs. In addition, arbitration has no equivalent procedure for summary judgment. Summary judgment allows for the determination of litigation proceedings without a full hearing. This issue is mitigated, however, by arbitration’s ability to bypass many of the preparatory steps of civil litigation. This naturally speeds up the process.
International Dispute Resolution
International litigation is very challenging because businesses are often subject to the conflicting laws of different nation-states. When international disputes arise, arbitration can be particularly valuable as it allows the resolution of disputes in a neutral and simplified manner. Parties may submit themselves to institutions such as the Australian Centre For International Commercial Arbitration (ACICA) to resolve their disputes. These institutions have largely adopted international law set out by UNCITRAL.
- Arbitration is an effective alternative dispute resolution mechanism for resolving disputes
- Arbitration clauses provide clarity for parties when disputes arise
- Always seek advice from a dispute resolution lawyer before taking action
Alistair is a Legal Intern at Lawpath. He is currently studying a Bachelor of Laws at Macquarie University. He is primarily interested in how changes in the digital space influence business activity, privacy, and freedom of speech.