What is Arbitration, and How Does it Compare to Litigation?
Introduction to Arbitration
Arbitration is an alternative dispute resolution (ADR) method used in the UK and elsewhere in the world where parties agree to resolve their disputes outside of court.
Instead of a judge, an independent arbitrator (or, in more complex disputes, a panel of three arbitrators sitting together) makes a decision which is legally binding.
Arbitration is commonly used in commercial disputes, particularly in sectors like construction.
Key Features of Arbitration
Procedural Flexibility
One of the key features of arbitration is its flexibility. The parties have significant control over the procedure, compared with litigation. They can decide the rules, the location, the language, and the timeline. The arbitrator(s) can tailor the process to fit the specific needs of the case, unlike in court where procedures are more firmly defined by the Civil Procedure Rules.
Cost
The cost of arbitration can vary widely depending on the complexity of the case and how hard fought it is. Whilst arbitration can be cheaper than litigation, particularly in cases where a swift resolution is reached on narrow issues, it can also be more expensive due to costs which don’t arise in litigation (such as arbitrator fees, venue costs, and administrative expenses). However, the flexibility in procedure refered to above can sometimes lead to savings.
Enforceability
rbitration awards are easier to enforce internationally than court judgments. So a decision obtained in England might be enforceable against a company (and its assets) located overseas. The UK is a signatory to the New York Convention, which allows arbitration awards to be enforced in over 160 countries. This makes arbitration particularly attractive in relation to disputes which have an international element. In contract, enforcing a court judgment internationally can be more difficult and depends on whether the UK has a reciprocal enforcement agreement with the other country. Within the UK, both court judgments and arbitration decisions (known as ‘awards’) are enforceable through the court system.
Confidentiality
Arbitration proceedings are generally private and confidential. This means that sensitive information disclosed during arbitration is not made public, which can be important for businesses that want to protect their trade secrets or avoid reputational damage. In contrast, court proceedings are usually held in public, and judgments are published, making litigation less attractive for those who want to keep their disputes out of the public eye. In certain circumstances, courts can order proceedings to be held in private, but this is the exception rather than the rule.
Legal Representation
Whilst it is common for parties to arbitration to appoint lawyers to represent them, this is not mandatory. Parties can, if they wish, choose to represent themselves or appoint a non-legal expert to represent them. This can reduce costs, but it may also put a party at an obvious disadvantage if the other side has legal representation. Although a party can represent itself in court (known as a ‘litigant in person’), only barristers and certain types of solicitor are allowed to represent a party in the higher courts.
Finality
Arbitration awards are final and binding, with very limited grounds for appeal. This finality is often seen as an advantage because it provides certainty and ends the dispute. However, it also means that parties have limited recourse if they believe the decision was wrong. In contrast, court decisions can be more readily appealed, providing a chance to correct errors. While the risk of appeal can prolong the process, it also offers a safeguard.
Neutrality
In international disputes, arbitration is often preferred because it can offer a neutral forum. Parties from different countries may be reluctant to litigate in the other party's home country (or a country that has political, trade, cultural or historical associations and affiliations with one part’s home country) due to perceived biases. Arbitration allows them to choose a neutral location and arbitrator(s).
When to Choose Arbitration Over Litigation
International Disputes: Arbitration is particularly advantageous in international disputes due to the greater ease of enforcing awards globally.
Confidentiality Needs: If confidentiality is a priority, arbitration is the better option.
Speed and Flexibility: When parties need a quick resolution and want to have control over the procedure, arbitration offers more scope for customisation.
Technical Expertise: In disputes requiring specific industry knowledge, parties can choose arbitrators with the relevant expertise, which is not possible in court litigation since judges are rarely dual-qualified in law and a technical field.
Legal Precedent: Litigation might be preferable when a party wants to establish a legal precedent or when the dispute involves significant public interest.
Right to Appeal: If parties want the option to appeal a decision, litigation is the better choice due to the more limited appeal opportunities in arbitration.
Cost Predictability: In some cases, especially straightforward ones, litigation might offer more predictable costs compared to arbitration due for example to the fixed cost regime set out in the Civil Procedure Rules.
Conclusion
Arbitration and litigation are both viable options for resolving disputes in England and Wales, but they serve different needs. Arbitration offers procedural flexibility, confidentiality, and easier international enforceability, making it ideal for heravyweight commercial and international disputes. Litigation, on the other hand, provides a more structured process, the greater possibility of appeal, and is conducted under the supervision of the very capable judiciary. The choice between the two will depend on the specific circumstances of the dispute, the priorities of the parties, and the nature of the issues involved.