Arbitration v litigation

The lord chief justice recently called for arbitration and the courts to work better together and for the relationship between the two to be rebalanced. This reignited the question that lawyers and businesses often ask, “arbitration (a type of alternative dispute resolution) or litigation (taking the dispute to court) – which is best?”

The answer, frustratingly, is “it depends”. They both have their advantages and drawbacks and it is necessary to consider every dispute on its own merits before deciding which route to take.

Perceived advantages of arbitration over litigation

Arbitration is quicker and cheaper – it has long been thought that arbitration is quicker and cheaper than litigation. While this is often the case, it is not always true. Numerous initiatives have been put in place over recent years to speed the court system up, such as the introduction of the financial list, and shorter and flexible trial pilots.

Arbitration is more flexible – there can be more flexibility in the process which can be tailored in advance of the dispute (if being referred as a result of an arbitration clause in an agreement that they have negotiated) or by agreement when the dispute is referred to arbitration. This can give the parties greater comfort that they are retaining an element of control over the process.

However a word of caution, the less rigid structure can in my experience lead to frustrations when the arbitrator allows more procedural leeway than a judge would allow. Procedural non-compliance is often not dealt with as firmly by an arbitrator as it would be by a judge which can lead to the arbitration process taking longer and consequently being more expensive than anticipated.

Arbitration is confidential – although on the face of it steps can be taken to ensure that the arbitration process is kept confidential, in reality if the issues being arbitrated are of importance to a specific industry, the details often leak out.

Also even if confidentiality is successfully maintained during the arbitration, if it is necessary to enforce the arbitration award through the courts, the matter will become public.

Perceived advantages of litigation over arbitration

Binding decision – judgments of the High Court create legal precedent. If a dispute is of a type that is likely to be repeated, obtaining a judgment that is binding upon subsequent courts may avoid the litigant having to litigate the same issue again and may in the long run save money and time.

Development of common law – a good throughput of cases is required to ensure that the law continues to develop and reflects the changing commercial world which we all inhabit.

Settlement – the potential costs of litigation and the public nature of judgments are two factors that often lead to disputes being settled before trial. The vast majority of claims issued are actually settled before trial.

In summary, both arbitration and litigation can be effective tools, however there is no ‘one size fits all’ solution. Deciding which forum to choose is an important tactical decision that can often be overlooked.