Arbitration v Litigation – Which is Right for you?

KEY TAKE-OUTS:

• Litigation and arbitration are two different methods of settling legal disputes. Arbitration is an alternative legal dispute resolution option, while litigation is a formal dispute resolution process through the Courts or Tribunals.
• As litigation is heard in a Court or Tribunal, it is overseen by a Judge or Member, while arbitration is under the control of the arbitrator.
• Many commercial contracts contain an arbitration clause. This allows parties to settle the dispute without the intervention of litigation.
• You should consider the advantages and disadvantages of both litigation and arbitration; and decide which one is right for you depending on your dispute.

Comparing Arbitration and Litigation

In a perfect world, everyone would get a long and there would be no disputes. Unfortunately, however, disputes are unavoidable in both the commercial world and in our day to day lives. When it comes to disputes, there are options as to how to deal with them and the best way to try and resolve them. Litigation and arbitration are two different methods of settling legal disputes. We discuss these methods in further detail below.

Arbitration

Arbitration is an alternative dispute resolution process in which two disputing parties can set out their respective arguments and disputed claims before a decision maker. Matters that proceed to arbitration are settled privately by an impartial third party, also known as the arbitrator. The role of the arbitrator is to hear the dispute and come to a binding decision at the conclusion of the dispute. Unlike litigation, whereby the judge has legal expertise, an arbitrator does not need to be a legal practitioner. An essential criterion is only that the arbitrator is independent and impartial.

Unlike litigation, the disputing parties will usually have the ability to select the arbitrator. However, this is usually determined by the rules that they have agreed to adopt for the arbitration. The parties will also have the opportunity to present written submissions and their evidence at the hearing. It is believed that parties have more of an involvement in the process in arbitration, with the option to be represented by a legal practitioner, another person or by himself or herself.

Litigation

Litigation is a formal process of settling a legal dispute in a Court or Tribunal setting. There are three categories of litigation, they are business/commercial, civil and public interest. Under each category there are several different types of litigation matters. Typically, litigation follows the process of a claim, defence, conference, hearing and then result. The process starts when the applicant or plaintiff lodges an application at the registry of the court or tribunal. The claim will also be issued to the other party, also known as the defendant or respondent. The defendant or respondent will have to lodge a defence/response within the required time.

If not, there is a risk that the matter will proceed to default judgement or proceed based only on the material presented by the applicant or plaintiff. If a response or defence is lodged within the time required, then the matter will proceed to contested litigation and the parties will be required to attend the court or tribunal for directions. If the matter is not ready for the hearing, then there may be orders made for the filing and serving of evidence and documents with further case management directions to follow. It may be some time before a final hearing is listed (generally speaking, at least a 12 month period from commencement to finish).

At the final hearing, the parties will present their arguments and evidence and the judge or member will give his or her final verdict. However, the losing party has the right to make an appeal to a higher court. There is also a risk of costs orders being made against the unsuccessful party depending on the jurisdiction and type of claim.

Differences and similarities between Arbitration and Litigation

Private matter

Arbitration is resolved privately. As it is a private matter, arbitration does not follow the rules or legal proceedings of an institution and is often based on an arbitration clause the parties are relying upon (i.e in a business contract). Parties can also seek in arbitration that any outcome is subject to a confidentiality agreement which creates an obligation to not disclose the events of the arbitration. Unlike the arbitration process, litigation is commonly public. Any judgement of the Court or Tribunal may also be published and available for public viewing.

Evidence

Another distinction is that the rules of evidence and admissibility varies between arbitration and litigation. In arbitration, the parties may choose how the arbitration will run and this may include factors such as admissibility, relevance and weight of evidence. In comparison, litigation must follow the courts’ rule of evidence and is often stricter with what evidence is admissible.

Appeal process

If a party does not agree with the decision made by a judge in litigation, they then have the option to make an appeal to a higher court. The losing party can challenge the decision by following the appeal process. However, unlike litigation, arbitration does not have a formal appeal process and has limited options to challenge the arbitrator’s decision.

Costs/speed

Speed and costs are linked as the longer a matter takes to be completed the more expensive it will be. An arbitration process can take place as soon as it has been agreed upon, while the litigation process is not as efficient and will be determined by the availability of the court/tribunal. The litigation process has a more complicated process before it reaches a final hearing and when it does, courts/tribunals generally have a waitlist of cases to be heard. Although the litigation process is long, the steps before reaching the final hearing are very important and can ensure relevant facts and information will be uncovered.

The arbitration process aims to be a more efficient and economical exercise then litigation. However, if the parties’ follow a formal process and involve legal representatives, arbitration costs may be comparable to litigation costs (noting that parties must also pay the cost of the arbitrator).

How Coutts can help

Coutts can assist you to determine the most cost effective and efficient way to resolve your disputes. If you find yourself in a dispute, contact our Commercial Litigation and Civil Disputes Team for assistance to navigate through the options available to you.

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