It is a truism that parties in business benefit from the efficient settlement of disputes. Contractual parties generally have two key options when agreeing how to formally resolve future disputes: arbitration or litigation. Both processes have advantages and disadvantages and the choice of dispute resolution methodology will depend on several key factors including process, cost, speed, and enforceability. Understanding the key differences between these two key options for dispute resolution can help parties make an informed decision about the best choice of dispute resolution process for their commercial agreement.
Hybrid Approaches
in some cases, hybrid approaches, such as ‘med-arb’ (a combination of mediation and arbitration), can be beneficial. This approach allows parties to attempt mediation first and then proceed to arbitration if mediation fails.
Key Features of Arbitration
Voluntary Agreement: Both parties must contractually agree to arbitration whether prior to the dispute or once it has arisen.
Confidentiality: Arbitration proceedings are generally private.
Customisable Process: The rules of evidence and procedure as well as the timetable for the resolution process can all be tailored and agreed by the parties to suit the dispute.
Binding Decision: In most cases, the arbitrator’s decision is final and enforceable, with limited grounds for appeal.
Usually arbitration clauses in a commerical agreement are standard clauses provided by the institution which the parties have agreed to use to administer any future dispute.
Where parties have selected arbitration as their chosen dispute resolution method, they have effectively agreed to a private process in which their conflict will be heard and determined by an impartial third party known as an arbitrator. Where a case is larger or more complex, the parties may agree to a panel of arbitrators to determine their dispute. A panel will usually comprise three arbitrators and be referred to as a tribunal. The arbitrator or tribunal will hear both sides to the dispute present their case and will render a binding and enforceable decision or award with limited grounds for appeal. Traditionally, arbitration is seen as a quicker, more cost-effective, and less formal process than litigation.
Advantages
Arbitration offers several advantages over traditional court proceedings. It is generally faster, allowing parties to resolve disputes in a matter of months rather than years. Costs tend to be lower because arbitration avoids many of the procedural complexities of litigation. The process is private, ensuring confidentiality, and the decision of the arbitrator who is independent and impartial, is final.
Challenges
Despite its benefits, arbitration in the UAE and elsewhere does present some challenges. A key concern is the limited right of appeal against an arbitrator’s decision. Additionally, the costs of arbitration can still be significant, especially when dealing with complex disputes.
Key Features of Litigation
Litigation is the process of resolving disputes through the court system. It involves filing a lawsuit and going through a formal procedure, including pre-trial motions, discovery, and trial. In litigation, a judge or jury makes the final decision, which can be appealed in higher courts.
Public Proceedings: Court trials are typically open to the general public.
Structured Rules: Litigation follows strict procedural and evidentiary rules.
Right to Appeal: Parties have the right to appeal decisions if they believe errors were made.
Court-Assigned Judge: The judge is appointed by the court and not chosen by the parties.
Advantages
Litigation offers a right to appeal the merits of a case. Discovery in a court process can be more wide-ranging with the advantage of enforcement orders. Judges are arguably more tightly bound by precedent arising from previous court decisions and by strict rules of law than arbitral tribunals.
Challenges
While litigation can offer robust legal protections, it also has drawbacks in that it is typically slower and more expensive than arbitration. Court procedures can be complex and lengthy, often resulting in years of litigation before a resolution is reached. Additionally, litigation is a public process and often
Choosing between Arbitration and Litigation
Several key factors are important when agreeing the dispute resolution mechanism governing a commercial or construction agreement. These factors include confidentiality as arbitration proceedings are private, whereas litigation is typically conducted in open court, making it less suitable for parties seeking to protect sensitive information. Cost and time efficiency also play a crucial role; arbitration is generally perceived as faster and more cost-effective than litigation due to its flexible procedural rules and limited scope for appeals. In complex disputes, the structured discovery processes and binding precedents of court proceedings may be attractive to parties.
The enforceability of awards is also key. Arbitration awards are generally enforceable internationally under the New York Convention 1958. Court judgments may require additional recognition procedures in foreign jurisdictions prior to enforcement.
Arbitration allows parties to select arbitrators with expertise in the subject matter of the dispute – whilst litigation relies on appointed judges who may not have specialised knowledge.
Litigation offers the possibility of an appeal on merits whilst arbitration has limited rights of appeal on procedural grounds.
The future relationship between the parties is also important. Arbitration can in certain circumstances preserve business relationships and keep disputes confidential whereas open litigation may end a business relationship permanently.
Therefore and in summary, the choice between arbitration and litigation depends on the parties’ priorities, including cost, speed, expertise, enforceability, and procedural protections.
Bolz Arbitration – Anja Bolz
Anja Bolz of Bolz Arbitration is an independent international arbitrator experienced in determining complex disputes efficiently. With a commitment to providing impartial, expert arbitrator services, Anja Bolz has several decades of experience in resolving national and international cases through arbitration and focuses on delivering swift, confidential, and cost-effective resolutions for parties in dispute.
