What is Arbitration? Comparison

There are a number of factors that are considered when deciding on the best forum for resolving a dispute, not least those shown in the chart below. Whether you are deciding to insert an arbitration clause into your contracts, or to submit a current dispute to arbitration, each factor needs to be considered in the context of your own needs and the needs of the current or potential dispute.

Factors

Litigation

Arbitration

Jurisdiction

Jurisdiction of national courts tends to be limited to domestic matters, but can be extended to international issues through a series of international treaties and co-operation agreements. Nonetheless, courts may only accept jurisdiction if there is a proper basis for it. This can lead to a period of toing and frowing until jurisdiction is accepted in one court or another.
For domestic disputes, this is certainly not a problem, however where international factors are involved, and a choice of law is not expressed, jurisdictional issues can become very problematic, time consuming and costly to resolve.

One of the most significant benefits of arbitration is that jurisdictional issues are almost completely avoided. By agreeing to arbitration the parties expressly grant jurisdiction to the tribunal. Therefore, the only jurisdictional issues that the tribunal may need to consider is whether or not an agreement to arbitrate actually exists, that the arbitration is constituted and conducted in accordance with that agreement, and that the arbitration only considers matters within the scope of the agreement.

Scheduling

The time schedule for court proceedings can be fairly unpredictable. Since the courts make their own schedules the parties are often at the whim of the courts. However, this is not to say that all proceedings are slow and unpredictable. If it is possible to clearly identify the potential length of court proceedings and if the parties are happy with this schedule, then there is no reason why litigation should be ruled out here.

In the most part the parties can have total control over the timing and scheduling of their arbitration. The parties can, by agreement, set out a schedule which the tribunal must follow as closely as possible, subject only to any restrictions that the arbitrator may impose out of necessity, in order to ensure that the proceedings are properly and fairly conducted.

Procedural Limitations

Most national courts follow rather strict rules of evidence. Although the rules are restrictive, they can also create an advantage for one or the other parties depending on the circumstances and legal strategy of the parties

The parties can agree on the applicable rules of evidence and opt to follow any of the rules developed by one of the various institutes or ad hoc rules. The strict rules of evidence can therefore be avoided therefore opening up the channels for presenting one’s case.

Legal Representation

Legal representation is almost a certainty when opting for litigation, although the level of representation varies depending on the nature and value of the dispute. This can form part of the significant costs involved with litigation and is therefore an important factor to be considered.

Although the parties are indeed invited to retain legal representation and are advised to do so, representation is not a necessity of arbitration.

Language

If the dispute involves different languages this can affect litigation in many ways. Although the problem can be easily resolved through the use of interpreters, this can considerably extend the length and cost of the proceedings.

By appointing neutrals who speak the languages of the dispute, language barriers can be avoided more easily without the cost of additional interpretation.

Enforcement

Where a decision will need to be enforced outside of the country of litigation, then jurisdiction issues can again cause problems. Parties will need to ensure that the court decision will be enforceable in the appropriate countries. This is something that your legal representation will be able to advise you on.

As a result of various international treaties, not least The New York Convention, arbitral decisions are generally enforceable internationally subject to very few limitations. Arbitration has by far the greatest scope for international enforcement of its decisions.

Confidentiality

Court proceedings are generally public affairs; therefore if the parties ultimately seek to keep the proceedings confidential, then litigation may not be appropriate.

Arbitration proceedings are strictly confidential and are only made public if both parties are in agreement. Therefore, if confidentiality is important to the parties' arbitration is without question the most appropriate forum for the dispute.

Arbitrable Disputes

Litigation in national courts is always a possibility, therefore it may be the only appropriate option for matters that cannot be arbitrated.

Not all matters can be arbitrated. The limitations will depend on the applicable domestic laws. In such cases arbitration will not be available.

Relief Sought

The courts have greater power to grant the various forms of relief that can be sought. Therefore if the parties seek the more unusual forms of relief, it may be more appropriate to opt for litigation.

Arbitrators have more limited powers to grant the more usual awards, the availability of which will vary depending on the laws that are applicable to the proceedings. Therefore further considerations may be necessary before opting for arbitration. However, this issue can be avoided if ‘arbitration friendly laws’ are selected by the parties from the offset.

Rights of Appeal

If parties wish to retain their rights of appeal then litigation is the most appropriate option.

There are very limited or no rights of appeal of arbitral decisions, therefore if parties seeks to retain such rights then arbitration is not appropriate. 

Expertise

Parties have little control over the selection of judges in litigation matters; Therefore if special expertise is an important factor, litigation may be inappropriate.

Parties can ensure that neutrals with all the prerequisite expertise are appointed to handle the dispute, therefore arbitration maybe more appropriate for highly technical disputes.

Capacity

Jurisdictions can have additional legal capacity requirements for a party to litigate in national courts. Therefore parties without such litigation will find litigation inappropriate.

Capacity is not an issue with arbitration proceedings.

The chart directly compares arbitration with litigation. However, it is ultimately a decision for you and your attorney or legal team as to which route shall be best for you in any given circumstance.