When a commercial dispute arises, one of the first strategic decisions a business must make is how that dispute should be resolved. Arbitration and litigation are the two most common formal options, but they operate very differently and can lead to very different outcomes in terms of cost, timing and control.
In truth, there’s no universal answer to which option is best. The right approach depends on the nature of the dispute, the relationship between the parties and the commercial objectives involved.
In this article, we explain the key differences between arbitration and litigation to help businesses make informed decisions. We also outline how to access a free 30 minute consultation with a solicitor if you need advice tailored to your circumstances.
What is litigation?
Litigation is the process of resolving disputes through the courts. In a commercial context, this usually involves proceedings in the County Court or the High Court, depending on the value and complexity of the dispute.
Court proceedings follow formal procedural rules and are overseen by a judge. Evidence is presented through documents, witness statements and, where necessary, expert reports. Once the court reaches a decision, it issues a binding judgment.
Litigation is generally public. Hearings are usually open to the public and judgments are often published. While this transparency can be important in some cases, it may be a disadvantage where sensitive commercial information is involved.
What is arbitration?
Arbitration is a private dispute resolution process where the parties agree to have their dispute decided by an independent arbitrator rather than a court. The arbitrator acts in a similar role to a judge and issues a binding decision known as an arbitral award.
Arbitration is based on agreement. Most commonly, this agreement is included as an arbitration clause in a commercial contract. Once agreed, the parties are usually required to resolve disputes through arbitration rather than litigation.
Unlike court proceedings, arbitration is confidential. This makes it attractive to businesses that wish to keep disputes and outcomes private. Arbitration also allows parties greater flexibility in how the process is run.
Key differences between arbitration and litigation
One of the most significant differences between arbitration and litigation is the forum in which disputes are resolved. Litigation takes place in national courts, while arbitration is conducted privately under agreed rules.
Confidentiality is another major distinction. Court proceedings are public, whereas arbitration is private. This can be particularly important for disputes involving commercially sensitive issues.
There are also differences in flexibility. Arbitration allows parties to agree on procedural matters such as the timetable, the choice of arbitrator and the governing rules. Litigation follows fixed procedural rules set by the court.
Appeal rights also differ. Court judgments can usually be appealed, subject to permission. Arbitral awards are final in most cases, with very limited grounds for challenge.
Advantages of arbitration for commercial disputes
Arbitration is often favoured in commercial disputes where confidentiality is a priority. Because proceedings are private, businesses can avoid public scrutiny of sensitive financial information, trade secrets or internal decision making.
Arbitration is also attractive in international disputes. Parties from different countries may be reluctant to submit to the courts of the other party’s home jurisdiction. Arbitration offers a neutral forum and, crucially, arbitral awards are widely enforceable across borders under international conventions.
Another benefit’s the ability to choose the decision maker. Parties can appoint arbitrators with specialist expertise in the relevant industry or area of law, which can be particularly valuable in technically complex disputes.
Advantages of litigation for commercial disputes
Litigation offers certain strengths that arbitration can’t always match. Courts have wide powers to compel disclosure, join additional parties and grant interim remedies such as injunctions. These powers can be critical in disputes where urgent action is needed.
Court judgments also create public precedent. For some businesses, a public ruling can provide clarity on legal issues or deter future claims. Litigation may also offer greater opportunities to appeal a decision, which can be important where the stakes are high.
In purely domestic disputes, litigation can sometimes be more cost effective than arbitration, particularly where the case is straightforward and doesn’t require multiple experts or hearings.
Cost and time considerations
Cost and timing are often decisive factors when choosing between arbitration and litigation. Arbitration is sometimes perceived as faster, but this isn’t always the case. Complex arbitrations with multiple arbitrators can be lengthy and expensive.
Litigation can also be slow, particularly in higher value disputes where court timetables are congested. However, fixed procedural rules can provide structure and predictability that some parties prefer.
Both routes can involve significant costs and the overall expense will depend on the complexity of the dispute, the conduct of the parties and the level of legal involvement required.
International versus domestic disputes
For international commercial disputes, arbitration is often the preferred option. The ability to enforce arbitral awards in many jurisdictions is a major advantage, particularly where assets are located outside the UK.
In domestic disputes, litigation may be more appropriate, especially where court powers, public rulings or appeals are important considerations. The choice should reflect the commercial realities of the dispute rather than assumptions about one method being superior.
Choosing the right approach for your business
Deciding between arbitration and litigation requires careful assessment of the dispute, the relationship between the parties and the desired outcome. Factors such as confidentiality, enforcement, cost, timing and control should all be considered.
Early legal advice can help businesses understand their options and make strategic decisions before positions become entrenched.
Please note that this article is for informational purposes only and isn’t a substitute for legal advice. We encourage readers to contact Osbourne Pinner for case specific guidance.
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