Written by Team Farallon
When trying to resolve a dispute, arbitration and litigation stand out as two of the main ways for resolving legal conflicts.
Litigation refers to the process of resolving disputes through court proceedings in the jurisdiction where the dispute arises, while international arbitration involves resolving disputes outside of national courts through private adjudication.
The article examines the advantages and disadvantages of each method, compares their procedural aspects, and highlights the significance of choice between the two mechanisms in cross-border disputes. While both avenues serve the purpose of reaching a resolution, they differ significantly in terms of enforcement, privacy, appeal process, decision-maker selection, discovery, and speed.
Litigation is a formal process conducted in a court of law, involving judges, lawyers, and the application of substantive law. It is rooted in the jurisdiction where the dispute arises, and the applicable laws and procedures are determined by the relevant legal system.
Litigation involves the filing of a lawsuit, followed by a structured court process that includes pleadings, discovery, trial, and the rendering of a judgment. The process is generally public, and the court provides a decision that is enforceable by law.
Unlike arbitration, there is no equivalent to the New York Convention for the enforcement of national court judgments in foreign jurisdictions. Enforcing a national court judgment abroad can depend on local processes, which can be onerous and subject to discretion. However, national courts may be preferable or even required for certain disputes, such as simple cases involving non-payment or collection actions, especially if assets are located in the jurisdiction or if the jurisdiction is a party to a multilateral treaty for the enforcement of foreign court judgments.
Litigation proceedings and decisions may be more public, potentially attracting press coverage. The public nature of litigation can serve as a leverage point for settlement discussions, as parties may be motivated to avoid public scrutiny.
Litigation offers the possibility of appeal and error correction, providing parties with an opportunity to challenge unfavourable rulings. This aspect may be crucial for significant disputes, particularly those involving intellectual property or trademark issues where the right to appeal carries substantial weight.
In litigation, the assignment of a decision-maker is subject to the random selection within the court system. This lack of control over the decision-maker differentiates litigation from arbitration, where parties have the ability to select arbitrators with specific qualifications or expertise.
Litigation, especially in common law legal systems, often involves broad discovery processes. The enforcement power of judges enables parties to obtain discovery from third parties and add them to the case more easily. While extensive discovery can be advantageous, it can also contribute to increased costs and lengthier proceedings.
In certain cases, litigation may be faster for simple disputes, particularly when summary disposition mechanisms like motion to dismiss or summary judgment can resolve frivolous or meritless claims at an earlier stage. Nonetheless, delays can arise due to court availability since courts typically have a backlog of cases awaiting hearings.
In cross-border agreements, arbitration is generally considered superior to litigation due to challenges in enforcing domestic court judgments abroad and the potential unfamiliarity with foreign laws, procedures, languages, and judicial systems.
Both cross-border and domestic agreements can benefit from arbitration’s flexibility. Parties have the ability to customize the dispute resolution process to meet their specific needs, preferences, and the potential disputes that may arise. For example, parties can agree on expedited procedures, limited discovery, a sole arbitrator, specific timelines for the award, and confidentiality provisions. They can also require arbitrators to possess particular technical qualifications or experience for complex or technical disputes.
It is important to note that arbitration can only occur if it is explicitly stipulated in a contract or mutually agreed upon by the involved parties. By drafting the appropriate clauses in agreements, parties can optimise the dispute resolution process, avoid costly and time-consuming procedures in the event of a breakdown in the relationship, and promote amicable resolution of disputes.
International arbitration is governed by an arbitration agreement and a set of procedural rules chosen by the parties, such as those provided by institutional bodies like the International Chamber of Commerce (ICC) or the Singapore International Arbitration Centre (SIAC). The process typically includes the selection of arbitrators, written pleadings, evidentiary hearings, and the issuance of an arbitral award.
Arbitration benefits from the widespread acceptance of the New York Convention, a treaty facilitating the recognition and enforcement of foreign arbitral awards in more than 160 countries. This streamlined enforcement process reduces the risks associated with navigating national court systems, which can be subject to local bias, unfamiliar procedural rules, and different bodies of law.
Arbitration offers a distinct advantage by providing a private hearing, ensuring that no public court record is filed. This aspect proves particularly valuable for small business clients as it enables them to safeguard their trade secrets and other vital intellectual property, which form the foundation of their businesses. During the arbitration hearing, no third parties, including the press or competitors, are permitted to attend. However, it is important to note that while privacy is a fundamental aspect of arbitration, confidentiality is not automatically guaranteed. The level of confidentiality depends on the laws of the arbitration’s location and the specific rules outlined in the business contract.
Arbitration awards typically do not permit error correction or appeal, resulting in greater finality. Limited judicial review may only occur on narrow grounds, unrelated to the merits of the case. While this eliminates the risk of a lengthy appellate process, it may also reduce the options for the losing party to challenge an unfavourable award.
Arbitration offers the parties the freedom to choose an arbitrator or a panel of arbitrators to settle their dispute. While the arbitrator can be a lawyer, it is not a requirement, allowing the parties to select any mutually agreed individual. Parties may choose decision-makers with specific qualifications or backgrounds tailored to the dispute at hand. This is particularly advantageous in complex technical disputes where industry or technical expertise is crucial.
In general, arbitration involves less extensive document disclosure compared to litigation. While this can reduce costs and speed up the process, it may also pose challenges in obtaining sufficient evidence to support a claim. Parties can address this by specifically including expanded discovery provisions in the dispute resolution clause if desired.
Arbitration has the potential for faster resolution compared to litigation. An arbitration process can take place as soon as it has been agreed upon by the parties. Parties can opt for expedited rules or agree on time limits within the arbitration clause. Additionally, selecting a sole arbitrator and avoiding the appellate process can contribute to a more expeditious resolution.
When choosing between arbitration and litigation, it is crucial to thoroughly assess the nature of your dispute, the urgency of resolution, the financial implications, concerns regarding privacy, and the desired level of control over the process. Additionally, seeking advice from a seasoned lawyer is essential to receive proper guidance and make the optimal decision for your business.
If you are facing a legal dispute, Farallon Law Corporation is here to help you identify the most efficient and cost-effective approach. Our experienced legal team is available to guide you through the available options and provide the necessary assistance. Reach out to us for expert support in navigating your legal dispute.
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