7 factors to consider before choosing arbitration over litigation

Many contracts are increasingly adopting the incorporation of an arbitration clause in the event of dispute between concerned parties. In fact, some contracts even stipulate that all disputes must be compulsorily subjected to arbitration rather than litigation. It is therefore important to have a good understanding of major differences between these two choices of dispute resolution.

Except otherwise agreed by the parties involved in a dispute, litigation is usually the first dispute resolution mechanism to be considered. Litigation involves filing cases and resolving issues through a court presided over by a judge or jury. Arbitration on the other hand is a mutual agreement between two disputing parties to have their issues resolved with the help of an unbiased third party outside the conventional court system.

Litigation and arbitration differ in many ways, some of which we have highlighted in this piece.

Privacy and Formality
Litigation is a formal process that is open to the public while arbitration is an informal process and kept away from public glare.

In addition to the fact that courts often have to deal with a plethora of cases at every point in time, it is common to find cases being drawn over several years without resolution. This usually doesn’t happen with arbitration, except in situations that involve multiple parties and international disputes. Even then, once the parties have chosen an arbitrator, the case can begin. This is unlike litigation where a case must wait until the court has time to hear it, which could mean waiting for several months or years.

The costs of arbitration include institutional fees, venue fees and the fee to the arbitrator(s) which varies depending on factors like the size of the claim and the expertise of the arbitrator(s). For litigation, the costs include attorney fees and court costs. Most people believe that arbitration is less expensive than litigation but that is not necessarily true. The final costs depend on the nature of the dispute and the value of the case. But generally, litigation has a more demanding process of discovery and trial which could translate to increased costs.

Selection of Arbitrator/Judge
Arbitration provides disputing parties with the opportunity to decide on a mutually agreeable arbitrator. In litigation, parties cannot select the judge that will hear their case although they may be able to choose whether their matter will be determined by a judge or a jury.

Use of Attorneys
Attorneys play a major role in litigation; hence the possibility of high attorney costs. In arbitration, the role of attorneys is limited. They may represent disputing parties but they are not involved in the extensive processes that are characteristic of litigation.

Right of Appeal
Unlike litigation which allows for appeal at various levels, parties in arbitration usually do not have an appeal option except it has been specified in the arbitration clause. In some cases, arbitration decisions may be reviewed and voided by a judge if it is established that the arbitrator was biased.

Rules of Law and Evidence
In litigation, judges are constrained to follow and abide by all rules of evidence, statutory case law and court rules. In arbitration, the arbitrator has enough flexibility to admit any evidence he/she considers relevant including evidence that would not be accepted in a trial. Arbitrators can also determine cases based on what they consider equitable even if it is not totally in accordance with the law.

Parties should carefully contemplate their choice of dispute resolution mechanism considering the wide differences in the procedure and final result.

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