Arbitration and litigation are not inherently better or worse; rather, the issue is whether they are suitable for the given circumstance. In order to give companies useful advice for their strategic choices, let us dissect the fundamental differences between arbitration and litigation from a practical perspective:
Arbitration in resolution of commercial disputes comes into play when there is a legally binding arbitration clause present in a company’s Articles of Association or other contracts.
The greatest advantage of arbitration lies in the flexibility and party autonomy it offers. Anchored on the notion of freedom of contract, the disputants can choose the arbitrator, the procedural rules suitable to the nature of the dispute within its commercial context, and the applicable law. The tailored procedures and costs allows for the parties to be flexible with the dispute resolution. Once agreed, the terms become binding on the parties and are to be respected by all including Courts of law.
With arbitration, the parties have access to expert arbitrators who can render expert rulings in business disputes while skillfully negotiating intricate technical issues unique to a given industry or company. That expertise eliminates the need for drawn-out and frequently expensive judicial expert evaluations and enables technical difficulties to be directly clarified during hearings.
What is also worth noting is the confidentiality arbitration offers; which ensures that the company’s vital business are safeguarded through measures such as: requirement of parties’ informed consent to arbitration, the need to identify private information during the hearing and submissions, and redaction. More to this confidentiality than just the private hearings is that the final award is not publicized. The arbitral awards are binding, with limited grounds for appeal, therefore providing certainty and finality.
However, arbitration still faces its distinct challenges that may force the parties to resort to litigation over arbitration, such as the use of the traditional adversarial proceedings and the high cost of arbitration.
In the event arbitration fails and the dispute remains unresolved, the parties may choose to escalate it to litigation in order to bind the parties to a decision that resolves the dispute. Litigation abides by structured procedure which is intended to guarantee standardized dispute resolution while protecting the parties’ procedural rights as much as possible, coming in handy when dealing with complex commercial matters. This unfortunately may translate to drawn-out suits that may be harmful and time-costly to business.
Legal precedent is one advantage of litigation. The Court decisions in commercial disputes can be cited in similar cases in the future, making the legal system predictable. While the strict norms of civil procedure and evidence used in the courtroom are not always followed in arbitration, with litigation, the Court is bound to consider evidence, without bias, before rendering its decision.
A party may appeal the judgement in litigation, thus lowering the possibility of miscarriage of justice affecting the company’s decisions and business.
The design and selection of a dispute resolution mechanism has become an essential part of a company’s risk management strategy throughout the whole life cycle of a commercial transaction. Companies through evaluation of fundamental requirements, such as efficiency, cost control, confidentiality, and competence, should form the basis of the choice between arbitration and litigation as a means of dispute resolution.
Maureen Mutai is an Advocate of the High Court of Kenya, and an Associate at MMS Advocates LLP. This article was written in the spirit of discovering where her interests lie in the vast legal field, and with the general desire to keep learning.