Advantages of arbitration over litigation

Arbitration is a method of resolving disputes outside the court system, with the dispute being determined by an independent arbitrator or tribunal rather than a judge. Whether a dispute is best resolved through arbitration or litigation will ultimately depend on the particular facts and circumstances of the case. However, arbitration offers several advantages which continue to make it a popular method of dispute resolution, and many of those advantages shall be addressed below.

The enforceability advantage of arbitration

Arguably, one of the most significant advantages of arbitration is the ease with which arbitral awards can be enforced. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) provides an extensive international enforcement regime and contracting states are generally required to recognise and enforce arbitral awards made in other contracting states, subject to limited exceptions.

By contrast, there is no real equivalent for the enforcement of court judgments. Though many countries are signatories to reciprocal enforcement treaties, when compared with the New York Convention, these are not as comprehensive nor wide-ranging.

Why neutrality matters in international arbitration

A further advantage of arbitration is its neutrality. Parties seeking to arbitrate have the ability to choose the location of the arbitration’s “seat” which essentially means that parties can decide which jurisdiction the arbitration will take place. This is particularly attractive when parties are based in different countries and wish to locate an impartial, efficient and pro-arbitration legal system.

Unlike in litigation, arbitration allows parties to select the arbitrator or arbitrators who will determine the dispute. In addition, parties may specify the qualifications, expertise or experience that arbitrators should possess. This can be especially beneficial in disputes involving complex technical or industry-specific issues.

How arbitration provides greater certainty

Like a carefully drafted jurisdiction clause, a well-drafted arbitration agreement can provide parties with a high degree of certainty regarding the forum in which disputes will be resolved. This is particularly advantageous in cross-border disputes, where questions on jurisdiction can become complex and costly.

Jurisdictional disputes in litigation can require significant time and expense to resolve before the substantive issues are even considered. Although jurisdictional challenges may also arise in arbitration, a well drafted arbitration agreement can significantly reduce the scope for such disputes.

The procedural flexibility of arbitration

Arbitration offers parties a level of procedural flexibility that is generally unavailable in court proceedings. Parties are usually free to agree the procedures that will govern the arbitration and tailor them to suit the nature and complexity of the dispute.

This flexibility can promote efficiency by enabling parties to adopt procedures that are proportionate to the issues in dispute, potentially reducing both time and costs. By comparison, litigation is governed by detailed procedural rules which provide parties with considerably less freedom to shape the process.

Flexibility in the presentation of evidence

Continuing with the theme of flexibility, parties are generally allowed to agree as to how evidence should be adduced, presented and assessed by the tribunal. However, this is subject to the national laws of the seat of the arbitration.

Yet, such flexibility is not without its disadvantages. The absence of detailed procedural rules can sometimes create uncertainty and lead to disagreements. For example, disputes may arise concerning the scope of disclosure obligations or the admissibility of potentially privileged documents, which can in turn, increase both time and costs spent.

Privacy benefits compared with litigation

Litigation is rarely private. In England and Wales, the principle of open justice requires near all trials to be held in public and many judgments can be found by a search of publicly available information. Yet, a party’s involvement in arbitral proceedings is typically not a matter for the public record.

The cost considerations of arbitration

Arbitration is not always cheaper than litigation. In arbitration, parties must still pay tribunal fees and any disbursements, along with administrative costs. The overall cost of arbitration will depend largely on the complexity of the dispute, the conduct of the parties and the approach adopted by the tribunal. Consequently, effective cost management remains an important consideration throughout the arbitral process.

Key takeaways

Arbitration offers a number of important advantages over litigation, including enhanced enforceability, neutrality, procedural flexibility, privacy and greater certainty regarding the forum in which disputes will be resolved.

Nevertheless, arbitration is not a universal solution and careful consideration should therefore be given to dispute resolution mechanisms at the contract drafting stage to ensure that the chosen forum is best suited to the parties’ needs.

Contact our arbitration and dispute resolution team

Arbitration can offer significant advantages over litigation, but choosing the right dispute resolution mechanism is crucial. For expert guidance through every stage of the process, contact our dedicated arbitration and dispute resolution team.