Litigation Vs Arbitration – What Is the Real Difference?

Litigation is what takes place in a court of law presided by a Judge/Magistrate appointed by the Government. Arbitration, on the other hand, is what takes place in an arbitral tribunal for resolution of disputes between two or more parties in the presence of one or more arbitrators appointed by the parties for resolving the dispute.

However, for arbitration to take place, the disputing parties must have signed an agreement to that effect conforming to each other. The agreement is to ensure that although anyone can be sued at will, but no party can arbitrate at will. Arbitration is used in business disputes as it saves a lot of time and money. There are many litigation support services, litigation consulting services and arbitration services which you can consider to deal with any conflicts.

In other words, litigation is the formal and oldest judicial process where the judge or jury gives the verdict abiding by the laws laid down by the government. Arbitration is more of a modern and informal dispute solving process where a third party solves the conflict between two sides appointed mutually by the two disputing parties.

Though arbitration seems a faster and more suitable process out of the two, there are certain scenarios where arbitration can rather be detrimental. Nowadays, arbitration clauses are commonly included in businesses, medical and employment agreements; certain factors need to be seriously analysed before giving it a preference over litigation. To differentiate between the two, it is advisable to understand Litigation vs Arbitration by these crucial factors:

Speed/duration of the process

Arbitration is the quicker process between the two, even in complex scenarios such as multi-party disputes or cross-border issues. Pile-ups of cases in the courts increase every single day and owing to this, litigation takes a lot of time. It is very common that settling disputes through litigation may take years but in case of arbitration, due to its simplicity, it is quick in finalising the verdict and resolving disputes. This makes arbitration preferable for businessmen as they can resolve their issues quickly and get back to business. Litigation hampers businesses extensively owing to its clumsy mechanism as the litigants need to linger around courtrooms for days together.

Which one is more economical?

Now, it is a little confusing task to say which process is more economical. The common myth favors arbitration as cost effective. However, in many cases, the opposite can also be true. Arbitration requires the hiring of a private arbitrary panel which consists of professional lawyers and retired judges. Obviously, the fees of such people are quite high; much higher than what would be needed to file a case in court in the case of litigation.

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So, in the case of disputes that are not quite high priced, arbitration is impractical. That is one side of it, now comes the other side, where arbitration is economically better compared to litigation. Though the cost of filing a case in court is way lesser, it is the court proceedings and the mechanism that hike up the cost and fees of the litigation process.

On the contrary, the lawyers and judges of the arbitration panel are less inclined to entertaining extensive investigations, relevant discoveries and practice of motions before passing out judgment. These save a lot of money, and so if a case seems to have lots of discoveries and investigations related to it, arbitration is the better alternative.

The relationship between the disputants

The nature of arbitration is less formal and more of a board-room discussion for resolving disputes. Litigation, on the other hand, is all about formal rules and regulations that the disputant needs to follow. In some cases, it might happen that the ongoing business relationship between the disputants needs to be stopped to carry forward the litigation process. Arbitration is exactly the opposite in this case, as the very process was introduced to resolve disputes without hampering any on-going relationships. So if the disputing parties wish to preserve their relationship during the dispute settlement, arbitration is the only choice.

Publicity

Commercial Litigation is all about crowded courtrooms, public notices, public hearings, media, etc. Every event of the court proceedings is out there in the wide world to discuss. Litigation is a failure when it comes to keeping things under wrap. Arbitration, on the other hand, is a master at keeping things secret. Arbitration does not come on the public record, and so all the dispute details, discussions and verdicts are always classified. The confidentiality clause is inserted in the arbitration clause initially if the parties wish so. This helps both the parties to keep sensitive matters under cover which can harm their reputation if publicised, in the course of resolving.

The difference of laws exercised

This is a major factor to be considered before selecting the process. Both these methods vastly vary regarding legislation exercised for resolving. Arbitration follows no such mandatory laws at all. The arbitrator is free to accept any evidence (some might not even be considered as evidence in the court of law!) for passing out judgment. They can be flexible regarding whether they need to follow a case law or just give a verdict which they deem to be correct and justified.

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No rules of evidence or statutes govern the proceedings of arbitration, and it might happen that the verdict is not even in line with the law. On the contrary, the very backbone of business litigation is the law. The judge needs to follow the strict guidelines stated in the law and rules of evidence to formulate a judgment. In litigation, court proceedings are entirely steered by existing statutes, laws, rules and regulations.

Hence, arbitration is an uncertain process of resolving disputes, whereas litigation is more of a consistent and stable way of passing judgment. However, ‘runaway jury’ and punishment inflicted judgments are the negative aspects of litigation which are absent in arbitration.

Expertise in a particular field under dispute

It might be of little importance in most of the cases, but if the jury is aware of the nature and condition of the field under conflict (e.g. pharmacy, engineering, etc.), the judgment obviously will be more precise and practical. Arbitration wins over litigation in this case.

The jury in the courtroom is constrained in evaluating the scenario and evidence from the subject-matter point of view. He/she lacks expertise in that particular field, and this may lead to an impractical verdict. Whereas, if the parties go to arbitration, they can appoint an arbitrator who has technical expertise in that particular field and hence amicable opinions will be formed before finalising a verdict. Perhaps this is the reason why arbitration preferably settles construction disputes.

Right to appeal

This can only be exercised in litigation. Judgment passed by an arbitrator is not subject to review which makes arbitration an irreversible process. This can be detrimental to the disputing parties if somehow a wrong judgment is passed. However, this does not mean that court jury’s verdict can be altered with ease. But there are appellate courts that account for a ‘review’ of the verdict if any such petition is being made. This right to appeal is introduced as a safeguard measure to accidental ‘wrong’ decisions made by the judge and can be availed effectively only in litigation.

The above discussion does not ultimately conclude the differences between the two processes, but it will help in deciding which one to choose for a specific dispute. The point is, in any complex scenario where the ‘litigation vs. arbitration’ issue arises, as to which one to choose, and it seems complicated, the above discussed factors (plus some other, maybe) should be analysed carefully and depending upon the demand and congeniality, selection should be made.