How many times have we heard the old cliches about arbitration being faster, cheaper and preferable to litigation? Well, that may be true in some cases, but often a party may be better off with litigation. Making that determination depends on multiple factors. This article will address seven of them.
1. Speed – Surveys note a growing perception that arbitration is no faster, no cheaper and less reliable than litigation. In theory, there are many methods to speed up arbitration, such as using just one arbitrator, rather than three; restricting discovery, witnesses and submissions; submitting the case on the pleadings; and so forth. However, parties may feel such limitations inhibit their ability to fairly present their case and receive a correct decision. Consequently, such methods may be less suitable for more costly or complex disputes.
2. Cost – Resolving a US$10 million dispute in the International Court of Arbitration, using three arbitrators, will cost $397,367 in administrative costs and arbitrator fees; a US$5 million dispute with one arbitrator will cost $132,349; but those figures don’t include fees for attorneys and experts. As with speed, the parties may reduce cost by limiting evidence, procedures and number of arbitrators; but, again, any savings must be weighed against the possibility of compromised justice.
3. Consent – It seems likely the parties will be more pleased with arbitration if they agree to arbitrate after the dispute has arisen, rather than beforehand, because at the time of dispute their decision is more knowing and consensual. However, one disadvantage of arbitration is the potential lack of consent over relevant third parties. Unlike litigation, such third parties cannot be forced into the proceedings, leaving the possibility in some cases that arbitration may not completely and finally resolve the dispute.
4. Confidentiality – Although litigants can often benefit from court confidentiality orders, one of the primary benefits of arbitration is its greater confidentiality, since there are no public hearings or filings.
5. Experience of Decision – Makers It is often claimed that arbitration allows the parties to select more experienced decision-makers, such as persons skilled in a particular technology. However, in a less technical case that’s less of an advantage. Moreover, the legal and procedural skills and experience of judges should not be discounted.
6. Right to Appeal – The finality of arbitration is often touted as a benefit. Usually, the parties agree the award will be final, binding and non-appealable, which contributes to its cost-saving reputation. However, the drawback is lack of recourse if the decision-maker errs, which is clearly a distinct possibility.
7. Enforceability of Award – With respect to enforceability, arbitration is usually viewed more favorably than litigation, because 145 nations (but not Taiwan) are signatories to the New York Convention, an agreement by which the signatories basically agreed to permit the enforcement of foreign arbitral awards as if they were local court judgments. Enforcement of foreign court judgments, on the other hand, can be troublesome.
So, what’s the conclusion? Which is better? Should you include an arbitration provision in your next contract? I’m afraid you’ll have to make that determination on your own, as the best decision will depend on the particular facts of each case.