Difference between Litigation and Arbitration

91 votes

Ordinarily, when two parties to a contract have a legal dispute, they can turn to the court system to settle the issue. But depending on how the contract was drafted, the parties might not have that option. Instead, they may be forced to resolve their differences through arbitration.
 
Using specific language, commonly called a “dispute resolution” clause, parties can decide ahead of time that any possible legal disputes arising between them related to the contract must be handled through arbitration. Once the parties agree to do so, they cannot, except in limited circumstances, file lawsuits against each other. That’s because courts will generally enforce arbitration clauses in contracts when the parties have voluntarily agreed to them.
 
For some contractual relationships, the arbitration will be the preferred method of resolving a legal dispute. For others, litigation is the best option. So why would the parties to a contract agree to arbitrate disputes rather than litigate them? There are several key differences between litigation and arbitration that drive that decision. The parties will need to balance the pros and cons of these differences to decide which path to take given the nature of the contract, their industry standards, and their preferences.
 

What is Litigation?

The term ‘litigation’ refers to going to court for settling the dispute between or among parties. It is a legal proceeding initiated between the opposing parties, with the aim of enforcing or defending the legal right.
 
In this process, the case is brought to the court, wherein the judge (appointed by the court to act as the litigator) gives his/her verdict on the issue after considering all the arguments, evidence, and facts presented by the lawyers of the parties. If the parties do not agree with the decisions of the court, they can appeal to a superior court for getting justice, provided certain conditions are fulfilled.
 
The court has a definite and formal procedure, for settling the conflict between the parties concerned, which should be followed strictly.
 

What is Arbitration?

Arbitration refers to the private method of adjudication of disputes, wherein the parties seeking a settlement, mutually select one or more independent and unbiased persons as arbitrators. The arbitrator studies the situation and listens to the arguments and evidence of the parties, to make recommendations on the case, which is considered as final and binding upon the parties concerned.
 
Arbitration is one of the methods of alternative dispute resolution, which can be possible only with the consent of the disputing parties, which is contained in an agreement called an arbitration agreement. The agreement must be in writing and specifically express the will of the parties to arbitrate the dispute.
 

What is the difference between Litigation and Arbitration?

The difference between arbitration and litigation can be drawn clearly on the following premises:
 

1. Arbitration is a method of resolving the dispute in which a neutral third party is appointed to study the dispute, listen to the parties and then make recommendations. On the other hand, litigation is described as a legal process in which the parties resort to the court for the settlement of disputes.

2. Arbitration is always civil in nature. Conversely, litigation can be civil litigation or criminal litigation.

3. Arbitration is a private method of resolving controversies between the parties, wherein complete confidentiality is maintained. On the contrary, litigation is a public proceeding.

4. The place for arbitration of the issue is decided by the parties seeking the settlement, whereas, the litigation takes place in the court only.

5. In arbitration, it is the arbitrator, who is appointed by the parties, to decide the matter. As against, in litigation, the parties have no say, as to who will be the judge to decide their case. The judge is appointed by the court only.

6. The cost of the arbitration process is comparatively lower than the litigation.

7. The decision made by the arbitrator is final and binding in nature, and so further appeal cannot be made. On the contrary, in litigation, the litigants can appeal to higher court, if they do not agree with the decision made by the court, but subject to certain conditions.

 
Arbitration is preferred by the parties over litigation due to many reasons such as greater confidentiality, quick judgement, choice of solutions, higher chances of settlement, low cost, flexibility in process etc. Although, litigation has a number of advantages, i.e. numerous appeals can be made, easy enforcement of the final outcome, etc.
 

Disputes that may not be Arbitrable

Arbitration can be voluntary by which the parties have already agreed to go ahead within the case of any dispute or it can be a mandatory one which is required by law. In most of the cases, arbitration takes place because the parties have inserted the provision for arbitration in case of any disputes “arising under or related to” the contract. However, arbitration is not possible when there are claims relating to Health and life, patrimonial property entitlements, family law, non-property entitlements of intellectual property, the disaffection of property in the public domain, insolvency, rental contracts for accommodation and other litigation in respect of which the law delegates the exclusive jurisdiction of the courts. Further, Disputes may not be arbitrable if they encompass a resolution which may need to be enforceable against individuals other than the parties e.g. a dispute over enrollment in a public register.
 
If the relevant contract does not contain a clause that obliges the parties to arbitrate instead of approaching the courts to resolve any disputes that arise, a party to a dispute can still request arbitration by sending a written demand to the other. If the opposition believes that the dispute can be resolved through arbitration, proceedings can begin immediately.

LawRato LawRato

148 votes

Parties have greater control in arbitration over the process and outcome because they can choose the arbitrator, and negotiate the terms and conditions of the arbitration agreement. In litigation, the parties have less influence over the outcome and process, as the judge or jury makes the final decision.

Advocate Chikirsha Mohanty LawRato