Litigation vs. Arbitration – Which Is Better for Business Disputes?

When it comes to settling commercial disputes, companies usually struggle between arbitration and litigation. Selecting the proper route can greatly influence the cost, duration, secrecy, and result of a dispute. In the litigation vs arbitration dilemma that continues to influence, knowing both options is critical prior to determining which is best for your case.

This blog presents the difference between arbitration and litigation in the context of Australian businesses to help you make a well-informed decision.

What is Litigation?

Litigation is the traditional process of resolving conflicts in the court of law. In Australia, commercial litigation may happen in state Supreme Courts or the Federal Court, depending on the quantity and subject matter.

Features of Litigation:

1. Public Proceedings:

Litigation is subject to public record. In most of the court hearings, verdicts are published to the general public.

2. Formal Process:

In litigation, procedures are characterised by statutory provisions that include the Uniform Civil Procedure Rules and the Evidence Act 1995 (Cth).

3. Right to Appeal:

The parties have a right of appeal to higher courts against orders made, and on certain orders, leave is sought.

4. Judicial Authority:

A binding decision is made by a judge (in some cases, a jury in limited situations) after hearing evidence and legal arguments.

What Is Arbitration?

One form of alternative dispute resolution (ADR) is arbitration, where parties to a dispute present their case to one or more arbitrators to resolve, without having to go to court. It is commonly applied in business contracts, particularly those related to construction, intellectual property, and international trade deals.

Characteristics of Arbitration:

1. Discrete and Secret:

The arbitral process is less open than litigation. This appeals to businesses (LLC vs corporation) hoping to maintain trade secrets or reputations.

2. Contractual Nature:

Arbitration is based upon a contract or agreement, where the parties stipulate in advance (typically in an arbitration clause) that disputes will be resolved by arbitration.

3. Restrictions on Appeal Rights:

The decisions of arbitrators (and awards of arbitrators) are final and binding and have extremely few avenues of appeal under the Commercial Arbitration Act 2012 (WA) and equivalent state legislation.

4. Flexibility:

The parties have the choice of arbitrator(s), procedure rules, venue, and language to be used in the hearing.

When to Opt for Litigation?

Litigation may be preferable in the following cases:

1. You require a court judgment:

Urgent injunctions or freezing orders (Mareva injunctions) are examples.

2. There is no arbitration clause:

Arbitration is only possible if both parties consent to it.

3. You expect to need to appeal:

Courts permit appeals on factual and legal grounds.

4. You need precedent:

Litigation can create a legal precedent, which is valuable in emerging areas of law.

Also, where more than one party is concerned (particularly if not everyone has consented to arbitrate), litigation provides for combining all parties within one proceeding.

When to Use Arbitration?

When it comes to arbitration, this is a better option in most cases.

1. Confidentiality is a necessity:

Where sensitive matters are involved, like trade secrets, price disagreements, or intra-partnership or joint venture disputes.

2. Technical expertise is desirable:

Either of the parties that initiates an arbitration can choose an individual who is familiar with a particular field or industry in question, e.g., construction or technology disagreements.

3. You want a faster decision:

Where parties would speed up proceedings.

4. You are dealing with a foreign party:

Arbitration awards can be acknowledged in over 160 nations using the New York Convention, making arbitration a suitable alternative to cross-border types of commercial contracts.

Arbitration is also usually less confrontational than litigation, permitting the maintenance of existing commercial relationships.

Legislative Framework in Australia

Arbitration in Australia is regulated by:

• The Commercial Arbitration Acts (state legislation consistent with the Model Law on International Commercial Arbitration)
• The International Arbitration Act 1974 (Cth) for international arbitrations

Litigation is controlled by state and federal rules of civil procedure and general legislation like the Federal Court Act 1976 (Cth) and the Supreme Court Acts of the states.

Costs and Time Considerations

Litigation can be capital-intensive, with extensive pleadings, discovery, and court hearings. Expenses can run out of control, particularly if the case reaches trial. In contrast, arbitration is more likely to be time and cost-effective, although this is largely dependent on cooperation by the parties and the nature of the issue.

But both forums are expensive if not properly controlled. Hiring commercial solicitors Perth in the process can assist in controlling costs and time, no matter what the forum.

Final Thoughts

The litigation vs arbitration argument is actually on what you want to get out of your commercial dispute in a particular case, the nature of the dispute, the nature of the relationship between the parties, and strategic considerations. Both litigation and arbitration have merits and demerits.

Having the knowledge of the difference between arbitration and litigation in Australia renders business people the authority to incorporate appropriate clauses on dispute resolution in contracts and to make wise decisions in case of disputes.