Arbitration vs Litigation - What's The Difference?

We all hope that our business relationships run smoothly. However, in some instances, conflicts arise which are simply unavoidable. In these situations, it is important to know what your options are.

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By Matt Spencer - 4th March 2022

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Arbitration is a form of dispute resolution which can be used to settle business disputes outside of court. This differs to litigation, which results in the Court imposing a binding judgement on the parties. Litigation is a last resort, as it is more formal, costly and time-consuming than arbitration.

Dealing with a business dispute

We all hope that our business relationships run smoothly. However, in some instances, conflicts arise which are simply unavoidable. For example, you may be party to a contract where someone is required to make a payment to you, or to perform a specific act, but they fail to do so. In these situations, it is important to know what your options are.

The courts encourage parties to settle disputes between themselves wherever possible. If a matter does progress to litigation, the court will always expect that the parties have engaged in some form of alternative dispute resolution, such as arbitration, before issuing a court claim. To comply with this requirement, it is always beneficial to approach the other party to try and agree a solution between yourselves.

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Arbitration

If you are unable to agree a solution, then you may wish to propose arbitration. Arbitration is used as a mechanism for settling disputes. It usually takes place over the course of a day, or perhaps longer in complex matters. An arbitrator is appointed, and they will discuss the matter with both parties to begin with, following which they will act as a go-between as the parties negotiate towards settlement. The arbitrator will offer advice to the parties and aim to narrow the issues between them, whilst communicating any settlement offers which one party may advance to the other.

Whilst there is a cost in instructing an arbitrator, it is common for the parties to agree to share the cost equally. In any event, the cost of hiring an arbitrator will always be minor in comparison to the cost of taking the matter to court.

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Litigation

If arbitration is unsuccessful, then the last resort is to issue court proceedings. If proceedings go all the way to trial, it will result in the court giving judgment in favour of one party. However, the costs and time involved in litigation are significant in comparison to arbitration. A court fee is payable to issue a claim, and the cost of legal representation will be an ongoing consideration throughout the course of litigation. As to the timescales involved in litigation, once a case is issued you will be subject to the court’s timetable. Litigious matters often take months to resolve.

If you have a dispute with another person or business which you need help resolving, contact Matt Spencer in our corporate and commercial team.

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