Arbitration vs Litigation: Choosing the Right Path for Your Dispute

When a business dispute arises, one of the first decisions is whether to go to court (litigation) or to arbitration. Both work, but they suit different kinds of disputes.

The law on arbitration changed in 2023

The Arbitration and Mediation Act 2023, signed on 26 May 2023, replaced the old Arbitration and Conciliation Act. Among other things it:

• Allows an emergency arbitrator to grant urgent relief before the tribunal is formed
• Allows third party funding of arbitration
• Allows consolidation of related arbitrations and joinder of other parties
• Offers an optional Award Review Tribunal, if the parties agree to it
• Stops the time taken by the arbitration from counting against the time limit for enforcing the award
• Gives mediation a clear legal framework

Litigation: going to court

Commercial disputes are usually heard in the State High Courts or the Federal High Court, and employment disputes in the National Industrial Court.

Advantages

• Anyone can start a case without the other side's agreement
• Court judgments can be enforced through established procedures
• Decisions can set precedent
• Urgent interim orders are available

Disadvantages

• Time: a case that goes through every level of appeal can take many years
• Cost: long cases are expensive
• Publicity: court proceedings are public

Arbitration: the private route

In arbitration, the parties agree to have one or more arbitrators decide the dispute, and the decision (the award) binds them.

Advantages

• Usually faster than going through the courts and every level of appeal
• You can choose arbitrators with expertise in your industry
• Proceedings are private
• There is no appeal on the merits. A court can only set aside an award on limited grounds, on an application made within three months
• Awards can be enforced in the many countries that are party to the New York Convention, which has more than 170 member states

Disadvantages

• Arbitrator and institution fees can be significant
• Both sides must have agreed to arbitrate, usually in the contract
• Document disclosure can be narrower than in court

How to decide

Consider arbitration when:

• The dispute is technical or industry specific
• Confidentiality matters
• The other party is in another country
• Your contract already has an arbitration clause

Consider litigation when:

• The other side will not agree to arbitrate
• You need a public ruling or precedent
• The amount at stake does not justify arbitration costs

Mediation is also worth trying early, since it can settle a dispute quickly and cheaply.

Plan before the dispute

The best time to choose is when you sign the contract. A clear dispute resolution clause saves time and money if things go wrong.