The Comparative Advantages of Arbitration and Litigation
When a commercial dispute arises, the first question is not always who is right. It may be where the dispute must be decided. A contract may require arbitration, while other disputes belong in court. Neither route is automatically faster, cheaper or better.
What is the difference?
Court proceedings are decided by a judge within the public court system and follow the Rules of Court. Arbitration is a consensual process in which the parties submit their dispute to one or more arbitrators, usually because their contract contains an arbitration agreement.
Arbitration hearings are generally private and the process commonly carries confidentiality obligations, although disclosure may still be required by law, for enforcement or to protect a legal right. Court proceedings are generally public, subject to the court’s power to hear suitable matters in private or restrict publication.
Why choose arbitration?
Arbitration is often attractive for cross-border, technically specialised or commercially sensitive disputes. Parties may have greater control over the tribunal, procedural rules, language and timetable. They may select an arbitrator with relevant industry experience.
International enforceability is another major advantage. Arbitral awards may be enforced in many jurisdictions under the New York Convention. Arbitration also offers greater finality because the grounds for challenging an award are deliberately limited.
Why might court proceedings be preferable?
Court litigation may be more proportionate for a local or straightforward dispute. The court has established procedures, powers over third parties and a system of appeals. A public judgment may also be useful where precedent, vindication or authoritative interpretation is important.
Arbitration can be costly because the parties pay the tribunal and administering institution in addition to their lawyers. It may also be less suitable where numerous third parties must be joined, where coercive orders against non-parties are central, or where the dispute concerns rights that cannot properly be referred to arbitration.
The contract may decide the issue
If there is a valid arbitration clause covering the dispute, a party who sues in court may face an application to stay the proceedings in favour of arbitration (s 6 International Arbitration Act 1994, for arbitration agreements to which that Act applies — principally international arbitrations; the Arbitration Act 2001 contains an equivalent stay provision for domestic arbitration agreements. See Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2015] SGCA 57, where the Court of Appeal held that only a prima facie standard of review applies and that even minority oppression claims under s 216 of the Companies Act can be arbitrable). The wording of the clause, the seat of arbitration, governing law and chosen institution should be checked before any claim is filed.
Urgent court assistance may still be available in support of arbitration in appropriate circumstances, but parties should not assume that an arbitration clause can simply be ignored.
Questions to ask early
Consider where the parties and assets are located, whether confidentiality matters, whether technical expertise is needed, whether third-party orders may be required, the likely value of the dispute and how important appeal rights are.
Key takeaway
The best forum is the one that fits the contract, dispute and commercial objective. Early advice can prevent a claim from being started in the wrong place and avoid significant wasted cost.