Dispute Resolution: Arbitration and Court Proceedings – Which is Better?

Year Published: 2021

When faced with a binding arbitration dispute resolution clause within a contract or partnership deed, parties are obliged to refer disputes to arbitration under the Arbitration Act 1996 (‘The Act’). However, even where this is not the case, parties to disputes can agree to refer disputes to arbitration as an alternative to going to court. There are advantages and disadvantages associated with doing so and this article highlights some of the key differences between arbitration and court proceedings.

Referring a dispute to arbitration means that the parties appoint a qualified impartial arbitrator (and sometimes more than one), who works with the parties to prepare the dispute for a final hearing and resides over the final hearing in a similar way that a Judge at court resides over a trial.

A final hearing in arbitration is very similar to a trial in court proceedings, with witnesses cross-examined under oath by the opposition’s counsel. The arbitrator appraises the evidence and legal arguments presented, makes a determination and later issues an award, which is legally binding upon the parties and once registered at court, is enforceable in the same way as a court judgment.

Time and Cost

Suggestions that arbitration is a less expensive and faster alternative to court proceedings should be treated with caution. Within both arenas, the parties need to engage specialist legal representation to prepare their case for the final hearing. The work this necessitates for the lawyers involved is very similar.

Presently within court proceedings, parties to disputes are bound by more extensive and costly disclosure obligations and must exchange adverse documents that are damaging to their own case. There is no such duty within arbitration proceedings. In court proceedings, this leads to a front-loading of costs but is more conducive to fruitful settlement negotiations at an earlier stage and can reduce the overall costs for both parties.

Parties engaged in arbitration can legitimately hide damaging evidence from their opponent, meaning the dispute has the potential to drag on with a greater degree of uncertainty and expensive applications for specific disclosure are more likely. Parties are also less likely to narrow the issues between them as the proceedings progress, meaning they remain live for determination at what is then a longer and more expensive final hearing.

Within court proceedings, a Judge has total authority over the court timetable subject to fitting the case in around the rest of the court’s workload, whereas an arbitrator is at the parties’ service and so parties have a greater say over timetabling and deadlines. In straightforward arbitration proceedings where both parties are keen to progress matters, this can speed things up, but in complex commercial cases, the volume of work required to prepare the case for the final hearing and the time it takes to complete can cancel out any time saving.

Tactics for Arbitration and Court Proceedings

Late Disclosure of Evidence

Arbitrators, unlike Judges, are more mindful of having their final award challenged on the grounds of unfairness to one of the parties and this can mean that arbitrators tend to be more lenient towards the parties, for example, permitting last minute witnesses presented at the final hearing to give evidence.

Part 36

Court proceedings are subject to the statutory Part 36 regime pursuant to the Civil Procedure Rules (‘CPR’). Part 36 offers are a tool commonly deployed in litigation by both claimants and defendants, and the consequences of making, accepting and rejecting such an offer are set out clearly within the CPR. They are triggered automatically when a valid Part 36 offer is made. For example, a common strategy for a claimant is to present a Part 36 offer of settlement that is capable of being ‘beaten’ at trial. If the claimant beats their Part 36 offer, they can receive a windfall of 10% on top of damages awarded up to £500,000, 10% on top of costs awarded and interest applied at a rate of 10%.

CPR Part 36 does not apply to arbitration proceedings, therefore this is one less tactic available for the parties to use to put pressure upon each other to accept an offer of settlement. Parties can still make ‘without prejudice save as to costs’ offers, which can be referred to the arbitrator on the question of costs, but they do not have quite the same impact as a formal Part 36 offer, particularly for a claimant.

Enforceability of Provisional Awards

Section 39 of the Act states parties are “free to agree that the Arbitrator shall have the power to order on a provisional basis any relief it would have the power to make on a final basis”.  There is an obligation upon the parties to comply with provisional awards, however, they are subject to the arbitrator’s final award and are therefore not separately enforceable. For example, if one party fails to pay an award for an interim payment on account of the costs of the arbitration proceedings, this as a provisional award cannot be separately enforced though the courts as a final award.

Security of Costs

Section 38 of the Act provides that the arbitrator (like a Judge in court proceedings) can order a party to provide Security of Costs in respect of the costs of the arbitration proceedings. This requires the claimant, or counterclaimant, as the party responsible for instigating the claim, to make a payment in respect of the other side’s estimated costs of the arbitration before the proceedings can continue.

Third Party Disclosure Orders

These require a third party not involved in court proceedings to supply copies of documents relevant to the issues in dispute to the parties. Obtaining such an order within court proceedings requires a relatively straightforward application to the Judge, who can make such an order legally binding upon the third party and enforce compliance in the event of default. It is not within an arbitrator’s powers to grant such an order.

Mediation

Parties are free to and encouraged to attempt mediation in both arbitration and court proceedings. The costs of a failed mediation are recoverable from the losing party (absent any express agreement to the contrary between the parties) in arbitration proceedings as they are in court proceedings absent any express agreement between the parties to the contrary.

Confidentiality

Arbitration is an entirely confidential process as between the parties, their advisors and the arbitrator, whereas within court proceedings, transcripts of hearings are available to the public. This is a primary advantage of arbitration over court proceedings for those who, for example, may not wish to litigate a dispute of commercial sensitivity, or attracting regulatory scrutiny, in the public arena.

Appeal

An appeal against an arbitration award must be presented within 28 days of the date of the final award. They are more difficult to appeal than court judgments because there are limited grounds upon which to apply i.e. on the grounds of jurisdiction, serious procedural irregularity, or on a question of law. Whilst this does provide a greater degree of certainty and finality, this is only a benefit if you are satisfied with the terms of the award.

Conclusion

Where the nature of the dispute is relatively  straightforward , for example, one with no material dispute of fact, or perhaps between parties who maintain a degree of trust and confidence in each other arising from an existing commercial relationship, arbitration proceedings could be a less expensive and quicker option to bear in mind.

If you would like further advice or guidance on arbitration and court proceedings, please contact Carly Borne on 0161 475 7678 or email [email protected].

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