Where flexibility meets cost efficiency in settling disputes

James Berger, partner at King & Spalding, talks about the basic differences between resolutions reached through arbitration and litigation

PUBLISHED : Wednesday, 24 April, 2013, 12:00am
UPDATED : Wednesday, 24 April, 2013, 5:16am

What should you expect from arbitration?

You have planned for future disputes through a properly drafted contract. You've conferred with your lawyer, and incorporated a valid arbitration provision in your standard contracts. And you've just got an e-mail from your counterparty that makes you realise that the arbitration provision you have prepared so carefully is about to be used. What should you expect?

At a general level, the arbitration process is very much like litigation, or any other adjudicative process, as each party seeks to convince the decision-maker - the arbitrator, in the case of arbitration - of their version of events. The parties each try to establish facts, and to do so in a way that vindicates their position under the applicable law.

But beyond these general similarities, there are significant differences that will affect a disputing party's strategic and tactical decisions.


How does an arbitrator's role differ from that of a judge?

Perhaps the most important distinction between litigation and arbitration is the role and mission of the decision-maker.

In civil litigation, the judge's obligation is to reach the correct result under law.

Where a strong claim is barred by a technicality, the judge is generally duty-bound to deny the claim. Powerful or important evidence may be excluded on procedural grounds. Proper and generally strict application of the law is the paramount concern, and regardless of what the judge views as the fairness of a particular result, the judge must do as the law dictates. And if the court does not follow the law, an appellate court is likely to do so.

Arbitration proceedings, by contrast, are far more flexible.

Arbitration rules are inherently more flexible and permissive than the procedural codes that govern litigation.

But even beyond procedural flexibility, arbitrators have far more latitude than courts to reach equitable decisions that may reflect the arbitrator's view of the most equitable commercial outcome, rather than the correct legal outcome.

Finally, the ability of arbitrators to craft equitable solutions to commercial disputes is buttressed even further by the fact that, unlike courts of first instance, arbitration decisions are not subject to appellate review.

While arbitration decisions may be "set aside", or annulled, for certain reasons (most often because the arbitration agreement was invalid, did not cover the particular dispute, or was not properly followed by the arbitrators), arbitration decisions generally are not reviewable on the merits or because the arbitrators made a mistake of law or fact.

The simple fact is that the same claim, involving the same facts and subject to the same law, may turn out completely differently depending upon whether it is heard by a court or an arbitrator.

Another key difference has to do with the background and expertise of the arbitrators, factors that could affect strategy and the presentation of a particular case.

The expertise of judges is in law and procedure. And while many arbitrators are practicing lawyers - and some are retired judges - many are chosen for their expertise in the relevant industry.

As a result, arbitrators may place greater emphasis on business custom or practice in a case than a judge would.

Furthermore, in cases involving a tribunal of three arbitrators - which is typical in large commercial disputes - arbitrators may come from different countries with different professional backgrounds.

For example, while Hong Kong is a common law jurisdiction, an arbitration tribunal empanelled in this city can include one or more arbitrators from a civil law country, where precedent is far less important and where the circumstances surrounding a contract are sometimes considered to be as important as the language of the contract itself.

Given that an arbitrator's background is likely to affect the manner in which he or she will analyse and consider the facts and law, arbitrator selection is a critically important step in arbitration, and one that parties considering court litigation simply do not need to be concerned with.

Arbitration is a valuable alternative to litigation. And while commercial parties are frequently attracted to arbitration as a quicker and more cost-effective way of resolving their business disputes, it is a mistake simply to consider arbitration as a cost- or time-saver.

Arbitration differs from litigation and should be undertaken with an appreciation of those differences.


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