Arbitration is a method of dispute resolution whereby parties submit their dispute before an Arbitrator or an Arbitral Tribunal. On the other hand, Litigation is the process whereby parties institute legal proceedings before a Court of Law for adjudication.
Arbitration is usually presumed to be more cost effective than Litigation because it is a private means of resolving disputes. In addition, some parties prefer it because commercial relationships may still be functional despite ongoing Arbitral Proceedings or the issuance of an arbitral award. An advantage of Arbitration is that parties may maintain good commercial relationships. Which in turn prevents costs that may be incurred by severing commercial relationships or building new relationships.
The average legal proceedings may span over a couple of months/year. This prolonged timeline may inadvertently lead parties to incur substantial costs in filing processes. As well as additional legal practitioners’ fees and associated expenses that may have been avoided by Arbitration.
However, it is not always cheaper than litigation. The complexity of a matter before an Arbitral Tribunal might necessitate a demand for higher Arbitration fees and expenses. In a situation where the fees are fixed at a percentile of the claim, the cost of the Arbitration may be excessive in comparison to the cost of Litigation before a Court of Law for the same matter. An example is when the monetary sum in dispute in the Arbitration is high, the percentile claimed by the Arbitrators will be correspondingly high. The fees may also vary depending on the level of expertise required for the matter, the number and/or qualifications of the Arbitrators, etc.
It is noteworthy that the time frame for resolving a dispute by Arbitration may be elongated where a party intentionally stalls the process. As a result of this, the costs of the Arbitration may increase to take into account the additional time and resources devoted to the proceedings by the Arbitrators.
In summary, Arbitration may not always be more cost effective than Litigation. A Party must always consider the circumstances surrounding his Claim. In addition, it may be wise to seek the guidance of a legal practitioner. They can help determine what dispute resolution method may be most appropriate and cost effective for your matter. Contrary to popular opinion, it may serve parties better to institute a suit before a Court of Law.