Business & Finance

The difference between Arbitration and Litigation

Facing disputes during business is quite normal, and there are many options that you might have to deal with to settle these matters. However, there are two options that you can consider while dealing with these matters. The first one is to deal with the issue by taking it to court; the second is to handle the case through arbitration.

Arbitration defined: Arbitration is a private process where the conflict is resolved by hiring a mutual arbitrator. This arbitrator is a neutral third party that both the parties agree on to be binding decision-makers. The arbitrator’s decision is considered to be binding, and hence both parties must agree to it.

Group of businessmen shaking hands after productive meeting closeup
Arbitration is a private process where the conflict is resolved by hiring a mutual arbitrator.

Arbitration vs. Litigation

Litigation is taking a problem or dispute to court. The court will hear both sides, and the case will be presented before the judges. After hearing both sides, the judge would come up with a suitable decision to resolve the issue.
Arbitration also involves having a third party resolve the issue. However, unlike litigation, the arbitration process is private, and both parties come up with an agreement on it. The arbitrator is a neutral third party who listens to both parties, and their decision is rendered as binding.

Differences between Arbitration and Litigation:

The most significant difference between Arbitration and Litigation is the court. There are obviously many other differences as well but handling matters in and out of court is the biggest difference. Since Litigation is handled in court, it involves many strict laws and statutes that are meant to govern these court proceedings. On the other hand, since Arbitration is handled out of court it is more of an informal process. Being an informal process makes it much faster than a court process that can involve many hearings before a final decision is made. Though unlike court, getting both parties to agree on arbitration is a problem. For a third party to act as an arbitrator, both parties should agree on the contract for them to act as an arbitrator.

Litigation
Since Litigation is handled in court, it involves many strict laws and statutes that are meant to govern these court proceedings.

This is the basic difference between the two, however there are some other differences as well. 

  1. Litigation is a legal process involving the court resolving a dispute. While an arbitration used a neutral third party to study the case and make a binding decision at an informal level.
  2. Litigation is a general procedure, and there are many Rules and Procedures involved in governing the whole process. Arbitration is comparatively confidential and private, and it allows the parties to keep their matter away from the public and resolve their dispute confidentially.
  3. Litigation is time-consuming, considering many criteria need to be met for the court to make a final decision. On the other hand, arbitration has a speedier resolution viewing the parties simply agreeing on the arbitrator’s decision.
  4. Litigation allows the parties to apply for an appeal again if there is some error in the trial. The arbitrator’s decision is generally binding and cannot be re-appealed for other than in some circumstances.
  5. Litigation compels both parties to participate in court proceedings. Arbitration can only happen with the consent of both parties. If both parties are not in agreement for arbitration on a personal level, then one or the other party could apply for Litigation.
  6. In Litigation, the court-appointed the judge, and neither of the parties has any say in it. However, in arbitration, the parties can choose the arbitrator and agree on it. This can be someone directly related to their field of law.
  7. Litigation is generally more costly than Arbitration. Since the court cases are time taking, they might make more money. On the other hand, arbitration is carried out in a time-compressed setup. Therefore, the process is faster. However, both parties still may carry the costs asked for by the arbitrator.
Arbitration vs. Litigation
Arbitration can only happen with the consent of both the parties.

Conclusion

Both arbitration and Litigation have their setups and requirements. While considering the resolution method, factors like time and money need to be considered thoroughly. Mediation is also a method that can be considered; it is slightly different from arbitration as it is simple negotiation. Therefore, whatever process is considered for conflict resolution must be weighed for its pros and cons.

mediation
Mediation is also a method that can be considered, it is slightly different from arbitration as it is a simple negotiation.
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