Is Litigation the Equal of Arbitration?

JURIST Columnist Shafiq Jamoos, co-owner of the Jamoos Law Office, reviews the costs and benefits of international arbitration compared to traditional litigation...
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Are pears better than apples?

It is a simple question. Yet, it does not have a simple response as there are no definite answers in evaluating the relative quality of fruit. The same can be said in the debate over the use of "arbitration" versus "litigation" to solve international legal problems. There is no definitive answer as to which is an inherently "better" process. I could argue for one answer or the other in an attempt to convince — much as a lawyer would during a trial. However, allowing readers to reach their own conclusions after presenting the arguments for both seems a better strategy. I will opt for this second approach and will attempt to be as objective as possible in my evaluation.

In engaging this question, it is important to bear in mind that not all arbitration is similar in nature. The interests and status of involved parties are not always similar, nor are the relief and remedies sought before arbitration tribunals always the same. Arbitration as it exists today is a complex set of practices [PDF] that offers final, binding answers to disputes of all natures. Individuals, groups, corporations, organizations and sovereign states can all be parties to arbitration.

Arbitrational claims can vary greatly. A state might be brought to arbitration for compensatory claims such as expropriation, or may itself begin arbitration proceedings with other states over claims such as those related to international borders. An individual might submit his claims before an arbitrational tribunal against a medical provider for malpractice and a corporation could claim similar damages from another corporation for breaches of contractual undertakings.

There is no one form of "arbitration" as such to compare to litigation. Additionally, before addressing my main question — whether arbitration is the legal equal of litigation — it is necessary to define what I mean by equality. Equal in terms of what? In evaluating the legal value of arbitration and state justice, I will look specifically at six factors: (1) the quality of decision-making, (2) procedural fairness, (3) the impartiality and independence of involved decision makers, (4) the time and cost of arbitration vis-à-vis litigation, (5) the flexibility of each forum in respecting the special needs of parties and (6) the quality of enforcement.

Quality of Decision-Making

It is fair to say that most arbitrations achieve high-quality results for a variety of reasons. In most arbitrations, the parties appoint an arbitrator and, thus, have the opportunity to select a qualified decision-maker as a first step towards ensuring a high-quality result. Such a selection guarantee is not available in litigation under any judicial systems to my knowledge. Despite the fact that judges are usually chosen from amongst solid practitioners, many are appointed for reasons beyond experience or acumen. Litigation cases are often randomly assigned to judges in most national legal systems, with the parties having no say in whom will dispose of their dispute.

It is also important to note that many disputes are of a technical nature and need unique skills or expertise on the part of the decision-maker (e.g. disputes encompassing telecommunications, construction, intellectual property and medical malpractice). Decision-makers in arbitration proceedings can be selected from communities outside of the legal sphere, such as architects, doctors or other professionals. Having an expert decision-maker participating at all stages of the dispute resolution process can help ensure resolution in light of all associated technical facts. Such a scenario is only possible in arbitration. The best alternative scenario in litigation would be the submission of amicus curiae to be evaluated by the presiding judge.

Procedural Fairness

Arbitration and litigation are similar in many ways with respect to respective procedural fairness. Arbitration is typically administered pursuant to the national laws of procedures of the arbitration venue — similar to litigation. Alternatively, if the arbitration is denationalized (such as is found in much international and state-to-state arbitration) institutional arbitration rules of procedures may apply.

Despite the fact that arbitration is usually administered under relatively fair rules of procedure, national court judgments can reach "closer to the truth" in their findings through the appellate process following judgment. In my opinion, this cannot be a good argument against arbitration in light of the fact that arbitration awards are typically scrutinized by traditional courts in an appellate process. In most cases, traditional courts scrutinize arbitration awards using a "procedural fairness" standard. In other instances, full de novo scrutiny can guarantee that arbitration determinations are procedurally fair and within limits drawn by the parties' arbitration agreement.

Such scrutiny can take place once, twice or more under different jurisdictions based on where and how many times enforcement of the award is sought. In most cases, both the venue of arbitration and the venue of enforcement will have a chance to review arbitration awards. In other words, traditional courts retain scrutiny over private arbitration in order to guarantee procedural fairness — similar to the appellate review process that exists under traditional litigation.

Impartiality & Independence

Arbitration and litigation proceedings set high standards for impartiality and independence in their decision-makers (i.e. arbitrators and judges). Both institutional arbitration rules and the laws of traditional courts offer mechanisms to challenge decision-makers over conflicts of interests, bias or other issues that may arise during the respective proceedings. However, national laws regarding litigation are typically more explicit and certain on describing the grounds for sustaining such challenges. Conversely, arbitration rules defining the grounds for challenging an arbitrator set standards which are ambiguous — such as requiring "justifiable doubts" or "reasonable doubts" as to the independence or impartiality of the arbitrator.

I prefer the certainty of litigation in traditional courts.

On the other hand, arbitration should receive credit for its tradition of "disclosure" whereby arbitrators are asked to provide written confirmation of their independence and impartiality in adjudicating the dispute. Arbitrators may be required to disclose any potential conflicts of interest and can be held liable for nondisclosure — a practice that is virtually unknown in traditional litigation.

Cost Effectiveness

As to the time and financial costs of arbitration vis-à-vis litigation, my observations suggest that neither process is as cheap or fast as the parties might wish. Notwithstanding the fact that arbitration is widely panned in the business community [PDF] as a luxurious means of dispute resolution, it is also true that complex, multi-tiered litigation is no less expensive.

Litigation can be a better choice in many cases where the parties do not have abundant resources to draw upon or if the dispute is of low financial value. However, in terms of potentially lucrative claims and disputes, the higher potential costs of arbitration should not present a serious obstacle. It is also important to note that cost concerns are not always a factor in legal proceedings and such determinations should be evaluated on a case-by-case basis that takes into consideration the type and value of the dispute and the financial capacity of the parties.

As to the timeliness of remedies under arbitration and litigation — although many contemporary practitioners criticize arbitration for the time requirements of its proceedings — arbitration is still widely viewed as a faster alternative to litigation in many countries. In my personal practice in Palestine and other jurisdictions, I have observed some legal disputes that have taken over 10 years in judicial proceedings to resolve before trial courts alone. This protracted model of litigation is not unique in light of the experiences of practitioners worldwide.  

In terms of legal pace, arbitration wins out.

However, in a different context, traditional courts can be more effective in terms of taking precautionary and interim measures prior to judgment, such as attachment of assets. The competence of arbitration tribunals to take such decisive measures during adjudication can be controversial.

Flexibility

With respect to the flexibility of arbitration and litigation at accommodating the involved parties — such as regarding issues of confidentiality, jurisdiction, nationality and potential waivers of rights — only arbitration is truly responsive to the unique circumstances of each controversy.

Generally, arbitration allows the parties to customize the whole dispute resolution process in a manner that best satisfies their interests. On the contrary, traditional litigation dictates the features of the process on a "one-size-fits-all" basis. In most cases, parties to litigation cannot simply opt out of an undesired system designed by legislators if they submit their disputes before a national court.

In my opinion, the success of a system is not only measured by its ability to end disputes, but also with its ability to keep pace with market changes, account for the individual needs of clients and invent new means to resolve disputes.

Enforcement

Finally, in terms of enforcement, it is important to remember that there is still no international convention allowing for the enforcement of national court judgments — although there are bilateral and regional conventions of this kind that attempt to overcome national laws' peculiarities in the enforcement of foreign judgments. The enforcement of arbitration awards is usually easier when compared with the enforcement of litigation awards in light of the numerous conventions for the enforcement of foreign arbitration awards, such as the New York Convention of 1958 with over 145 signatory states and the Washington Convention with over 155 signatory states.

Moreover, traditional courts usually raise no objections to the enforcement of foreign arbitration awards unless there is a manifest abuse of power committed by an arbitrator or a clear violation of the mandatory laws or public policy of the enforcing state. However, scrutiny by the courts of the venue of enforcement is usually limited in nature in most jurisdictions.

Conclusion

Arbitration and litigation are simply apples and pears — different in nature and features but, ultimately, still kindred fruit. Each can operate better in specific contexts, and each serves to jointly reinforce their individual usefulness. Nonetheless, and after all the progress achieved in international arbitration, it would be more precise to simply wonder...

Is litigation the equal of arbitration?

Shafiq Jamoos is an Adjunct Professor and Lecturer at An Najah National University, as well as a co-owner of the Jamoos Law Office that operates in private practice in Nablus and Ramallah, Palestine. His practice focuses on international transactions, arbitration and contracts. Jamoos earned his LL.M. from the University of Pittsburgh School of Law in 2012.

Suggested citation: Shafiq Jamoos, Is Arbitration the Equal of Litigation?, JURIST - Forum, August 6, 2012, http://jurist.org/sidebar/2012/08/shafeek-jamous-arbitration-justice.


This article was prepared for publication by the staff of JURIST's professional commentary service. Please direct any questions or comments to them at professionalcommentary@jurist.org

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