Arbitration or litigation

Abstract

Arbitration is programmed in such a way that from the beginning to the end. The time frame is

known and agreed by the parties based on party's agreement which is difficult in Litigation.

This article weighs the benefit between litigation and arbitration. This article reveals that

business men and women are always in a hurry of resolving their disputes in the bid of

protecting the growth of their various businesses. Hence owing to the flaws of litigation, they are

compelled in looking for alternative means of resolving their disputes. This articles shows that

arbitration has come to fill in the lacuna's of litigation through stating the differences and

grounds in which arbitration triumphs over and above litigation.

INTRODUCTION

Indeed, Abraham Lincoln's quote over a century ago remains very instructive for lawyers today:

"Discourage litigation. Persuade your neighbors to compromise whenever

you can... As a peacemaker the lawyer has superior opportunity of being a

good man. There will still be business enough"1

It is well settled that owing to nature of human beings and the number of activities engaged into

makes dispute and conflicts inevitable 2

. The traditional method of resolving these disputes is

through litigation. Courts exist and are maintained by the state to provide a dispute settlement

service for parties. It is a manifestation of state power and the responsibility of the state to ensure

that courts exist, that appropriately qualified judges are appointed, that there are procedural rules

to regulate the basis of jurisdiction and the conduct of cases before the court.

However, litigation in different jurisdictions has never been found to be perfect in resolving

disputes. With attendant problems pervading litigation such as overcrowded cause-list, unduly

cumbersome procedure, unwholesome technicalities, its expensive nature and unprecedented

bureaucracy has led to calls for reforms and alternatives for resolving disputes. Arbitration which

is a procedure for resolving disputes through which parties in disputes appoints a person(s) who

shall be preceding over them and any decision made by the appointed person(s) shall be final and

legally binding, has come to remedy the flaws of litigation. This article reveals criticisms to

litigation as well as the advantages of arbitration over litigation.

WHAT IS LITIGATION

This is the act of bringing or contesting a lawsuit in court. Parties in disputes before going into

litigation may negotiate on resolving their disputes but where there is a deadlock, negotiations

will fail and the next step is to resort to the traditional method of resolving such disputes which is

litigation. There is the intervention of a third party neutral, acting in an official capacity as a

judge, with wide powers to examine the facts of disputes as presented and on the basis of the

applicable law make a binding pronouncement on the rights, obligation and liabilities of

disputants.3 Disputants are represented by lawyers who present the case of the disputants to the

judge. Unlike in civil law systems, common law uses the adversarial proceedings in which the

judge doesn't examine or cross-examine parties in disputes and their witnesses or in other words

the judge doesn't descend into the arena. He merely observes, listens, writes and makes his

verdict or judgment.

'The law that governs affluent clients and large

institutions are numerous, intricate, and applied by highly

sophisticated practitioners. In this sector of society, rules

proliferate, law suits abound, and the cost of legal

services grow much faster than the cost of living. For the

bulk population, however, the situation is very different.

Access to justice may be open in principle. In practice,

however, most people find their legal rights severely

compromised by the cost of legal services, the

complication of existing rules and procedures, and the

long, frustrating delays involved in bringing proceedings

to a conclusion...No one can be satisfied with the state of

affairs.'

According to Ayua:

'...apart from the fact that the search for justice is always

an elusive ideal, legal justice becomes formalistic and

technical. It tends to elevate form over substance, no

matter how much the judges insist in rhetoric 'that justice

is not a fencing game in which the parties engage in a

whirligig of technicalities.' These complexities become

more chronic and costly as litigation goes up the judicial

pinnacle, thereby making judicial proceedings both

mysterious and daunting for most people.'5

4

Derek Bok: 38 The Record, Association of the Bar of the City of New York 12-13, Jan-Feb, 1983

5

Ayua I.A., "Nigerian Legal Profession: Problems and Prospects" in Ayua (ed.) Law, Justice and the Nigerian Society

(1995): NIALS Commemorative Series I, Nigerian Institute of Advanced Legal Studies, Lagos p. 6 http://www.nials-

nigeria.org/journals/Peter%20Anyebe-%20Towards%20Fast%20Tracking.pdf accessed 13th February,2019

Electronic copy available at: https://ssrn.com/abstract=3354674

With attendant factors such as excessive cost of legal services, frustrating delays in determining

the substance of the dispute, issues of confidentiality, cumbersome and technical procedures to

conform to makes litigation largely criticized. If the court is usually described as the last resort

for the common man to obtain redress, it may be submitted that one will be living in fantasy for

having such mentality. The concept of legal justice has to a great extent varied based on the class

of lawyers offering their legal services. The monetization of justice and the notion that 'justice is

for the highest bidder' has laid itself as an altar in the judicial system. A poor man whose rights

have being infringed upon in a commercial arrangement has no chance to obtain legal justice

when pertinent issues surrounding litigation remains the order of the day.

Commercial men and women are by their nature and practice of their business in a hurry when a

dispute arises in their business transactions to have their rights and liabilities determined as soon

as possible without undue waste of time so that they can get on with their business6

. Hence, a

faster and cost effective procedure is sought for to resolve their dispute. Arbitration serves as the

best process in meeting the demands of business men and women for resolving their respective

disputes.

PROBLEMS WITH COURTROOM LITIGATION

The primary reason many in the construction industry prefer arbitration is the perception of

problems with the existing legal system. Any business that has been through a lawsuit, even if

resolved in its favor, does not wish to go through the process again. Some of these problems

include:

1. Cost of Litigation: Courtroom litigation is expensive and time consuming. More

importantly, while 95 percent of civil cases settle before trial, settlement usually takes

place on the courthouse steps after the parties have incurred the majority of the litigation

costs. The out-of-pocket costs of attorneys, expert witnesses, electronic discovery

consultants and other discovery expenses are often considerable. In most U.S.

jurisdictions, unless there is an attorneys' fees provision in the contract, fees are not

6

Orojo Olakunle .J. and Ajomo Ayodele M. (1999): Law and Practice of Arbitration and Conciliation in Nigeria,

Lagos: Mbeyi & Associates (Nig.) Ltd.

Electronic copy available at: https://ssrn.com/abstract=3354674

recoverableeven for the winning party. One contractor client said it best: "While only 1

percent of my projects have ended up in a lawsuit, that one project cost me 75 percent of

the profit I made on the other 99 percent." In addition, a company may win in court only

to realize that after subtracting the attorneys' fees, discovery costs and other litigation

expenses, the bottom line is a net zero recovery. In some cases, the attorneys' fees and

expenses may exceed the amount at stake. Even when a party wins, it faces the question

of whether the judgment is collectible. Holding a paper judgment against a bankrupt or

marginally solvent contractor (or a single use LLC developer after a foreclosure) may not

be worth the paper on which it is written. There are also substantial soft costs of

litigation. Time is money. In any lawsuit, management and other key employees must

devote considerable time to the dispute; the attention to a past job detracts from

management of on-going jobs, bidding on future work, and affects morale of personnel

who feel "tainted" by the litigation process.

2. Publicity and Public Filings: Lawsuits can damage reputations and sometimes help

competitors. Court filings are public records. While the filing of a lawsuit, even if

frivolous, may make the front page of the local news, a trade journal, an email chain or

industry blog, the dismissal or successful defense of that claim a year later may not get

reported at all. Court filings and trial testimony are open to any competitor. In a case

involving a claim for lost profits, for instance, the business making the claim may be

required to open up its tax records to prevail. The parties can agree on "Protective

Orders," but the reality is that even with such orders, once produced, those documents are

out there for someone to discover.

3. Time: Lawsuits can take years to get to trial. After a trial, the losing party has a right to

appeal...which may take another two to three years. The right to an appeal, of course, is

also a reason in favor of litigation, and that right, while time-consuming, makes litigation

more predictable. Any smart lawyer, if he or she wants, can make the other side wait a

considerable amount of time before payingwhich may be exactly what your adversary

intended. An otherwise solvent defendant may be able to delay a final hearing for

frivolous reasons, and by the time a judgment has been rendered, that company's assets

are gone or a bankruptcy has been filed. While there are ways in which to trace the assets,

that process can mean more lawsuits and more legal fees.

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4. Unpredictable Results: There is no way to guarantee what a judge or jury may do in a

civil case. More importantly, if the case involves complicated facts, expert testimony, or

industry-specific issues, there is potential for the jury, or even the judge, to get confused

and render an unfair judgment. Neither the judge nor the jury cares about either of the

party's business. It is very difficult during a trial to educate the jury and judge about the

particular subject matter of a construction dispute. When a business places a substantial

legal dispute (especially where the outcome of the business may be at stake) in the hands

of a judge or jury, it may be engaging in something akin to legalized gamblingrolling

the dice.

WHAT IS ABITRATION

According to Prof. (Dr.) J Olakunle Orojo CON and Prof. M. Ayodele Ajomo:

'Arbitration is a procedure for the settlement of disputes,

under which the parties agree to be bound by the decision

of an arbitrator whose decision is, in general, final and

legally binding on both parties.'7

David defines it as a device whereby the settlement of a question, which is of interest for two or

more persons, is entrusted to one or more other persons - the arbitrator or arbitrators - who

derive their powers from a private agreement, not from the authorities of a State, and who are to

proceed and decide the case on the basis of such an agreement.8

Furthermore Halsbury's Laws of

England sees it as a process by which a dispute or difference between two or more parties as to

their mutual legal rights and liabilities is referred to and determined judicially and with binding

effect by the application of law by one or more persons (the arbitral tribunal) instead of by a

court of law.9

Essentially arbitration is a party-driven procedure. They are at liberty to choose whosoever is

knowledgeable on the core principles surrounding their dispute, decide on where the arbitration

7

Orojo Olakunle .J. and Ajomo Ayodele M. (1999): Law and Practice of Arbitration and Conciliation in Nigeria,

Lagos: Mbeyi & Associates (Nig.) Ltd.

8

Rene David (1985): Arbitration in International Trade, Netherlands: Kluwer Law and Taxation Publishers p. 5

9

Halsbury's Laws of England (1991), 4th ed. England: LexisNexis Butterworths para. 601, 332

Electronic copy available at: https://ssrn.com/abstract=3354674

will take place, agree on which rules and laws will be applied, the language to be used etc. It is

imperative to assert here that the fundamental features of arbitration include:

1. An alternative to litigation10

2. A private mechanism for dispute resolution

3. Selected and controlled by the parties

4. Final and binding determination of parties' rights and obligation

It is a method of dispute resolution, involving one or more neutral third parties, who are agreed

to by the litigants and whose decision is final and binding. Arbitration in recent times has being

seen as a better and more preferable alternative to litigation owing to the fact that it reduces the

work load of the judges, is designed to be cheaper, quicker, flexible, informal and private. In a

contract, parties would insert an 'arbitration clause' in bid of referring their dispute solely to

arbitration. A typical example of an arbitration clause is modeled in this manner:

'In the event of any dispute or difference arising between

the parties to this agreement from or in connection with

this agreement or its performance, construction or

interpretation, such dispute shall be referred to

arbitration by a single arbitrator in accordance with the

provisions of the Arbitration and Conciliation Act CAP 18

Laws of the Federation of Nigeria 2004 or any

amendments thereto, whose decision in relation to any

such dispute or difference shall be final and binding on

all parties hereto.'

There are four types of arbitration:

1. Domestic arbitration: This refers to arbitration carried out between persons resident or

doing business in the same country11

.

10 Supra note 2

11 Akin Ibidapo Obe & Abayomi Williams F. (2010): Arbitration in Lagos State A synoptic guide, Lagos: Concept

Publications Ltd.

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2. International arbitration: Involves parties to an arbitration agreement who have their

places of business in different countries or where the subject matter of the arbitration

agreement relates to more than one country, or where the parties expressly agree that any

dispute arising from the commercial transaction shall be treated as an international

arbitration.12

3. Institutional arbitration: The arbitration proceedings are conducted by or under the

auspices of an arbitration institution which promotes or administers arbitral processes.

Examples are International Centre for Settlement of Investment Disputes, Chartered

Institute of Arbitrators United Kingdom, the London Court of International Arbitration

etc.13

4. Ad Hoc arbitration: Here the arbitration is conducted based on an agreement which does

not refer to any arbitration institution but is conducted between the parties themselves. In

other words this arbitration is self-executing.14

SIMILARITIES IN ARBITRATION AND LITIGATION

1. Ultimate aim: Both mechanisms ultimately aim to resolve the disputes between parties.

They both share this feature as a form of similarity between them.

2. Involvement of a third party: A third party known as the Arbitrator controls content

and outcome of proceedings of arbitration while the third party involved in litigation is a

Judge. Even though the parties in arbitration control the choice of their Arbitrator while

the parties in litigation have no control over the choice of the Judge, both mechanisms

share the similarity of the involvement of neutral third party who controls the outcome of

their proceedings.

3. Outcome approach: The outcome of both dispute resolution mechanisms is usually the

Win/Lose outcome as against that of some other dispute resolution methods such as

Mediation, Negotiation and Conciliation which is usually Win/Win. The win-lose

approach refers to the situation whereby one of the parties is made to benefit more to the

detriment of the other party in the outcome of the proceedings.

12 Ibid

13 Ibid

14 Ibid

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DIFFERENCES BETWEEN ARBITRATION AND LITIGATION

Issue Arbitration Litigation

Formalities Less formal than litigation,

strict rules of evidence do not

apply but procedural rules

may be based on institutional

rules.

Formal, rigid, strict evidential

and procedural rules are

prescribed.

Time Ought to be short but may

extend over a long period if

hearing protracted. Procedure

and time frame to be agreed

by parties.

Longer period because of

overcrowded cause-list.

Confidentiality Private and awards are not

published.

Public and judgment reported

Third party intervention A third party(s) known as

arbitrator(s) are appointed by

the parties.

A third party known as a judge

is not appointed by the parties

but by the State.

Control by parties Parties have control over

choice of arbitrators,

language, time, venue,

applicable law, procedural

rules etc.

Parties do not have control in

all ramifications.

Satisfaction of parties Parties are usually satisfied

because they were mostly

involved throughout the

arbitration process.

Parties satisfaction is often

times low because the court

uses the win-lose approach

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REASONS WHY ARBITRATION TRIUMPS OVER LITIGATION

1. Predictability: A frequent complaint of courtroom litigation is that some judges do not

understand the nature of certain complicated disputes, often leading to unpredictable and

unsatisfactory results. Ideally, arbitration is heard by a third-party neutral or neutrals with

experience and knowledge in the area of dispute (e.g., commercial construction).

Arbitrators do not have to be lawyers and many times can be engineers, architects,

contractors or developers. This characteristic of arbitration can eliminate the substantial

problems and time involved in educating a judge or jury in the nuances of construction.

Properly selected arbitrators understand and focus on the most material issues in the

dispute and are not easily swayed by lawyers' emotional arguments or some expert

witness. Because arbitrators are paid, each tends to pay more attention to the proceedings,

and may be deemed to care more about reaching the appropriate outcome. Also, there is

often less formality in an arbitration hearing. For instance, the formal rules of evidence

and procedure may not be strictly followed. Instead, the focus is on the facts and

testimony.

2. Speed: As a public process, Litigation must adhere to laws and regulations set out to

satisfy public notions of justice throughout case prosecution. A lot of time is required to

file documents in support of a case, give notices appropriately and all other activities

associated with pre-trail. Also, activities of the trial itself, hearings, judgments, and the

benefit of appeal to higher courts by dissatisfied litigants take a lot of time. This slows

down the dispensation of justice resulting in unnecessarily long cases. In these

circumstances, a fast case may take a year to conclude by litigation. In fact, it is not

unusual to find cases stretching over a decade. Because there is no crowded court docket,

an arbitration hearing can often be scheduled in a matter of months, not years. Even when

millions of dollars are at stake, generally hearings can be scheduled more quickly than a

court hearing. In addition, there are fewer and more restrictive grounds for appealing an

arbitration award, so finality is the rule rather than the exception. In the original view of

arbitration, prompt, efficient, and final decisions were viewed as more important than

whether it was legally correct.

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3. Costs: In most cases, the costs and expenses of arbitration are less than litigation.

Because litigation is often criticized for the time and expense of pretrial discovery, it is

significant that, with a few exceptions, discovery is limited in arbitration. The absence of

prehearing motions and multiple depositions, as well as the finality of the decision, can

reduce attorneys' fees and costs. While for some companies prehearing motionsand

possible dispositionof a case "on the law" is of major significance, many arbitration

administrative bodies do allow for prehearing dispositive motions in more contemporary

rules. And lastly, the cost of prolonged personal involvement by key company employees

can be at least minimized.

4. Confidentiality: Unlike courtroom litigation, arbitration is private and confidential. The

proceedings are not public records. Arbitrators maintain the privacy of the hearings

unless some law provides to the contrary. Arbitration is usually in private and awards,

which are the final decisions of arbitration panels, are not published. Court proceedings

are usually open to the public and there are also established platforms for reporting court

judgments. Arbitration guarantees the privacy of the parties and the confidentiality of the

dispute, unlike litigation where anybody is free to attend court proceedings15

.

5. Formalities: Arbitration is less formal than Litigation. In Nigeria, Section 256 of the

Evidence Act16 expressly prohibits the application of the law of evidence to arbitration.

As such, rigid evidentiary rules are diminished but procedural rules may be based on

institutional rules, agreement by parties or discretion of the arbitrators. While in

litigation, formal and strict evidential as well as procedural rules are prescribed as against

the flexibility enjoyed in arbitration proceedings.

6. Involvement by parties: In arbitration, parties have control over choice of arbitrators,

language, schedule, venue, applicable law, procedural rules etc. while in litigation; parties

do not exercise such control over the process. For instance, parties in arbitration may

select arbitrators that suit their case. An arbitrator can either be a lawyer or an expert

depending on the technicality of the issue of the issues to be decided. This opportunity is

not usually given in litigation.

15Gunter Henck v. Anre & Co. Cie (1970) 1 Lloyd's Rep. 235

16 Evidence Act (2011), [Nigeria]

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7. Satisfaction of parties with the outcome: Parties' satisfaction with arbitration process is

often higher than that of litigation despite the similarities in their outcome approach. This

may be because of the businesslike and less adversary approach to resolution in

arbitration and the involvement of the parties throughout the process of arbitration as

against the more adversarial approach in litigation.

8. Decisions: A unique feature of arbitration is that its decisions known as awards are final

and binding on the parties and are non-appealable. However, Court judgments are subject

to a long trail of appeal ending at the Supreme Court. Decisions given by the courts are

known as judgments which are appealable up to the Supreme Court. However, a unique

feature of arbitration is that its decision are known as awards which are final and binding

on the parties as well as non-appealable. The Nigerian Arbitration and Conciliation Act

adopting the Convention on the Recognition and Enforcement of Foreign Arbitral

Award17 otherwise known as New York Convention, in its section 51 (1) states that:

"An arbitral award shall, irrespective of the country in

which it is made, be recognized as binding and subject to

this section and section 32 of this Act, shall, upon

application in writing to the court, be enforced by the

court."

9. Remedies: Remedies in arbitration are more restricted compared to Litigation. In

litigation, judges can grant remedies which arbitrators cannot grant e.g. injunctions,

subpoena, imprisonment etc.

10. Flexibility: Whereas Arbitration is a flexible process. As a private tribunal for parties in

dispute, proceedings can be arranged to accommodate the convenience of the parties.

From the onset, parties and arbitrator(s) can set out a program that is convenient for them

in every way (especially cost). All Arbitrators are also expected to conduct proceedings

diligently and efficiently in a timely manner.18

11. Fairness: Another attraction Arbitration offers, is that the unsuccessful party bears the

cost of the arbitration. This is not a sanction on the unsuccessful party, but rather, an

17 United Nations Conference on International Arbitration: Convention on the Recognition and Enforcement of

Foreign Arbitral Awards http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/XXII_1_e.pdf. Accessed

13th February,2019.

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indemnity against the costs the successful party had to incur because the unsuccessful

party was wrong. This also reduces expenses incurred by the successful party. Costs may

also be shared in proportions determined by the arbitral tribunal. This happens when

neither disputing party wins completely on claims presented. Costs will be awarded in

favour of a party on their successful claims, and against them where unsuccessful. A

party may also be compelled to bear extra expenses that arise as a result of undue delay

he or she creates.

CONCLUSION

Generally, the traditional method of resolving disputes between parties is through litigation.

Litigation which refers to contesting a lawsuit in a public courtroom has being largely discredited

by writers, scholars, business men and women etc. Owing to the geometric rate of economic and

political development not only in Nigeria but in the world, disputes arising from transactions

cannot entirely be resolved through litigation. Men and women engaged in commerce are always

time-conscious pertaining to the determination of any dispute that may arise in the course of their

business. With attendants factors attributable to litigation such as unwarranted delay in both

institution and determination of a lawsuit makes litigation a wrong option to resolving

commercial disputes. Arbitration has come to fill up the lacunas of litigation.

Arbitration is a consensual procedure whereby parties in disputes agree on the intervention of a

neutral third party, knowledgeable concerning the issues for determination, and agreeing to be

bound by the decision of the neutral third party. This method of resolution triumphs over and

above litigation on numerous grounds ranging from privacy, speed of process, flexibility of rules

and procedure, cost of process, ability to agree on the arbitrator etc. On this basis, it may be

submitted that arbitration should be patronized more owing to its effectiveness and efficiency it

will create for disputants.

Though arbitration and litigation as dispute resolution mechanisms share some similarities, they

are not birds of a feather. While many see arbitration as an alternative mechanism that has come

to fill up for lapses in litigation, some others feel arbitration is just another method of dispute

resolution which has its own deficiencies. It will however be correct to say that arbitration is

rapidly gaining grounds as a favoured mode of dispute resolution and for good reason too.

Electronic copy available at: https://ssrn.com/abstract=3354674

REFERENCES

Abraham Lincoln (1809-1865) Notes from a law lecture

Ayua I.A. (1995): "Nigerian Legal Profession: Problems and Prospects" in Ayua (ed.)

Law, Justice and the Nigerian Society: NIALS Commemorative Series I, Nigerian

Institute of Advanced Legal Studies, Lagos

nigeria.org/journals/Peter%20Anyebe-%20Towards%20Fast%20Tracking.pdf >

David R. (1985): Arbitration in International Trade, Netherlands: Kluwer Law and

Taxation Publishers

Halsbury's Laws of England (1991) 4th Ed. England: LexisNexis Butterworths

Julian D M Lew et al (2003): Comparative International Commercial Arbitration, Kluwer

Law International

Obe I.A.& Williams F. A. (2010): Arbitration in Lagos State A synoptic guide, Lagos:

Concept Publications Ltd.

Orojo O.J. and Ajomo M. A. (1999): Law and Practice of Arbitration and Conciliation in

Nigeria, Lagos: Mbeyi & Associates (Nig.) Ltd.

Peters D. (2004): Alternative Dispute Resolution (ADR) in Nigeria Principles and

Practices, Lagos: Dee-Sage Nig. Limited

United Nations Conference on International Arbitration: Convention on the Recognition

and Enforcement of Foreign Arbitral Awards