Weighing up litigation, arbitration and mediation

December 2019  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

December 2019 Issue

There is a time and a place and a method for resolving every dispute. After all, every problem has a solution, however intractable or difficult it may seem. How a dispute unfolds depends on a multitude of factors – timing, the mindset of the parties, the beliefs and desired outcomes of the protagonists on both sides and how entrenched they are in their respective legal positions, the commercial objectives of claimants and the complexity of the legal issues, to name but a few. 

There will be disputes which can only ever be resolved by a court judgment or an arbitration award. For example, one party needs a judgment and award because it is the only way to make the counterparty comply with its obligations. There is ‘a point of principle’ at stake. A precedent must be set, or a test case won. A prime minister must be held to account. However, more than 60 percent of cases settle before reaching the trial or the final arbitration hearing. So, in many cases, there is another way.

Litigation in English courts is conducted under the auspices of the ‘overriding objective’, which aims to reassure parties engaging in litigation that their case will be dealt with justly and proportionately. The court “will ensure the matter is dealt with quickly and fairly, taking into account the amount of money involved, how important the case is, how complex the issues are, and the financial position of each party”. If parties decide to litigate before English courts, they are guaranteed extremely experienced judges who are able to deal with complex disputes. The powers of the court extend in suitable cases even to worldwide freezing orders and interim relief, supported by penal notices. Failure to comply with court orders can result in sanctions for contempt of court, including liability for imprisonment and fines. 

In practice, imposition of these sanctions is fairly rare, however the obligation for parties to act reasonably and honestly is reinforced by the requirement for statements of case and witness statements to be supported by statements of truth. False statements of truth carry the same penal sanctions. There are instances when an injunction restraining a party from taking certain actions backed by penal sanctions is the only remedy that will do. In those cases, nothing can beat the power of the English Commercial Court.

The adversarial English legal system, with cross-examination of witnesses and powerful legal arguments by seasoned advocates, results in robust judgments. It has been recognised by some judges that assessing the credibility of witness evidence is difficult and the psychology of memory has been said to lead to some witnesses believing their own story even though it is not based in reality. It is well known that truth can sometimes be stranger than fiction and the giving of evidence in open court subjected to a barrage of cross-examination by a sophisticated advocate is a harrowing experience. 

The Hon. Mr Justice Leggatt (as he then was) concluded that the best approach for a judge to adopt in the trial of a commercial case is “to place little if any reliance on witnesses’ recollections of what was said in meetings and conversations and to base factual findings on inferences drawn from the documentary evidence and known or probable facts”. If the documentary evidence is weak, then relying on the witness testimony in litigation is probably not the best course of action.

Arbitration, on the other hand, has long been portrayed as the way for commercial parties to resolve disputes speedily, efficiently, confidentially and in private. Arbitration has evolved into a parallel form of litigation, albeit without the formality of the court surroundings but with similar expense and potentially similar delays. Arbitration has the benefit of similar powers for the arbitrators to grant interim relief and security for costs (although not worldwide freezing orders nor the backing of penal sanctions for failure to comply).

When choosing between litigation and arbitration one has to consider, among other things, the following questions. Do I want a neutral forum to resolve my disputes under this contract (and not the courts of either of the contracting parties)? Do I want to be able to enforce an arbitration award in 169 countries which have signed up to the New York Convention rather than rely on whether there is a reciprocal enforcement treaty in place so I can enforce my court judgment easily? Does my counterparty have assets in a country where it will be relatively straightforward for me to enforce my court judgment and if not, should I choose arbitration? Do I want my proceedings to be heard in private and the outcome to remain confidential? Finally, am I swayed towards arbitration because of the above advantages?

So many factors go into a decision as to whether to choose to arbitrate or to litigate and we do not have the scope to deal with all of these here. However, one essential point is that this decision must be made and considered carefully before the party signs the contract which provides for the mechanism of resolving disputes. 

Mediation can be used as a stepping stone before embarking on either litigation or arbitration.  Alternatively, it can be used during the course of either set of proceedings as another means of resolving the dispute.  The main differences are set out below but the primary one is that the mediator is not a decision maker, like a judge or arbitrator, but a facilitator.

Mediation is regarded by some as an obstacle, a hurdle, an annoyance. In our view, mediation can be a breath of fresh air. It is a breathing space, an opportunity to vent (or to rant) or to seek to preserve a relationship which is likely to be irretrievably damaged by the finality and severity of either a court judgment or an arbitration award. This is not a view held by all. Some regard mediation as a waste of time on the journey to trial which if championed by one party shows ‘weakness’. I disagree. 

Stepping back from the heat of the dispute and the possible animosity between the parties, the crux of the issue is what is the desired outcome? What will be beneficial to the parties? Will money damages be sufficient? Is there something else the parties would like over and above the money? Recognition that mistakes were made by one party or another or both? The promise of a new contract or a different joint venture? Restructuring of the business relationship and modifying it to take into account the existing flaws which caused the rift in the first place? The possibilities for creative solutions abound. Full and frank discussions behind closed doors with an experienced facilitator have resulted in many bridges being built and commercial advantages gained on both sides with fruitful and renewed business ventures.  

What is clear is that one size does not fit all, but every dispute has a resolution and many factors come into play in deciding which journey one will take to reach that resolution. Be brave, sometimes the road less travelled may be the best one for you.

 

Maria Frangeskides is a partner at Orrick, Herrington & Sutcliffe (UK) LLP. She can be contacted on +44 (0)20 7862 4638 or by email: mfrangeskides@orrick.com.

© Financier Worldwide

BY

Maria Frangeskides

Orrick, Herrington & Sutcliffe (UK) LLP

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