Arbitration or court litigation in England and Wales

Counterparties to a commercial contract with no connection to England often agree that any dispute arising from their contract will be determined by the courts of England. The English courts are accustomed to dealing with cases that have no real connection to their jurisdiction.  When agreeing the form of dispute resolution, parties may be faced with a choice between agreeing that disputes should be dealt with in the English court or including an arbitration clause in their contract whereby an arbitral tribunal will determine any dispute.

Good drafting

Whichever option parties choose, it is vital to ensure that the relevant contractual clause is properly drafted. We commonly see fundamental drafting errors in jurisdiction and arbitration clauses; for example, a clause which specifies that ‘disputes will be dealt with by the UK courts’. Such a clause does not make sense.  England and Wales have a single combined court system, whereas Scotland has a separate system.  The ‘UK courts’ do not exist.  Similarly, we often see arbitration clauses that are unclear and cause uncertainty when contractual disputes arise.

Law and location

Parties should always specify the governing law of a contact. A clause that specifies that any dispute will be referred to the courts of England and Wales does not mean that English law will automatically apply.  Governing law and jurisdiction do not have to be the same.  A contract may grant jurisdiction to the courts of England and Wales but specify that the governing law is not the law of England.

Similarly, in arbitration parties should specify both the seat of the arbitration (i.e. where it will take place and which courts will have a supervisory power over it) and governing law. Again, parties are free to specify that the governing law of the contract differs from the seat of any arbitration.

Arbitration or court litigation

Arbitration and court litigation in England each have their pros and cons. Below we set out some important factors to take into consideration:

Litigation in English courts

• The English courts are internationally recognised as fair and reasonable.
• It is relatively simple to enforce a judgment by the English court in other countries.
• There is a high level of disclosure of documents in English proceedings (a pro or a con depending on your position).
• There is a well-structured appeals process in England (a pro or con depending on your position).
• Court litigation can be time-consuming; the time from issuing a claim to going to trial can take 18 months.
• Proceedings are generally public.

Arbitration

• The process is flexible, for example, parties may agree the number of arbitrators and the procedure
• Arbitration is often (though not always) quicker than court litigation.
• Arbitration can be cheaper than court litigation (though not always).
• Arbitral proceedings are confidential.
• Unless agreed, there is generally no formal appeals process in arbitration (a pro or con depending on your position).
• Arbitration can be less effective in multi-party disputes or if the parties are particularly resistant to engage.

It may be the case that different types of disputes arising under the same contract require a different method of resolution. Too often, complex contracts have a ‘one size fits all’ approach.  This can be costly and detrimental to parties when disputes arise.  It is possible and in some cases advisable to have a sophisticated hybrid court litigation and/or arbitration clause which prescribes the dispute resolution procedure based on, for example, the type or value of the claim.

Conclusion

In a high value commercial contract it is a wise investment to involve a dispute resolution specialist in the drafting of dispute resolution clauses. Advice on the most appropriate and effective type of clauses for dealing with disputes before a contract is finalised can save parties a significant amount of time and money if a dispute ever arises.

Tom Bolam, Senior Associate, Fladgate LLP (tbolam@fladgate.com)