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Dispute Resolution/ADR: What is it and does it really work?
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In an ideal world, the objective of a party entering into a contract is to ensure that their matter runs as smoothly as possible, with both parties involved hopeful that it will be completed on time and as agreed.
Having said that, even the most carefully laid out matters do not always go exactly as planned.
For example, in a construction contract, additional unanticipated works may be required, or certain products installed may not work as expected and the likely scenario is that works take longer than foreseen. As a result, the project will usually have a higher unexpected cost, and this may lead to a claim by one of the parties if it cannot be resolved through early negotiations.
Common types of claims that may occur between parties could include: –
- breach of contract
- non-payment
- claims for extensions of time, loss and expense
- variations
- defective works
- liquidated damages
- breach of a professional consultant’s duty of care
Tactics to settle your dispute
When considering how to settle a dispute, the parties can resolve their differences by using various routes.
The more established and effective route for resolution of a dispute is through the courts. This procedure commonly involves a court process and is subject to court disbursements and legal fees. Whilst this can be an efficient and, in some cases, necessary option, there has been a significant growth in parties considering Alternative Dispute Resolutions (ADR) such as Without Prejudice Discussions, Mediation, Arbitration and Adjudication.
So, what are these routes and how does each differ from litigation?
- Without Prejudice Discussions
Without Prejudice Discussions can take place ‘pre-action’ or after litigation has been issued. This method is typically the most economical approach to parties seeking a solution to the issues in dispute.
Usually, parties can have various discussions to narrow the issues and resolve the dispute by way of written correspondence, telephone calls or face to face meetings, with or without legal representation.
In order for Without Prejudice Discussions to be beneficial, it is advised that parties approach these discussions not to ‘win’ or have the ‘upper hand’, but to seek to resolve matters with compromise and commerciality in mind.
- Mediation
Mediation is one of the most commonly recognised and used forms of alternative dispute resolution.
Mediation involves an independent third party (the Mediator) who seeks to assist both sides in coming to an agreement to resolve their dispute. They will ascertain the concerns in dispute and explore the possibility of a settlement.
Mediation is usually confined to a set period of time (from a couple of hours to a full day). It starts with each party presenting a summary of their case to the Mediator, in the presence of the other party. The parties then retire to separate rooms and the Mediator travels between them, seeking to identify issues where agreement may be reached. The Mediator cannot impose a settlement on the parties, but settlements are usually agreed by the end of the process.
In order for the Mediation to be effective, it is advisable to consider this approach when parties have sufficient knowledge about the merits of claim, especially in cases where the stakes are high. Therefore, it is most common to undertake Mediation while a claim has been issued and parties seek a stay in the proceedings to undergo Mediation to attempt settlement.
- Adjudication
Adjudication is a dispute resolution process which offers a speedy mechanism for parties to resolve disputes. It provides a temporarily binding decision which must be complied with until overturned or varied by a court or arbitration.
It is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996.
The purpose of Adjudication is to resolve disputes swiftly, usually 28 days of its referral, during the course of the contract to minimise delay on the work and protect the cash flow.
Adjudication is an effective form of dispute resolutions but is fairly unique to the construction industry and therefore cannot be applied to all cases.
- Arbitration
Arbitration is a contract-based dispute resolution determined by a private tribunal of the parties’ choosing. Arbitration is established on party agreement (the Arbitration Agreement) and regulated and enforced by national law and national courts.
The result of an Arbitration is usually an Arbitral Award, which is a final, binding and enforceable decision on the dispute submitted for determination. The pros and cons of Arbitration are:
- pro: the ability to choose a suitable arbitrator with the relevant technical knowledge
- pro: the award is private and therefore confidential
- con: although arbitration can be quicker and cheaper than litigation, the reality is often the opposite
- con: arbitration is not always suitable where there is a multi-party dispute
While contracts usually set out the official method for alternative dispute resolution, direct negotiations and/or mediation is the most common choice of ADR. Parties should consider resolution meetings to resolve a dispute as a commercial decision. This can be done prior to issuing legal proceedings or in parallel.
ADRtechniques can be cost effective, flexible and are confidential. In order for ADR to be fruitful, parties should consider the strengths and weaknesses of their case and their opponent’s case in order to conclude matters.
It is therefore important to seek assistance from a legal advisor to determine the legal and factual issues which may lead to settlement.
For further advice, please contact Marina Akram, Commercial Litigation Solicitor at Silverback Law on 0844 967 2700 or marina.akram@silverbacklaw.co.uk.
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