Mediation can result in more creativity and flexibility over settlement options than litigating in court or arbitration.
An inevitable fact of business dealings is that occasionally disputes will arise. It is highly advisable to have clear dispute resolution clauses in the contract. This provides an easier, usually cheaper route to resolve a dispute without having to go to court. Court cases can also detract from what had been an amicable commercial relationship. The clauses should be staged and worded so there is a natural progression for resolution. The types of resolution that do not involve the court are called Alternative Dispute Resolution (ADR).
The first step should be a meeting, preferably in person. At the meeting, the parties can clear the air and work towards resolving the dispute. If no meeting is arranged or occurs within a fixed period (e.g. 21 days of a request) or there is no resolution, the contract should allow the requesting party to move to the next step.
Depending on the nature of the dispute (e.g. a technical dispute), the parties may wish to include a clause on expert determination (ED). This is when an appropriate expert is appointed by the parties to determine a specific issue. It is an evaluation and contractually binding. ED is usually much quicker, cheaper, and less formal than arbitration or court. ED is not ideal for resolving complex factual issues and is entirely dependent on the contractual clauses, which empower the expert. Enforcing the expert’s decision may require going to court or arbitration.
An alternative second step would be mediation, for example under the Centre for Effective Dispute Resolution (CEDR). Mediation is the process where, with the assistance of a neutral third party (the mediator), parties identify the issues in dispute, explore the options for resolution and attempt to reach agreement. There are different types of mediation; for example, facilitative mediation. Unlike a judge or arbitrator, the mediator will not decide the case on its merits but will work to facilitate agreement between the parties. Occasionally, mediators may be asked to evaluate the issue, or identify the strengths and weaknesses of a particular case. This is called evaluative mediation. In mediation, the parties retain control of the decision on whether or not to settle and on what terms.
Mediation can result in more creativity and flexibility over settlement options than litigating in court or arbitration. Any settlement reached is consensual, unlike other ADR options (or court proceedings) where a third party intervenes. It can, therefore, reduce the risk of damage to ongoing business relationships.
If there is still no resolution, the contract should provide for a further escalation, for example to arbitration. Unlike court proceedings, arbitration proceedings are usually held in private and are confidential. The procedure used in arbitration is flexible; the tribunal must tailor the process to the particular dispute, and the parties also have power to agree procedures that are efficient and speedy. The parties can choose a tribunal with expertise relevant to the particular dispute. The parties’ ability to select the number and identity of arbitrators can further maximise neutrality.
The tribunal’s award is binding and relatively easy to enforce – an advantage compared to litigation or ADR. On the other hand, if the arbitrator determines a dispute wrongly, the opportunities for challenging or appealing the award are very limited.
Finally, if the dispute remains unresolved, the contract should include a provision for court involvement. It is also highly advisable to ensure that should one party refuse to engage, the other can escalate without their agreement or involvement, including starting litigation. This helps avoid one party frustrating the contract and leaving the other party all-but helpless to deal with it.
Ben is the Head of Business Development and Marketing at Oracle Solicitors. He has years of experience building relationships with commercial partners. He has worked in both the legal and financial…
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