In business, as in life, things sometimes go wrong and parties find themselves in a situation in which they cannot agree on how to proceed. A properly drafted commercial agreement will recognise this possibility and contain detailed provisions for how to resolve disputes. The default method of resolving disputes is litigation. In this article we will consider the alternative procedures to litigation which may be better suited to resolving disputes which may arise from commercial agreements.
What is litigation?
Litigation is the process of taking a dispute to a court of law. If parties cannot agree between themselves about the fair and proper outcome of a dispute they will present their respective cases to a court for its judgment. It is a broad term that describes a long and sometimes complex process. The drawbacks to litigation are:
· It is extremely expensive;
· matters can take months (if not years) to reach finality;
· it is adversarial in nature and can often destroy the relationship between the parties to the litigation.
What are the alternatives?
There are two main alternatives to litigation which may assist parties in a dispute who wish to have a speedy resolution to their dispute and, if possible, preserve the underlying relationship between them. Those alternatives are:
What is mediation?
Mediation is a private process where parties agree on the appointment of a neutral mediator to assist them in resolving the dispute between them. The mediator will have been provided with all the facts of the dispute and will take an active role in facilitating discussions with the parties to resolve the matter. The goal of the mediation process is to settle the dispute between the parties and, if successful, culminates in a signed settlement agreement.
This is a voluntary process which is conducted entirely without prejudice to either parties’ rights. This means that disclosures or concessions made within the mediation process cannot be held against a party should the matter proceed to court. The advantages to mediation are:
· Control: the parties retain the ultimate control as to whether to settle and the terms of the settlement;
· Speedy resolution: mediations can been arranged in a matter of weeks whereas it can take months (or years) for a litigation case to reach a court;
· Lower costs: the mediation process is more cost effective than full blown litigation.
· Narrowing of issues: even if the entire dispute cannot be resolved through mediation it can have the effect of narrowing the issues in dispute between the parties. Fewer issues in dispute means a shorter hearing which will reduce costs;
· Preservation of business relationship: a mediated settlement that is agreed to by all parties may not just resolve the dispute but also preserve the business underlying business relationship.
Mediation and litigation
The Civil Procedure rules contain detailed provisions regarding the parties’ obligation to attempt to resolve their disputes through mediation. An attempt to mediate, even if it merely resulted in the narrowing of issues in dispute, will be taken into account by a court when determining a just costs order. A successful party may end up deprived of some (or all) of its legal costs if the court finds that they unreasonably refused to mediate the dispute.
What is arbitration?
Arbitration is a private method of dispute resolution and is similar, in form, to conventional litigation. Arbitrations in England are regulated by The Arbitration Act, 1996. The Act imposes a duty on the arbitration tribunal a duty to act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting their case and answering that of their opponent.
Arbitration is similar to mediation in that the parties agree to submit their disputes (or specific types of disputes) for decision by an independent and impartial person, in this instance the arbitrator. However, unlike mediation, this process is adversarial where the arbitrator determines the outcome by reviewing the facts and applicable law in the Award. In many respects arbitration and litigation are appear identical but the key differences are:
· Full control of the process – the parties can, by agreement, determine the conduct of the proceedings. This can lead to a streamlining of the procedure to suit the specific requirements of the case at hand;
· Finality –. The decision of the arbitrator are final and binding with limited right of appeal. Arbitration proceedings can be conducted quickly compared to court litigation which could have continued for years;
· Privacy – arbitrations are closed whereas court proceedings are open to the public. If the subject matter is sensitive such as proprietary technology or trade secrets it would benefit the parties to limit the number of persons who would have access to the evidence before the arbitration tribunal;
· Convenience – in litigation the dates for trials are determined by the Court with little regard for the convenience of the parties. In the arbitration process dates can be agreed between the parties to those most suitable to them and their witnesses.
How do I know which is the right method for resolving my dispute?
Choosing the correct dispute resolution method depends very much on the nature of the dispute itself. Some disputes naturally lend themselves to resolution by mediation particularly where the dispute does not involve complex facts or require a declaration of rights by a court. It is also useful in a situation where the parties cannot agree on an issue but want to preserve the underlying business relationship. The most useful aspect of mediation is that it can be used as a pre-cursor to either litigation or arbitration to assist the parts on agreeing a set of facts and narrowing the issues in dispute.
Arbitration is best suited for more complex and high value cases where the parties, for reasons of convenience, privacy or choice of jurisdiction, have agreed to resolve their disputes in this fashion.
The overall benefits to alternatives to litigation is that parties retain control over the process which can lead to resolutions tailored for their business and industry needs. It worthwhile to have the dispute resolution clauses reviewed by your legal advisor to ensure that they offer you adequate protection and cost effective roadmap to resolving disputes which may arise during the course of the agreement.
This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you require specific legal advice on any issue relating to alternative dispute resolution clauses in your commercial agreements, you can book a free 15 minute consultation with Avinder Laroya by clicking here