Although legal proceedings are still the default method of resolving contract disputes, they are one of many ways of doing so. This article looks at the pros and cons of various methods of dispute resolution and the considerations for deciding which is most appropriate.
A quick, inexpensive and binding resolution is almost always the desired way to settle a dispute. The way to achieve this is by negotiation. The problem is that negotiation is far from guaranteed to succeed before it is necessary to resort to some other more formal and structured method of dispute resolution. This may take the form of mediation.
Although more expensive than a simple negotiation, mediation will allow you to retain control over the outcome of the resolution. This is because, like negotiation, it is non-binding. This means that decision will not be imposed, unless you reach a binding agreement. This is unlike going to Court where, like it or not, the judge will ultimately make a binding decision as to who wins and who loses (i.e. the judgment). Mediation will be relatively inexpensive in comparison to other more formal methods of dispute resolution.
Both mediation and negotiation give you much greater control over the outcome than any other method of dispute resolution.
Other methods of dispute resolution
When it comes to other forms of dispute resolution, the decision may be out of your hands, in that the contract may say that any dispute must be resolved by court proceedings or by arbitration. As we mentioned in our previous article, the best time to consider what is the most appropriate way to resolve potential disputes is before you enter the contract.
Questions to ask when deciding on suitable dispute resolution method
1. Do you require a traditional tried and tested method that can be used for all types of dispute (e.g. ones with lots of factual evidence, or ones with lots of technical evidence, or ones with lots of legal issues)?
- If yes, then traditional Court proceedings may be your preferred method of dispute resolution, in spite of the cost and time taken to reach a conclusion.
- Before deciding on Court proceedings, you may want to consider a number of other factors, which may suggest that another form of dispute resolution may be appropriate.
- When considering these alternative forms of dispute resolution (known as ADR), bear in mind that negotiation and mediation remain available to you in spite of choosing another form of ADR. (In reality, you are probably very unlikely to embark on mediation during one of the quicker types of ADR, such as, expert determination or adjudication.) It is also worth noting that the most common form of ADR is arbitration
2. Do you need the dispute resolution process to be confidential?
- If yes, don’t choose Court proceedings because all proceedings in open court are public. Arbitration is the traditional alternative to Court proceedings, if confidentiality is a key consideration.
3. Is the other party based abroad?
- If yes, is it based outside the EU?
- If yes, then arbitration may well be the most appropriate method of dispute resolution. This is because the judgment of the English Court is not directly enforceable in the vast majority of other countries. [In the EU there is reciprocal enforcement of all member states’ judgment, so English judgments are enforceable in other EU countries. In the USA, for example, there is no reciprocal enforcement and so English judgments are not enforceable in the USA.]
- If no, you can consider Court proceedings, expert determination, adjudication and early neutral evaluation.
4. Do you want a quick and lower cost process?
- If yes, you can consider expert determination, adjudication and early neutral evaluation. However, be aware that you may compromise the quality of the decision making process in return for a quicker and cheaper process.
5. Do you want a decision that you cannot appeal, even if you lose (often referred to as a final and binding decision)?
- If yes, then consider expert determination, if the dispute is technical in nature or involves largely legal issues. This is because, as the name suggests, the process involves engaging an expert to decide the dispute. This lends itself to disputes where there are issues within the expert’s expertise to be decided.
- If yes, alternatively you could consider:
- Adjudication. The decision will be binding unless Court proceedings are issued after the decision; in which case, the decision will cease to be binding after the Court proceedings are concluded (either by judgment or earlier settlement).
- Agreeing to a binding early neutral evaluation. Usually, early neutral evaluation is not binding but the parties to a dispute can agree that it will be binding.
- If no, consider non-binding early neutral evaluation or adjudication.
Each method of ADR has its own drawbacks and often you will end up choosing between arbitration and court proceedings. In large, long running complex contracts, it is possible to choose more than one type of ADR, depending on the type of dispute. For example, you could allow the option for a party to choose litigation or arbitration; or, you could provide that certain technical disputes to go to expert determination.
Any dispute is likely to settle through negotiation or mediation, before it is referred to any formal resolution process (such as Court proceedings). If it doesn’t settle, the chances are that it will be dealt with by Court proceedings; but, there are other alternatives which may be appropriate. Even if your contract says that the dispute must be dealt with by Court proceedings, it may still be possible to agree an alternative approach with your opponent. However, the best time to consider the most appropriate methods of dispute resolution is at the outset, when you are entering into the contract.
In the next article we look at how to maximise your chances of resolving the dispute without needing to resort to a formal dispute resolution process, by exploring Early Dispute Resolution.