Methods of Dispute Resolution

by Robert Gemmell of MCMS

There is a variety of methods that can be deployed to resolve disputes arising between the parties and in this article Robert Gemmell, Chartered Arbitrator and Quantity Surveyor, provides a useful overview of some of the more common methods of dispute resolution.

A former Chief Justice of the United States of America, Warren Burger, once said:
“The obligation of our profession is … to serve as healers of human conflict. To fulfill our traditional obligation means that we should provide mechanisms that can produce an acceptable result in the shortest possible time, with the least possible expense and with the minimum of stress on the participants. That is what justice is all about.”

I don’t think that any sensible person could disagree with Warren Burger’s comments. However, it should be noted that it is up to the disputing parties to choose which method will be the most appropriate in their circumstances to produce an acceptable result in the shortest possible time, with the least possible expense and with the minimum of stress!

Litigation

If there is no contractual alternative then the only formal way to resolve disputes will be by litigation.

The concept of litigation is already well understood, it being a formal dispute resolution process conducted in public in the courts. The judge makes a judgment which is binding on the parties, subject to the right of appeal on a point of law.

However, litigation is very often time consuming and expensive, and significant commercial litigation can and does cost hundreds of thousands of pounds and can last for years.

Arbitration

Arbitration is also a formal dispute resolution process. However, unlike litigation, arbitration is conducted in private and the process is confidential (unless there are subsequent court proceedings). The tribunal, comprising one or more arbitrators, makes its award which is binding on the parties subject to the right of appeal on a point of law. Unless the parties agree to enter into an ad-hoc agreement when the dispute arises, there must to be an arbitration agreement in the parties’ contract to allow them to arbitrate.

Arbitration is, traditionally promoted by its proponents as a no nonsense method of dispute resolution, relying more on technical assessment than on the application of judicial nuances. However, Arbitration can become legalistic, for example in Northern Regional Health Authority v Derek Crouch Construction Company Ltd , Sir John Donaldson MR stated that “arbitration is usually no more and no less than litigation in the private sector”.

However, I do believe that the Arbitration Act 1996 has improved the position immensely. Arbitration has become a more cost-effective means of resolving commercial disputes, especially if the arbitration is conducted by an arbitrator who is fully aware of his duties under the 1996 Act. There is a duty under the 1996 Act for the arbitrator to adopt a procedure which avoids unnecessary delay and expense.

Expert determination

Expert determination is a formal dispute resolution process. The person appointed is an expert in the area concerning the dispute, who will conduct an investigation in order to make his decision. Like arbitration, unless the parties agree to enter into an ad-hoc agreement, there must to be an agreement in the parties’ contract to take a dispute to expert determination.

Expert determination is usually quicker, cheaper and less formal than litigation or arbitration and is appropriate for technical or valuation issues, e.g. an IT specialist may be appointed in a dispute arising under an IT supply and installation contract to determine compliance with specification or a quantity surveyor to determine the value of variations to a building contract.

The expert’s decision is normally final and binding because, unless the parties provide otherwise in their contract, the expert’s decision can only be challenged on limited grounds, for example fraud or partiality.

Adjudication

Adjudication is another formal dispute resolution process, with particular prevalence in the construction industry under the Housing Grants, Construction and Regeneration Act 1996. An adjudicator will review evidence and arguments, including legal reasoning, to come to a decision which determines the parties’ rights and obligations. Three types of disputes are generally resolved through adjudication:

1. disputes between private parties, such as individuals or corporations;
2. disputes between private parties and public officials; and
3. disputes between public officials or public bodies.

Mediation

Mediation is a consensual process conducted in private. The mediator is an independent third party (neutral), who helps the parties reach an agreement in order to settle the dispute. The mediator does not usually recommend or evaluate; he is there purely to facilitate settlement. If the parties do reach an agreement, the settlement can be recorded by the mediator in a legally-binding contract.

The mediator will usually, assist the disputing parties by conducting individual meetings (caucuses) as well as joint sessions in a form of ‘shuttle diplomacy’ focusing on the parties’ real interests and strengths in an attempt to draw them together towards settlement.

Conciliation

Conciliation is very similar to mediation, indeed the terms are often used interchangeably. However, conciliation is generally understood to be an evaluative form of mediation where the conciliator can make recommendations to the parties. If conciliation fails to resolve the dispute, the conciliator can produce a ‘recommendation’.

A conciliator can be more interventionist then a mediator and the process is generally less structured. However, the conciliation still aims to bring disputing parties together and focus on the key issues.

Early neutral evaluation

Early neutral evaluation is conducted in private and is not binding upon the parties. The third party neutral, who may be a judge, arbitrator or other suitably qualified third party, gives their opinion on the likely outcome if the dispute went to a trial. This opinion can then form the basis for potential settlement. Unless the parties agree to enter into an ad-hoc agreement, there must to be an agreement in the parties’ contract to go to early neutral evaluation.

Early neutral evaluation provides the parties with a confidential evaluation of the legal merits of their claims. The evaluator will study the materials provided in advance of the evaluation, perform independent research into relevant case law as necessary, consider presentations carefully (written and/or oral), clarify positions and facts through questioning, and then prepare an evaluation.

Early neutral evaluation specifically focuses on the key issues raised by the facts of a case and the relevant law. However, it need not be confined to the arguments raised by the parties. An evaluator reviews all of the available evidence and gauges what is likely to happen at a trial. The ruling is without prejudice and is non-binding, although it is an effective way of facilitating an out of court settlement of a high-value case prior to a formal judicial ruling.

Dispute review boards

This process is conducted in private by a dispute review board and has particularly developed on major construction projects. For small projects the costs of a dispute review board may be prohibitive. A dispute review board usually comprises three experts who are appointed when the contract is awarded. The experts become involved in the project by making regular site visits and inspections, and review project documentation and reports as the project progresses. They are copied in on all contract documents, progress reports, etc. When a dispute arises that cannot be resolved at site level or by the engineer, the dispute is referred to the dispute review board which will consider the dispute and make its recommendations to the disputing parties. The parties can specify in the contract or by agreement whether the dispute review board’s recommendation is or becomes binding.

Parties in international construction projects are increasingly providing for adjudication by a dispute review board in their dispute resolution provisions. Standard forms commonly used on international construction projects, such as those produced by the Federation Internationale des Ingenieurs-Conseils (FIDIC), provide for the use of dispute review boards as a precursor to litigation or arbitration, as do the World Bank’s standard bidding documents.

However, given the relatively summary nature of the process, parties rarely choose dispute review boards as the only mechanism for resolving their disputes. Arbitration or litigation is generally retained as the fallback even if in practice the parties may be prepared to live with and abide by the decision or recommendation of the dispute review board.

Mini trial

A mini trial is a process where the parties present their cases to a panel. The panel may comprise senior members of the organisations in dispute and a third party neutral facilitator. After the parties have presented their cases the third party neutral facilitator assists the senior members of both organisations to reach or negotiate a settlement.

The term ‘mini trial’ is a bit of a misnomer as it is not in reality a trial at all. Rather, it is a settlement procedure designed to take a legal dispute and convert it into a business problem to be resolved.

Negotiation

Negotiation is the process of reaching a compromise to settle an argument or dispute, primarily through private discussions carried out between the parties or their representatives.

Negotiations can obviously continue whilst any of the other methods of dispute resolution are proceeding.

Dispute Resolution - Party Control

On a final point, the more formal and legal the dispute resolution becomes the more the parties to the dispute loose control of the procedure themselves.

For further information please contact:
Robert J Gemmell BSc(Hons); DipArb; FRICS; FCIArb
mcms.co.uk.
MCMS Limited
T: 0121 222 4117
F: 0121 222 4118
E: birmingham@mcms.co.uk

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