Contractual disputes used to be resolved through arbitration or litigation - often an expensive business. But the emphasis is now on damage limitation. Michael Bywell examines a new range of dispute resolution tools.
The way in which parties involved in information technology and telecommunications contracts seek to resolve their differences has changed dramatically over the past 10 years. In the past, dispute resolution clauses in contracts were fairly basic and tended to provide for either litigation through the courts or arbitration. Now contracts often contain detailed procedures and preferences for how disputes should be resolved prior to the instigation of litigation. The emphasis is very much on trying to avoid the serious damage that litigation can cause to a business.
This shift has led to the importation of a whole range of dispute resolution tools, techniques and processes, mostly from the US. One of the first was mediation which appeared on the UK scene in the late ’80s and has since proved very popular. It has been embraced by the business community and senior legal figures including Lord Woolf, the architect of the new Civil Procedure Rules which came into force in England and Wales in 1999.(Indeed since 1999 the number of cases filed in the High Court has dropped dramatically (37%) and, at the same time, the number of cases being mediated has increased).
According to data published last year by the Centre for Dispute Resolution (CEDR), the IT industry is the third largest user of mediation, behind construction and the financial sector.
Brussels is also active in this area and has recently published a Green Paper on Alternative Dispute Resolution in the EU. This will discuss the creation of an integrated framework for ADR. A paper on On-Line Dispute Resolution covering among others B2B, B2C, domain name, copyright, and e-government disputes is scheduled to follow in May.
The result, from a practical point of view, is a real need on the part of organisations operating in the IT and telecommunications sectors to get to grips with these developments and to ensure that their people, particularly those with responsibility for negotiating and performing contracts, are alert to the dispute resolution options now available.
Mediation and how it works
Facilitative mediation provides a private and confidential means by which parties can settle disputes with the assistance of a neutral third party (the mediator). It is a consensual process and nothing is binding unless and until a settlement is achieved. The mediator’s role is to facilitate only: no adjudication is involved. And the parties are free to walk away from the mediation process at any stage. The process itself (typically) involves the mediator inviting the parties to make an initial statement which sets out their perception of the dispute. This will be followed by a series of all party and private meetings facilitated by the mediator during which the parties search for common ground and a settlement.
The main advantages are as follows:
– Arbitration or litigation can be avoided and disputes resolved at an early stage.
– Long term relationships can be preserved.
– Because it is a private and confidential process it enables the parties to have a free and frank discussion.
– It can be set up quickly and cheaply.
– It can also lead to savings in time and cost.
– Creative solutions can be explored and agreed.
– Complex legal issues can be put to one side so that the parties are able to focus on business-driven objectives.
– The parties retain control of the process (i.e. there is no arbitrator or judge).
– Mediation can be used in combination with other dispute resolution processes (e.g. mediate first and, if that fails, proceed to litigation or arbitration).
– It can be used at any time (i.e. even after legal proceedings have started).
The main drawback or disadvantage is that there is always a risk that settlement will not be achieved, causing frustration, wasted costs and, in some cases, delay.
Clearly, however, the advantages outweigh the disadvantages and, in the majority of cases, mediation will probably be worth considering as an effective way of resolving disputes.
Other dispute resolution processes
Mediation is of course but one (albeit important) option. Other possibilities do exist and should be kept in mind when considering how to go about trying to resolve a dispute. It is also important to understand how these compare. Some examples:
Early Neutral Evaluation (ENE) is where a neutral party is appointed to evaluate a case and issue and opinion on the merits or a discrete point of law. The opinion is non-binding. The hope is that the opinion will assist the parties in gaining a better understanding of the merits of their respective cases and that it will lead to more realistic settlement negotiations. Typically, the third party will be a judge or leading barrister.
In Med-Arb a neutral third party sits initially as mediator. If settlement is not achieved, the third party will then sit as arbitrator and will render a final and binding decision. The perceived benefit is the efficiency and cost savings that can be achieved by using the same third party in both capacities.
Mini-trial is a hybrid which combines advocacy, facilitated negotiation and evaluation. Advocates from each side present their cases to a panel comprising a neutral third party and senior executives from each side. Having heard the representations from the advocates (and therefore armed with an understanding of the perceived strengths and weaknesses of each side’s case) the executives begin negotiations, facilitated by the third party (who also chairs the panel). If settlement is not achieved, the executives may ask the third party to render an advisory opinion on the likely outcome of the dispute (in the hope that this might promote a compromise). The process is non-binding unless of course a deal is struck.
Medaloa is another hybrid process, combining mediation and what is known as Last Offer Arbitration. The parties mediate and, if a settlement is not achieved, they submit their last offers to the mediator who chooses one or other and renders a final, binding decision. The idea is to encourage realistic offers during the mediation phase and, failing that, to reach a conclusion in any event.
A lot has changed in the past 10 years and the search for new and creative ways of resolving disputes is ongoing. But mediation is well worth considering in the majority of cases.
Michael Bywell is partner, technology media & communciations group at law firm DLA