We have all come across ‘Dispute Resolution’ clauses in commercial contracts, also known as ‘Alternative Dispute Resolution’ (“ADR”). ADR offers alternative methods for resolving disputes without recourse to litigation saving costs, time and stress. It can help resolve a dispute before it goes court or tribunal. This article aims to summarise the different types of dispute resolution commonly seen in the construction industry, from formal dispute resolution in courts and tribunals to ADR models such as arbitration and mediation. Parties may have one or all of the following options for resolving the dispute: negotiation, mediation, expert determination, arbitration or litigation.
When choosing the dispute resolution process, you may consider:
- whether you want an independent person involved and, if you do, what you want them to do
- how structured you want the dispute resolution process to be
- what sort of relationship you want to have with the other parties involved
- how much you are prepared to spend (time and money)
- how much control you want over the process, over making a decision or coming to an agreement
- insurance considerations (explained at the end of this article)
There may be times during the life of a project when you are faced with a dispute and you need to decide whether to begin court proceedings and resolve the dispute in through litigation or choose ADR. Some factors to bear in mind when contemplating ADR are:
|Can be flexible and less formal, because the process can be made to suit your particular dispute||Court processes are generally less flexible and can be very formal.|
|Processes and outcomes are usually private and confidential||Hearings and decisions of courts and tribunals (including the reasons for the decision) are usually public|
|You and / or the other parties involved usually choose who the ADR practitioner is||When you use a court or tribunal, a decision-maker (such as a judge) is appointed for you. What the decision-maker can do is based on the law.|
|ADR process you may be able to participate without a lawyer’s assistance||You may find a court process difficult without a lawyer|
|ADR processes can be less expensive than other ways of resolving your dispute (except for additional upfront costs)||Going to a court can be very expensive. Tribunals can be less expensive but can still involve hearings and legal costs if you are represented|
|ADR does not allow third parties (or others) to join the process||You are allowed to add parties to an ongoing litigation|
If you choose to go with ADR, here are some tips to help you prepare for ADR:
- Get advice and support before your ADR session
- Talk to your ADR practitioner before the ADR session and ask any questions you have about how the process will work. E.g. discuss any special needs
- Some questions to think / ask: how and where will my ADR session be run; who can attend my ADR session; what is expected of you in the ADR session, costs involved and confidentiality procedures.
This requires that parties involved in the dispute communicating directly, either by speaking or in writing, to try to reach an agreement. It is a good first step for resolving most types of dispute. The most common type is Direct Negotiation, where you and the other people involved in the dispute talk about the dispute and try to come to an agreement that works for everyone.
Mediation is a process where an independent and neutral third party, called a mediator, helps parties negotiate a mutually acceptable agreement / decision about their dispute. The mediator must be unbiased, impartial and have no interest in the outcome, other than a desire to see the matter resolved (if possible). Most mediators require the parties, and everyone present at the mediation to sign a confidentiality agreement concerning anything revealed at mediation and also to undertake not to call the mediator as a witness before a court or arbitrator.
Expert determination is a consensual procedure in which the parties submit a specific matter (e.g. a technical question) to one or more experts who make a determination on the matter. This process is generally governed by an expert determination agreement. The disputing parties refer the matter to an expert. The expert is required to be independent of, and act fairly and impartially between the parties, giving each party a reasonable opportunity of putting its case in the manner agreed in the Expert Determination Agreement. Agreeing to have all disputes resolved by expert determination may make it more difficult and costly for you to defend disputes, especially if you engage sub-consultants.
Arbitration is a procedure in which a dispute is referred, by agreement of the parties, to one or more independent third parties (arbitrators) who will make a binding decision on the dispute. Arbitration can be a much more formal and structured process than mediation.
If all other ADR options fail and no resolution can be reached, then you may consider resolving the dispute in court. Generally, in court and tribunal processes you and the other participants present your points of view and facts to an independent person (such as a judge or a tribunal member). You can do this yourself or be represented by a lawyer. The independent person then makes a decision based on this information. You will be required by law to follow the decision, except if you successfully appeal it.
Finally, before executing a contract, check whether it has a particular dispute resolution method. While some clients wish to may choose arbitration for genuine efficiency reasons, for others it is a deliberate strategy to secure an advantage, such as depriving you of the protection of proportionate liability.
In conclusion, keep in mind that certain kinds of ADR (especially expert determination and arbitration) may disadvantage you and your insurer and make it more difficult to defend claims successfully. Therefore, before engaging in any form of dispute resolution, consider whether you need to make a notification under your professional indemnity insurance. If the dispute involves any allegations challenging the quality of your work or your sub-consultants’ work, we strongly suggest that you notify your insurer at the earliest opportunity, and certainly before the matter reaches the stage of dispute resolution. Notification is essential even if the amount in question is low, and even if you believe the allegation to be false. Failing to notify promptly can mean that professional indemnity insurance cover for the claim is lost altogether.
This article draws on concepts also outlined in the Attorney-General’s Department Guide to Dispute Resolution, which you can access here https://www.ag.gov.au/LegalSystem/AlternateDisputeResolution/Documents/Your%20Guide%20to%20Dispute%20Resolution.pdf for more a more in-depth analysis of the dispute resolution process.