Fight or flight? Why non-contractual alternative dispute resolution might be the answer.
The pandemic has created a diverse and unpredictable range of headwinds for industry, not least in the construction sector here in the UAE. As we emerge from the eye-of-the-storm, the economics of the industry and the balance sheets of contractors have fundamentally changed. Cashflow is the lifeblood of construction and the corresponding tensions on supply chains are immeasurable. Right now, fast and effective trans-national resolutions aren’t just helpful, they’re essential to survival. So, how can organisations stop disputes being the cost of doing business?
Unsurprisingly, there is a growing appetite for early settlement of disputes and law firms are increasingly being asked to develop amicable settlement strategies for clients. These often include non-contractual final and binding settlement options, given the historical approach of resistance to amicable settlement options in the region that have left many contracts lacking.
DISPUTES ADJUDICATION BOARDS (DABs – See our recent article here) are a good example of the renewed interest in pre-dispute resolution, with clients using non-contractual processes as a tool for a more strategic approach to amicably settling disputes, at a reduced cost and within a much shorter timeframe than formal proceedings. Originally envisaged by FIDIC as being a precursor to litigation, non-contractual alternative dispute resolution options such as expert determinations, mediation, and a combination of the two, are being explored much more frequently. Clients are more willing to devote time and money to these methods to reach settlement and avoid the burden of formal dispute resolution proceedings, be that Court or Arbitration – both costly and time consuming for clients operating in a market that has an unprecedented number of construction projects. Put simply, it is the swifter, cheaper solutions that will allow clients to get back to business and on to the next project.
Given that the issues in a dispute between the parties on a construction project ordinarily require expert evidence to assist a tribunal or a court with its decision, EXPERT DETERMINATION is a more cost-effective and timely way for the parties to resolve technical disputes than formal proceedings. Often regarded as one of the quickest and most inexpensive ways of resolving disputes, the process is private and confidential, and thus far less damaging to the commercial relationships between parties. With construction projects on the rise and a competitive market saturated with contractors hungry for work, relationships and reputations are more important than ever. However, the contracts we see in the region rarely have provisions for an expert determination process. When they do, it is likely to be a pre-curser to formal proceedings and is therefore only seen as a necessary step to final resolution, not a process that will achieve final resolution. As such, non-contractual expert determinations seem to be on the rise.
As with any other non-contractual alternative dispute resolution option, expert determination requires an element of consensus and agreement by the parties. It also enables the parties to have their dispute resolved by someone who is familiar with the technical issues such as quantum, delay, defects or legal issues. The process requires the parties to agree the appointment of the expert, the parameters of an expert’s role, the process itself and, crucially, whether the decision rendered is final and binding. For the process to be final and binding the parties should enter into a formal agreement in writing recording the alternate procedure to be followed, its impact on the dispute resolution procedure provided for in the contract, and the legal and contractual consequences that flow from it. If it is agreed that the expert’s determination is final and binding, the decision can only be challenged on limited grounds (such as fraud), regardless of whether the expert’s decision is correct in law or as to fact. Further, as the binding nature of the expert determination process comes from a contractual base, for a party not to follow the decision it will be a breach of contract.
MEDIATION is also gaining ground as a credible option for resolution in the UAE. Dubai recently issued Law No 18 of 2021, with the purpose of regulating services related to the mediation of disputes in Dubai. In Oman, following the establishment of the Oman Commercial Arbitration Centre in July 2018 by Royal Decree 26/2018, it has also recently issued its mediation rules. These developments signal a positive step towards greater recognition of mediation within the region.
As with expert determination, mediation can serve as an effective tool to reach a final and binding settlement between parties without the expense and formality of formal proceedings. Studies on the success of mediation undertaken in the UK found it had an overall success rate of 89%, (according to the Centre for Effective Dispute Resolution (CEDR) Mediation Latest Audit, 2018). In the current climate, and with its growing recognition as a credible option, it has the potential to deliver the same level of success in this region. As with expert determination, mediation is a structured process in which parties can agree the remit of the mediator. However, in contrast to expert determination, the mediator’s role is to assist the parties in reaching a settlement of their own accord, as opposed to a decision issued by the mediator. As such, the potential for success of mediation in comparison to an expert determination will depend upon the degree of discord between the parties. Mediation is therefore best suited to smaller or interim issues where there is an impasse. Of course, the clear benefit of meditation, as with expert determination, is that a party can take control of the costs incurred by utilising its lawyers as little or as much as it wants to. Involvement can range from supporting with the preparation of a case summary for use in the mediation to assisting with the appointment of the mediator and being on call during the mediation process itself. At the other extreme, representation of the party throughout the whole mediation process is also an option.
The benefits of both expert determination and mediation are clear but, as we have learned, they have their individual limitations, too. Combining the two methods can overcome some of those limitations, such as expert determination only being suitable for more technical aspects of a dispute and for mediation, if the parties are unwilling to negotiate a certain aspect of their dispute, this can lead to the whole process failing. As such, we are seeing expert determination being used more and more as an adjunct to mediation. The use of an expert determination within a mediation process enables an expert to provide an independent decision on a particular issue that still enables the parties to utilise mediation and reap the benefits. Often the use of an expert determination in a mediation process can allow a mediation that may otherwise fail, to ultimately succeed and crucial to the success of a mediation, it enables the mediator to retain their impartiality. Use of expert determination in this way can break an impasse and allow the mediation
In summary, we expect the use of non-contractual methods of amicable settlement such as expert determination and meditation to continue to grow, given parties are operating in a market congested with post pandemic disputes that require resolution with as little investment and as quickly as possible. Might this be a move away from a historic claim culture towards a more amicable approach to resolution of disputes? As with all the stages of this pandemic so far, only time will tell.