As we watch the COVID-19 infection rates, looking for them to flatten, we hope that the Government's strategy of avoiding rampant community transmission might work. While we hold our collective breaths and hope for the best, the economic future continues to look uncertain. What happens next lurks in the background of any discussion about the pandemic.
The focus of most clients, after their families’ wellbeing and retaining employees will be on protecting their cashflows, looking for future revenue streams and preserving existing commercial relationships. A small but critical part of this will be the effective treatment of disputes. Many will have disputes in train and disagreements yet to crystallise into a formal disputes process. In a time of lockdown, dealing with the consequences of suspension of work and services already underway and the impact of cancellation of contracts will almost certainly escalate.
Some disputes will either already be in the court system, or headed that way, with the possibility of a negotiated settlement along the way. Many others, particularly in the construction industry, will be covered by dispute resolution clauses covering all manner of procedures, with engineer’s formal review, disputes boards, mediation, conciliation, adjudication, expert review, early neutral evaluation, chief executive negotiation and final determination by arbitration all on offer.
An industry exposed
Now is a good time to pause for breath, and consider which approach is most likely to meet a client’s needs in a time of considerable uncertainty. The construction industry will be significantly exposed, though the issues are probably common to other industries.
Client reticence to dispute resolution and to discussing the available procedures, both anecdotally and empirically (see the Queen Mary University of London/White & Case annual survey of users of international commercial arbitration) typically rest on cost, delay and uncertainty. It is easy to blame the legal advisors, but the reality is that they are driven to do the best for their clients, whatever the process. In the words of Justice Jackson in the Wembley Stadium case, all too frequently not only are no stones left unturned, some stones are turned over more than once!
Save in the most perverse of cases, the goal must surely be to get the substance of the dispute before an appropriate disputes professional as promptly and concisely as possible. Few construction companies, and most other commercial entities, are in the business of dispute resolution; they would rather devote their skills and their resources to pursuing their respective businesses.
Much of the animus over disputes procedures (including reverting to court) reflects a failure to use the flexibility those procedures have to offer.
While it is true that some disputes are best resolved by the courts, particularly where precedent is important, this is rarely in the client’s own, direct interest. They need a process with costs and complexity proportionate to the dispute. In the construction sphere, and where commercial relationships are ongoing, resolving differences of interpretation in a durable manner is more of a priority.
Choices should be clear
The options are myriad, but for any given dispute, the choices should be reasonably clear. Is there a factual disagreement; is the matter at issue a legal question which has wider ramifications; or is it simply a discrete issue of contractual interpretation with financial consequences?
The time, cost and procedural complexity of arbitration, particularly when it simply mirrors the High Court Rules, can be daunting; and the uncertainty of the end result may make court action more attractive. That, however, belies the flexibility which arbitration has to offer.
Under the AMINZ Arbitration Rules, truncated expedited arbitration (rule 33); emergency arbitration for interim measures and preliminary orders (article 5); consolidation of arbitral proceedings (rule 34); summary dismissal of unmeritorious claims (rule 32.3(d)); appeals to the AMINZ Arbitration Appeals Tribunal on questions of law; and a robust costs regime are all available.
Guidance is similarly provided by IBA Rules and Guidelines on party representation, conflicts of interest and the taking of evidence. In short, if a final forum is required, arbitration can provide a procedure which is proportionate to the dispute, if used effectively. More to the point, much of the criticism of court litigation can be addressed in arbitration, if the familiarity of court procedures are left behind.
In the construction sphere, “speedy resolution” is offered by adjudication under the Construction Contracts Act 2002. Experience of adjudication has been, it is fair to say, variable with criticisms frequently heard of gaming the procedure by claimants ambushing respondents; lawyers over-working their submissions (in a recent adjudication, I was provided with 22 lever-arch folders of evidence); and some questionable determinations by adjudicators. Those criticisms are justified at times, and in many cases the speed and cost effectiveness that adjudication has to offer has slipped through counsel’s fingers. Adjudication can, however, be effective if used properly.
The advantage of adjudication is its streamlined procedure and its potential to get a durable but non-binding decision on critical matters resolved quickly. Used well, adjudication can achieve this. That is largely in the hands of counsel. Where the issues in dispute are well defined, the parties cooperate on the timing of submissions and counsel confine themselves to the core issues in dispute, adjudication can be very effective.
For most commercial parties, particularly in the construction industry, there is a driving need for control. Mediation provides total control, but can descend into a settlement negotiation, notionally dressed up as an analysis of the parties’ interests, rather than a more disciplined analysis of rights and obligations. Certainly, interest-based negotiation in mediation has its place, but in the construction field, the outcome can leave the participants less than satisfied.
For large infrastructure projects and high-value disputes, the parties need to understand the principled basis for a settlement proposal that can be approved by their respective chief executives and boards. In such cases, a facilitative approach may not be as effective as a more evaluative analysis by the mediator. While this might not look like mediation as most counsel have come to understand it, in a facilitative negotiation, the mediator’s views on the relative strengths of the parties cases may be invaluable when it comes to testing settlement options.
The ideal way to deal with disputes
Almost without exception, the issues in dispute are best dealt with by the parties themselves on an informed basis, with proactive and pragmatic representation, and the services of a suitable independent professional. In the current environment, the cost, time and uncertainty of arbitration run under a High Court Rules approach are likely to be unattractive; and facilitative mediation with the inherent uncertainty over outcome may be an unsurmountable obstacle, unless both are undertaken with greater flexibility.
In many cases, a non-binding, independent evaluation may be sufficient to inform the basis upon which the parties reach their own solutions. particularly if that evaluation is undertaken as early as possible in the disputes timeline.
The key, particularly in the current environment of uncertainty, is to focus on the merits of the dispute, rather than protecting the niceties of centuries of legal precedent by sticking to accepted court rules. All alternative disputes resolution procedures provide the flexibility to do this.
Whichever disputes procedure is adopted, the selection of the disputes resolver (arbitrator, adjudicator, independent expert or mediator) will be the most critical decision the parties will make and it will be the last manifestation of party autonomy. It is a decision which is not made as well as it might be.
The temptation is to recommend the arbitrator or other resolver who last gave a favourable decision; or the mediator most likely to support your client’s position; or to give the most recent retirement from the High Court bench a run. Often, counsel asks around for recommendations, tapping into what is uncharitably described as “the old boy network”.
Failure to agree will usually result in the appointment being made by a professional body nominated in the agreement, or by AMINZ (under article 11 of Schedule 1 to the Arbitration Act 1996 or s 33(1)(d) of the Construction Contracts Act 2002). While nominating bodies do their best to make the most appropriate appointment, this is a singular failure by counsel to make a sensible fist of reaching agreement.
Practitioners should not take this paper as critical of current practice. For most litigators, their training and their early years are built on court procedures, and to stray from this happy place can be confronting. However, times of uncertainty present opportunity. Almost any “alternative” dispute resolution procedure you recommend has the flexibility to get to the substance of the dispute in a manner which is proportionate, and less likely to suffer from the criticisms identified above. That inevitably involves thinking outside the square and considering the interests of the client in promptly and cost effectively achieving a durable and workable outcome based on sound legal principle.
With the lockdown having no certain end date, and even greater uncertainty over what will greet us when it does inevitably end, it is incumbent on us all to be proactive in presenting better options to our clients. Greater flexibility is required, and recognition by practitioners that clients will be focussed on their businesses; we are rightly perceived as the only ones whose business is dispute resolution.
John Walton email@example.com is an arbitrator, construction adjudicator and commercial mediator practising at Bankside Chambers in Auckland and Singapore.