Alternative Dispute Resolution (ADR) is as the name suggests a different way to solve a dispute that has arisen, usually between parties that have a contract in place between them. The concept is essentially to agree a remedy that negates the need for litigation, which as a general rule is prohibitive from a cost perspective. There are three main formal types of ADR in relation to business, these being
- Arbitration, and
We will look at all three of these forms in greater detail later. When ADR first began to be employed as a dispute resolution mechanism it was anticipated it would be cost effective, but over time the costs have escalated as Adjudication in particular has become more formalised and has become more legalistic in nature. Some parties to a contract have begun to add a new form of ADR to their contracts, which becomes a form of dispute resolution prior to Mediation, Arbitration or Adjudication. For sake of simplicity we will call this form the Resolution Board, particularly where the contracts are collaborative in nature rather than adversarial in nature.
The concept of a Resolution Board is that the parties to the contract will as part of forming the contract nominate two senior executives from each organisation to sit on the board. In the event of a dispute arising either party can refer the dispute to the Resolution Board in an endeavour to have them solve the dispute and allow the contract to continue to function. In order for the dispute to have as small an impact on the overall operation of the contract, the Resolution Board will have a strict timetable to reach a consensus; this is usually 7 days (or 5 working days) from referral.
As the Resolution Board is split 50/50 between the two parties to the contract you would expect the norm to be that the dispute cannot be resolved as the executives will revert to protection of their respective companies position and interests. However where a contract is collaborative in nature it will operate in the spirit of mutual trust and co-operation and this should empower the executives to come to the right decision and not a corporate decision. As mentioned previously the split of the Resolution Board is 50/50 and therefore it requires a simple majority for a decision to be made, in this case a simple majority is 75%, although you would generally find that there are only two real outcomes from a Resolution Board, 100% in favour or a frustrated solution of 50/50.
As a Resolution Board is not a legislated form of ADR, the specifics can be agreed between the parties to be included in the contract. If I was negotiating a contract with this provision in it I would want the following key aspects to be included: The Resolution Board as nominated will be notified in accordance with the contract that a dispute has arisen which the referring party wishes to refer to the Resolution Board A formal meeting of the Resolution Board is called and the referring party and responding party provide a representative to outline the dispute to the Resolution Board members. The Resolution Board may then request further details based on the representation’s made before meeting in private to discuss and provide their determination.
For the Resolution Board to operate effectively and be able to reach a sound decision that can be binding on both parties; a referral needs to be in relation to a material matter that cannot be addressed and resolved by means of the other clauses within the contract. In effect petty squabbles need to be addressed internally without referral.
Following is a Dispute Resolution clause that was recently included in a bespoke contract that I assisted in formulating, although I have changed the wording slightly as to when it refers to other clauses:
• Both parties shall endeavour to notify each other of any anticipated dispute so that any potential dispute can be avoided by negotiation between them in accordance with the notification clause;
• Both parties shall endeavour to resolve any disputes which arise by direct negotiations in good faith between senior executives, the Resolution Board, of their respective organisations and shall give serious consideration to any request by either of them to refer the dispute to mediation, or following a frustrated outcome of a referral to the Resolution Board to consider mediation prior to any other form of Alternative Dispute Resolution (ADR);
• If a dispute is referred to the Resolution Board by either party, the Resolution Board shall meet within 5 working days of the referral where both can parties shall put forward the dispute, how it has arisen and the remedy they seek, prior to determination by the Resolution Board;
• The Resolution Board shall make a binding determination on a simple majority of the Resolution Board. The decision of any Resolution Board shall be binding on, and implemented by, both parties. This does not bar either party seeking further redress through formal ADR procedures;
• If the Contractor and the Consultant cannot resolve any dispute or difference by negotiation then they shall attempt in good faith to resolve it through an ADR mediation procedure;
• Any disputes arising under or in connection with this contract may be referred by either party to Adjudication at any time in accordance with the Scheme for Construction Contracts (as amended);
• In the event the dispute is referred to Adjudication the Adjudication Nominating Body (ANB) shall be the Royal Institute of Chartered Surveyors (RICS);
• The decision of any Adjudicator shall be binding on, and implemented by, both parties pending final determination of the relevant dispute by the English courts;
Is a Resolution Board effective?
It depends on the dispute and how impartial the executives can be to the dispute. In reality, if the executives consider that the Resolution Board will probably have a cost of no more than £5,000 between the parties and Mediation, Arbitration or Adjudication will have a starting cost of at least double that, then this is an excellent form of ADR. But like most things, it’s all about personalities involved.
Next time we will review the key elements of mediation.