Here is a simple look at Dispute Resolution in business

Business dealings are often summed up in a contract, that way the parties have an idea of how to handle future issues should they arise. At least in theory that is what it looks like.

In practice however, you need to understand the need for dispute resolution and am not just talking about litigation. Taking a legal action is just one of the many, and not necessarily the best way, to solve disputes should they arise in a contract.

Dispute resolution and problems in contracts

According to the 2001 UK office of governance commerce (OGC) guidance on dispute resolution,

“Dispute resolution techniques can be viewed as a continuum that ranges from the most informal negotiations between the parties themselves, through increasing formality and more direct intervention from external sources, to full court hearing with strict rules of procedure”

Remember if a problem is not solved however minor it may appear to be, it could escalate into a bigger problem, for instance, if you let delivery to be delayed and the other party grows complacent, such will in time get worse.

Why do contractual disagreements arise?

The first thing one need to understand is that while dispute or disagreement has a negative connotation, contractual disagreements are not necessarily as a result of negative reasons.

These disagreements could be due to:

1. Desire of one party to alternate the contractual terms due to arising circumstances such as changes in the business environment
2. Delivery, payment or quality problems
3. Interpretation of the terms in the contract
4. Failure to understand certain requirements

Approaches to contractual dispute resolution

There are a number of ways to handle disputes in contracts. The choice of a method to use will depend on the outcome you desire, that is, do you want to win by any means, do you want the relationship to continue or do you want both.

NEGOTIATIONS

Negotiation is a useful approach to conflict or dispute resolution at any given level of the contract. From a purchasing perspective, negotiation is a process of planning, reviewing and analyzing, used by a seller and a buyer to reach acceptable agreements or compromises which include all aspects of the business transaction and not just price. 

Being effective and principled negotiator

1. Separate the person from the problem that way you deal with the problem without creating negative relation.
2. Focus on bringing your interests together and not your positions
3. Come up with various options and ideas instead of just pushing for a predetermined answer
4. Try to ensure that the agreement reflects some objectively fair standard

MEDIATION

Mediation involves the appointment of an independent person whose job is to hear arguments from both sides and make formal proposals or recommendation that is not binding to either party as a basis for settling the dispute

The process is usually along the following lines:

1. Opening joint meetings in which the parties briefly state out their positions
2. A series of private and confidential follow-on meetings between the mediator and each of the teams present at the mediations
3. Where applicable, joint meetings between some or all members of each team
4. Signing of the written settlement terms assuming an agreement is reached

It is important to distinguish between;

1. Facilitative mediation: where the mediator assists the parties’ own efforts to formulate a settlement
2. Evaluative mediation: where the mediator additionally helps the parties by introducing a 3^rd party view over the merits of the case or of particular issues between the parties

ARBITRATION

Arbitration involves the appointment of a mutually acceptable independent person(s) who will consider the arguments of both sides and deliver a decision or judgement which is legally binding on both parties.

What is the courts position during arbitration?

Generally courts don’t interfere with arbitral process unless it becomes clearly necessary to seek the assistance of the court to move the arbitral process forward.

The courts can assist in the following way;

1. Compel appearance of a witness
2. Give a ruling on a preliminary point of law, if it concerns a matter substantially affecting the rights of one or more parties
3. Enforcing the award made by arbitrator

Advantages of arbitration  

1. There is a degree of confidentially since the proceedings are held behind closed doors
2. Compared to litigation (lawsuits) the process is less confrontational
3. There are no appeals since it is intended as a single process
4. The process is faster and less expensive compared to litigation
5. The parties gain the advantage of accessing expert knowledge from the arbitrator

Disadvantages of arbitration

1. Cost of arbitration may be high
2. The process is not suitable when coercive action such as injunctions are needed
3. The opponent may fail to cooperate
4. There is little or no right of appeal in case decision isn’t satisfying

LITIGATION

Litigation is the process of resolving a dispute in court. The process is adversarial and should be used if the other alternatives to dispute resolution mechanism have failed.

Advantages of litigation (lawsuits)

1. Courts have more power
2. It is efficient
3. One doesn’t have to pay for judge’s time
4. One can sue more than one party
5. Verdicts can be appealed more easily

Disadvantages of litigation

1. The process may be costly
2. The matter may continue in court for a long time
3. There isn’t much of privacy in courts
4. Litigation can be complex when contracts are of international nature
5. The adversarial nature of the matter will damage the relationship and good will of the parties involved