Readers will be familiar with the delicate balance that needs to be struck in managing disputes with business partners where, for the sake of business continuity, an ongoing commercial relationship needs to be maintained at the same time. However how disputes are handled can make the difference between success and failure in these scenarios. The traditional adversarial approach to resolving disputes can be limited, and lead to missed opportunities to create value. For this reason there is a rising trend for businesses to embrace a more collaborative, less combative, approach that focusses on maintaining a positive relationship between the parties whilst still dealing robustly with the issues in question.
An ‘interest-based’ approach to dispute resolution focusses on the real needs of both parties, encourages co-operation and requires transparency and openness. The idea is to find a resolution that not only resolves the issue at the heart of the dispute, but also creates joint value. It seeks a ‘win-win’ solution for those involved, in stark contrast to the classic ‘win-lose’ aim of a position-based approach.
A more versatile dispute resolution toolbox is required to achieve this aim. Alternative dispute resolution tools such as arbitration, mediation, dispute boards, and expert determination are added to the set of tools available, with best results often coming from a thoughtful combination of several, rather than using one method in isolation.
Effective and thoughtful use of arbitration
A misconception of arbitration is that it is necessarily confrontational, focused on the separate rights of each party and aiming to achieve a win-lose. However the arbitral process allows more flexibility than parties often use, and handled the right way can be an excellent forum for interest-based dispute resolution. The traditional view of arbitration is that it provides a single, linear path to a final decision, but optimising the flexibility built in to the process creates space for other dispute resolution tools to be applied, which broadens the range of possible commercial solutions.
The following sets out a number of ways that parties can make this flexibility work to their commercial advantage and achieve more favorable and imaginative outcomes.
Flexing negotiation, mediation and arbitration
The typical starting point for a commercial dispute is mediation, especially in a committed commercial relationship where all involved have eyes on the ongoing relationship beyond the dispute. Parties will very often start out wanting an amicable resolution. If and when these early attempts at mediation fail, arbitration is often the best next step to addressing issues that remain. The transition from mediation to arbitration effects a change from a consensus-building approach to a more structured process based on judgment by a third party. However, skillful use of arbitration does not mean that the collaborative style of mediation needs to be dispensed with altogether.
When one party kicks of an arbitral process it signals to the opposition that the issue in dispute is serious, cannot be ignored, and that they are determined to resolve it and prepared to take formal steps to do so. This can focus minds, providing a catalyst for parties to rethink their positions and changes they might be prepared to make to reach an amicable settlement. Arbitration is often used as a tool in just this way to ease negotiation stalemate and statistics prove how effective this tactic can be: a considerable number of ICC arbitrations reach quick settlement very soon after the Request for Arbitration is filed. Under the ICC Rules of Arbitration, swift transitions from negotiation to more formal processes are easy, which helps this.
And the direction of travel is not only one-way: negotiation or mediation can be brought back into play in later stages of an arbitration, to create a window for a more collaborative approach, either to individual aspects of the dispute, or in its entirety. With arbitration, the path to a resolution need not be rigidly fixed. It can be a dynamic journey, adapting to the interests of the parties and what emerges through the process, calling on a variety of alternative dispute resolution tools to achieve a result that works for all.
A common barrier to early settlement of a dispute is often simply that the legal merits of a case, the strengths/weakness of the parties’ individual positions and potential outcomes are uncertain. Often it is only part way through a dispute resolution process that clarity on these points is achieved. But with ICC arbitration, a key feature is the focus on clarifying the main issues at the start of the process; ICC Rules require clear Terms of Reference to be drafted soon after arbitration begins, providing the foundation for the entire arbitration process. This framework clarifies from the very start the list of issues the tribunal is being asked to determine, and this alone can help parties understand their chances of success much earlier, which often brings earlier settlements.
Later in the process, there is another moment where the parties are encouraged to take stock of their positions: ‘mid-stream conferences’ are designed specifically to enable the tribunal and the parties to refocus, assess the list of issues to be determined and potentially narrow them down further. At this later stage, parties have had time to present their case in full which can often make those involved see the issues in dispute in a new light and may make them re-think, potentially about picking up settlement discussions again.
Dispute Resolution Clauses the starting point
This more thoughtful, flexible and nuanced approach to dispute resolution, with fluidity between mediation, arbitration, negotiation and other methods in the disputes toolbox, can only be achieved if the right Dispute Resolution Clauses are drafted into contracts in the first place. These clauses define how conflicts between the contracting parties will play out and require careful thought and time for reflection at the contracting stage. A wide array of model dispute resolution clauses are available from The International Chamber of Commerce (ICC) which can be customised to suit the specific circumstances surrounding a commercial arrangement. Crucially they can embed the right framework which will support and facilitate this more intelligent approach to resolving any future disputes. Isn’t this what parties want when they first enter into a commercial contract: a win-win for everyone?
