There appears to be an appetite for speedier dispute resolution in IT/technology disputes, and the SCL Better Contracts Initiative may be able to help with an industry-standard contractual dispute resolution process. At this most recent event in the SCL Better Contracts series, proposals were put forward and comments invited. The event took place on 12 September 2017, hosted by Arnold & Porter Kaye Scholer and chaired by APKS partner Michael Bywell.
Chair Michael Bywell kicked off by putting the event into context as part of the broader initiative, supported by SCL, to design better contracts for the IT/ technology industry. As part of this, the dispute resolution workstream has been talking about faster, cheaper dispute resolution for some time, in particular by borrowing the adjudication model from the construction industry, and now has some specific proposals on which views and feedback were sought from attendees. The key features of the draft proposed ADR procedure are:
- 42 day timeline, with timing of individual steps and availability of extensions of time still up for discussion
- a menu of three types of final award – binding Expert Determination, non-binding Early Neutral Evaluation or provisionally binding Adjudication
- no constraints on what type or value of disputes are covered – but domestic disputes only contemplated due to cross-border enforcement issues.
Michael Lazarus, barrister at 3VB, highlighted the fundamental driver behind this initiative: there appears to be an appetite for quicker, cheaper and necessarily somewhat rough and ready dispute resolution in the IT/technology industry where contracts are often high value, technically complex and long-lasting and where projects may be derailed by unresolved disputes. There is also strong evidence from experience of adjudication in the construction industry that parties are likely to see the outcome of a quick and dirty process as acceptable for practical purposes. Michael identified the crucial question as whether contracting parties would be prepared to exchange the existing costly and time-consuming but ‘Rolls Royce’ service provided by English litigation and arbitration for an accelerated procedure that raises an unquantifiably higher risk of getting the wrong result in order to achieve the benefit of a reasonably certain reduction in time and cost. If that risk balance is seen as a problem, Michael suggested that one solution would be to limit this process to certain types of dispute, for example where the contract is still on foot or where the issues are purely technical, although this may just lead to satellite disputes and delay.
Michael went on to briefly outline the first ‘flavour’ on the menu in the draft procedure: Early Neutral Evaluation (ENE). The chief pro of ENE is that is it wholly non-binding, so still leaves the unsuccessful party with the escape route of rejecting the outcome, while providing the parties with a neutral opinion. There are also cons. For example, because it is non-binding, there can be no guarantees that the process will crack the dispute, and obtaining external confirmation of ‘the winner’s’ position may result in ‘the winner’ refusing to compromise. However, non-binding ENE may be attractive as an option for contracting parties until the industry has more experience of accelerated dispute resolution.
Anthony Speaight QC, barrister at 4 Pump Court, discussed the second flavour on the menu, adjudication. Anthony explained that adjudication has grown to become the standard method for dispute resolution in the construction industry, and is now wildly popular and widely used. Adjudication in construction disputes is very quick (28 days, subject to extensions) and provides temporary finality, in that the decision must be complied with when it is given and will be enforced rigorously by the TCC but stands only unless and until litigated or arbitrated. In practice, however, over 99% of adjudication awards are not challenged – decisions are made by someone independent and are usually well-reasoned, and once a party has written a cheque they tend to move on. He supported the proposed 42-day time-frame.
Matthew Lavy, also a barrister at 4 Pump Court and an SCL trustee, outlined the two basic methods for appointing a dispute resolver – either by ad hoc appointment when a dispute arises, or appointment of a panel when the contract is signed. Appointment of an ad hoc dispute resolver brings the advantage of a fresh pair of eyes and the ability to match the person to the dispute, but the process for appointment takes time and can lead to satellite disputes, and it may be difficult for an unfamiliar third party to get to grips with the dispute in a short time-frame. Appointing a panel at the outset avoids the potential for disputes over appointment and means disputes can be resolved by a body with knowledge of the parties and the contract, but is likely to be more costly, ensuring availability of the panel over the lifetime of a long contract may be difficult, and there is a risk of actual or perceived bias developing over time.
Matthew also briefly touched on Expert Determination, the third flavour on the menu, where an independent expert provides a contractually binding determination of a dispute. This can be quick and efficient and provides finality, but the parties have little control over the process and the outcome is extremely difficult to challenge unless the expert has materially departed from their instructions – the best way to mitigate these risks is to be careful in your selection of expert.
Finally, David McIlwaine, partner at Pinsent Masons, stepped back to provide some context on why there is a need to investigate alternative forms of dispute resolution, drawing on research Pinsent Masons undertook with QMUL. David flagged the following key findings which are relevant to this initiative:
- the survey showed a marked preference for alternative forms of dispute resolution – primarily arbitration and mediation – over litigation, which shows that businesses are prepared to consider mechanisms for dispute resolution beyond litigation
- one of the key advantages of arbitration is the ability to choose an arbitrator with relevant skills, although a big issue is a lack of information on good arbitrators – this initiative seeks to replicate the ability to choose a dispute resolver, and should consider identifying panels of experienced and proven dispute resolvers
- there was massive criticism of the twin scourges of cost and delay, which apply to both litigation and arbitration, and this initiative should provide proportionate and sensible dispute resolution for lower-value disputes.
Key feedback on the proposal, gathered from audience and speakers, was that:
- binding awards are preferable to non-binding awards, or other non-binding mechanisms such as conciliation or mediation
- adjudication is preferred to expert determination – it provides near finality, since most decisions are not challenged, but the parties do have another go if the decision is outrageous – although expert determination may be suitable for certain limited types of dispute (eg, pricing or benchmarking issues)
- a limited time-frame is sensible but 42 days may be too short, particularly for complex disputes, and some flexibility in relation to extensions of time is essential
- identifying suitable adjudicators will be key
- it may be sensible to start with lower-value disputes, as that is the simplest way to limit the scope without generating satellite disputes, then build from there
- the nature of the contract may determine how to appoint the adjudicator(s) – ad hoc appointment may be suitable for most contracts, with appointment of a panel reserved for very large, long-term contracts.
Further feedback from members on the proposals outlined above would be greatly welcome. A link to a survey can be found here
Kathy Harford is a PSL at Arnold & Porter Kaye Scholer LLP.
