The Advantages and Disadvantages of the Different Methods of Dispute Resolution - Term Paper Example

Application of dispute resolution method with regard to the case between Bulldozer Construction Plc (South Africa) and Fine Maker Ltd (Netherlands) Introduction: Disputes and conflicts appear to be an integral part of human life. Primitive (and sometimes modern) societies used physical power to settle disputes. But as civilizations developed, other more peaceful means of settling them evolved. The first thing that comes when one hears the words ‘dispute resolution’ is the judicial system of a country. But, even though effective, there are other methods which are quicker, less expensive, and often provide a more satisfactory outcome for the parties to the dispute. This paper is an evaluation of dispute resolution methods and will provide a solution to the given case study, which is a dispute between Bulldozer Construction Plc (BCP) and Fine Maker Limited (FML). The former is a South African company while the latter is based in Netherlands. Hence elements of international law and conventions will also be applicable here. The advantages and disadvantages of the different methods of dispute resolution will also be apparent from this review. Types of dispute resolution: As mentioned earlier, there are other means to settle disputes, commonly referred to as alternate dispute resolution methods. They include arbitration, negotiation and mediation and each of them will be reviewed in the following sections. Dispute resolution through litigation: International dispute laws and conventions provide a clause for the choice of jurisdiction or forum. This is also applicable in the case of arbitration. The choice of selection of forum in the case of arbitration will be a private party while in the case of litigation, it will be a public forum court. It is always advisable to include forum agreement or clause because “parties to a contract to reduce, if not to eliminate, the risk of being hauled before an unknown and inconvenient court that would apply unfamiliar or unfavourable laws1. But as mentioned elsewhere, court resolutions can be expensive in terms of resources and it is better to go in for alternative resolution methods. The one apparent advantage regarding litigation is that the parties to a dispute are binding on the decisions of the apex or Supreme Court of a country. They do not have further recourse to dispute the decisions of an apex court. It can be concluded that litigation should be resorted to only if other commonly accepted alternative dispute resolution methods fail. Alternative dispute resolution: Parties to a dispute should preferably go in for some form of alternative dispute resolution methods before litigation. The primary reason for this argument is that litigation can be expensive in terms of money, effort, and time. In other words, “the use of courts or tribunals would in theory be confined to those cases where they are needed, since those mechanisms are relatively expensive and seen as the least accessible to ordinary citizens”2. In the case of arbitration, the arbitrator or tribunal will hear the arguments of parties to a dispute and then come to a decision. It will be binding on the parties to the dispute3. If not found satisfactory to either or both the parties, they have the option to take legal recourse. It can be argued that bringing down expenditure is relevant to any stakeholder, whether it be an individual or a company. in the case of companies, it is the duty of the management to provide the maximum profit for shareholders and hence attempting alternate dispute resolution is preferable when compared to litigation. Arbitration: Arbitration is one of the methods of alternate dispute resolution. It can be defined as “the institution by which a third party decides on a dispute between two or more parties by exercising the jurisdictional mandate conferred on him by the latter”4. This indicates that arbitration has legal connotations also. Most countries have statutes stating that an agreement should have an arbitration clause for it to be eligible for arbitration5. The authors state that some type of disputes that are criminal in nature, or areas where statutes specifically do not allow arbitration can only be settled through a court of law. This construes that a business dispute can be subject to arbitration. If the parties of the main contract decide to settle a clause for the dispute or disputes, arising from the contractual relationship between them, in arbitration tribunal rather than national court, they can draw up the arbitration agreement in different ways and also in different stages of their contractual relationship. It should be noted here that the law of the land where the dispute is taking place will have ultimate power or precedence. In case either of the parties is not satisfied with the decision of the tribunal they can resort to higher judiciary powers. According to section 1(a) of the Arbitration Act 1996 (in UK), the primary purpose of arbitration is to bring down unnecessary delay in terms of expenses and time in pursuing solutions in regular courts, “by a fair and impartial tribunal”6. It is common knowledge that solving an issue through courts is expensive and time consuming. If an arbitration body can solve the issue, it is better for all the stakeholders concerned. Section 6(2) states that any clause in the contract between parties that refers to an arbitration solution will constitute an arbitration agreement. It should be noted that the above mentioned Act is applicable to England, Wales, and Northern Ireland. If the arbitration is an international one, then statutes pertaining to that country or other international laws will need to be considered. Parties can arrange the arbitration agreement either by a clause within the main contract, which is a more preferred method, before any dispute arise due to the main contract or by an independent agreement, which is referred to as a submission agreement. This form of agreement is done after any dispute arise relating to the main contract. In other words, a clause subjected to settlement of the dispute, which may arise in the future related to the contractual relation between the parties is called arbitration clause. With same respect, if parties decide to settle an agreement for the dispute that has already been arise due to the contractual relationship between them, that agreement called submission agreement. The problem with international disputes is that it involves the legal framework of two or more nations. As a result, international resolutions conventions and agencies have been formed for this purpose. They include UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law) and the United Nations Conventions on Contracts for the International Sale of Goods (1980). Parties to a dispute can rely on these conventions or base it on other acceptable conventions like the UK based London Court of International Arbitrations (LCIA). According to its website, “The LCIA is one of the longest-established international institutions for commercial dispute resolution. It is also one of the most modern and forward-looking”7 Advantages and disadvantages of institutional arbitration: This area is specifically discussed considering its importance in commercial dispute resolution. International arbitrators (as provided by those discussed above) are trained professionals. (Moreover, these institutions “will ensure that the arbitral tribunal is appointed, that advance payments are made in respect of the fees and expense of the arbitrators, that time limits are kept in mind, and generally that the arbitration is run as smoothly as possible”8. The authors add that such institutions usually sends a copy of the award in draft form to the parties to ensure that all factors under dispute has been covered. Redfern et al comments on certain disadvantages also. The arbitration fee depending on the value of the dispute. If the amount is high, the fee also will be high, which may encourage parties to go in for non-institutional arbitration or some other form of dispute resolution. Fixed arbitral proceedings may also be seen as cumbersome and time consuming. Again time limits set (by the institution) may be too short or long depending on the seriousness of the dispute and the viewpoints of the parties to it. For example, a longer time limit may be advantageous to the respondent because enough time will be at hand to prepare arguments and rebuttals. But it can be argued that the advantages outweigh the disadvantages. According to one author, “without doubt, arbitration has a great many advantages to recommend it as a workable alternative to litigation” 9 Dispute mediation: As mentioned earlier, effective mediation is an effective way to end a conflict to the satisfaction (full or partial) of the parties involved. People who take the initiative are referred to as mediators. There is so specific qualification that is required by such persons, even though professional training courses in mediation are available to them. Such mediators can be ordinary citizens, experts and even the judiciary. Mediating can take different forms (or approaches) like facilitative, evaluative and transformative mediations. In facilitative mediation, the mediator acts as facilitator in discussion of the contentious topics involved in the conflict. According to Stitt, such mediators do not provide solutions, but only provide a platform for discussion. Such mediators are generally well versed in the theory and practice of conflict resolution. Stitt then states that evaluative mediators play a very active role in the outcome, and are usually people who are experts on the topic or field which is under contention. “The process is similar to a court process, without the formality, and that is why some refer to evaluative mediation as non-binding arbitration”10. In this case, the outcome is dependent on the advice and opinions of the mediator. transformative mediation is a much more in-depth process that has two aims. The primary one is to find a solution, and the secondary one is to transform the people and their thought process to a higher level. The latter aim will help facilitate in finding a solution through the positively changed thought process of parties to the conflict. The people are in a conflict situation “voluntarily chose to become more open, attentive, sympathetic, and responsive to the situation of the other party, thereby expanding their perspective to include an appreciation for another’s situation”11. Transformative mediation can help improve the society and organizations, because of the improvement that brings about in individual thought processes. Bush and Folger are of the opinion that this form of mediation is the best among the three discussed here. Moore provides some critical factors that need to be considered (by both mediators and parties to mediation. These relate to the power that respective stakeholders (especially the mediator) hold which can influence the outcome of the mediation. Moore states that all disputes should be solved through rational communication and discussions. “However, mistrust and power imbalances prevent this in a significant number of conflicts”12. One area of power is the authority and respect with which the parties to the conflict view the mediator. His expertise on the area of conflict is also a factor here. Persistency and optimism on the part of the mediator will also be a factor of power. Orchestration of the whole process in a rational manner will also help to come to a mutual understanding. A mediator who can facilitate effective communication between the parties will also wield a good deal of power. Understanding the habits of the disputants by the mediator will also help to bring power. For example, housewives, husbands, students, executives have habits that are unique to their status or position. This will help the mediator to anticipate responses from the parties. A psychological approach regarding any uncertainties or doubts on the part of the disputants will be helpful. The mediator can effectively play on these doubts to make a party agree to the demands of the other one. Mediators can also indirectly influence the rewards or outcomes that may accrue to one party (allowed by the other). This ability can also yield power. Mediation is an arbitrary and not a legally binding negotiation. In some instances, the mediator may have coercive influence on either (or both) the disputants. This is another source of power. Moore adds that this often happens in court directed mediations. In case the negotiation fails, the mediator’s opinions can influence a legal decision when the matter is put before the court. This can also happen in international mediations where the mediating country has the power to impose sanctions on one or both of the disputants. It would also be worthwhile, to review a paper which studied the parties to a conflict compared their feelings regarding mediation and a court trial. The study reported mixed emotions, but on the whole positive. The first group of respondents felt that no visible improvement in relationship had occurred. The second group felt that the negative relationships had improved (better relationship) and also felt that it would have been worse had the settlement had been through a court of law. “In a third study, litigants reported being less angry and upset at the end of mediation than did litigants at the end of trial”13. This shows that two sets of conflict participants felt better about mediation rather than a court outcome and decision. It can to a large extent prove that mediation may be a better choice than a court ruling. Hence mediation in particular (as a form of alternate dispute resolution) is preferable. Moreover, “it is seen as conducive to better communication and long-term relations between the parties. It facilitates consideration of a wider range of issues and is thus better able to identify the true nature of the dispute”14. Dispute resolution through negotiation: Negotiation is the least complicated form of resolution since it does not involve a third party. “At its most basic, negotiation is an informal bargaining process. It takes place directly between the people in dispute, but can be assisted by others e.g. lawyers, advocates”15. It is ideal for resolving less complicated disputes. Application of the above factors to the case under study: As mentioned earlier, arbitration is a relatively easy and resource saving method of dispute resolution. The companies in question can rely on any of the agreed conventions mentioned above. It should be noted that clause for damages are included in the conventions. For example, Section 74 of the United Nations Convention 1980 states that “Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach”16. The article also states that damages should not exceed estimate of the party under breach regarding the loss mentioned above. A case involving breach of contract (name of parties not shown) which was arbitrated by the Court of Arbitration of the International Chamber of Commerce is provided here. The seller (respondent in this case) failed to deliver goods to the buyer (claimant) during the third year of the contract. The buyer claimed damages to the tune of the cost difference incurred by buying from another source. The arbitrator stated that this claim is valid in assessing damages to the buyer. “Articles 74-77 of CISG deal with the recovery of damages for breach of contract. An aggrieved party may seek damages for breach of contract after the contract has been performed or, in cases of avoidance, before contractual obligations are fully performed”17. Hence, FML may be liable to pay for damages if it opts for arbitration or litigation. In the case of the former, the amount claimed by BCP may not be allowed due to Article 74, which states that the defendant’s assessment of the loss will also need to be taken into consideration. Moreover, taking into consideration other factors in the above case, the law followed will be English Law since the machinery and work is in England. BCP as a contractor to building infrastructure for an event such as the Olympics will consider the project to be a prestigious one. In any case, the company is bound to complete the contract on time (or face penalties and loss of reputation). A fixed time limit in arbitration will be beneficial to the company because of the time factor involved (2012 Olympics). In the case of FML, arbitration articles require that the company’s views (on damage estimate) need to be taken into account, which is to its advantage. A litigation will take too much of time which again is detrimental to both parties, especially for BCP. Mediation and negotiation does not impose any compulsion for either party to settle the dispute. If both these methods fail, they will have to resort to arbitration or litigation, which again will need additional resources and time. Taking into consideration the above factors, an institutional arbitration may be the best option available to both the parties. References Bush, RAB & Folger, J.P 1994, The promise of mediation: responding to conflict through empowerment and recognition. Jossey-Bass Carr, A & Stone 2005, International trade law, 3rd edn, Routledge-Cavendish Department of Justice n.d., Negotiation, Department of Justice, Victoria, Australia, viewed 20 March 2010, Harris, n & Smith, E 2009, Resolving Disputes About Special Educational Needs and Provision in England, Education Law Journal, vol 10, no 2, pp 113 – 132 Hwang, M & Lee, S 2008, Survey of South-East nations on the application of the New York Convention, Journal of International Arbitration, vol 25, no 6, pp 873 - 892 Kerley, P, Harmes, JB & Sukys, P (2008), Civil litigation, 5th edn, Cengege Learning LCIA n.d., About the LCIA, London Court of International Arbitration, viewed 20 March 2010, Moore, C 1996, The mediation process. 2nd edn: Jossey-Bass OPSI, Arbitration Act 1996, Office of Public Sector Information, viewed 20 March 2010, >http://opsi.gov.uk/acts/acts1996/ukpga_19960023_en_2#pt1> Poudret, J & Besson, S 2007, Comparative law of international arbitration, Sweet and Maxwell. Redfern, A, Hunter, M, Blackaby, N & Partasides, C & 2005, Law and practice of international commercial arbitration, 4th edn, Sweet & Maxwell Stitt, A, 2004, Mediation: a practical guide. Routledge Cavendish United Nations Convention on Contracts for the International Sale of Goods (1980) n.d, Article 74, United Nations Convention on Contracts for the International Sale of Goods (1980), viewed 20 March 2010, Waters, A 2007, CISG case presentation, Institute of International Commercial Law, PACE Law School, viewed 20 March 2010, Wissler, R 2004, The effectiveness of court-connected dispute resolution in civil cases, Conflict Resolution Quarterly, vol 22, no 1, pp 55-88 Yackee, JW 2003, A matter of good forum: The (downsized) Hague Judgments Convention and the conditions of formal validity for the enforcement of forum selection agreements, Duke Law Journal, vol 53, no 3, pp 1179 – 1214 B Read More