Topic 10.10: Resolving contractual disputes
Unless a claim against a contract is obvious and immediately agreed to by both parties, the process for resolving contractual disputes usually escalates along the following path…
Negotiation is one of the most common processes in the world.
People negotiate almost constantly, from the three-year-old children ‘sharing’ their toys, to neighbours discussing the erection of a dividing fence, a consumer returning goods to a department store, to multi-national corporations discussing trade obligations.
It is the process where parties to a dispute attempt to settle that dispute on their own; that is, without the assistance or intervention of anyone else.
Nevertheless, parties may either be represented by professional negotiators or conduct the negotiation themselves.
There is no set process for this method of dispute resolution (although obviously some methods work better than others!) and parties’ approaches can range from extremely combative to extremely facilitative depending on them and on the nature of the dispute.
Because no third party is involved, there is no agreement or decision reached unless the parties reach it themselves.
Mediation is a process whereby parties are assisted in their negotiations by a neutral third party (the mediator) to identify the issues in dispute, generate options, consider alternatives, and attempt to reach agreement that will meet the underlying needs and interests of both or all parties.
Mediators do not make decisions about who is right or wrong or what the best outcome should be.
A key advantage to mediation is that the parties have significant control over the end result.
Decision-making power stays in the parties’ hands, and is not passed on to a judge or arbitrator.
Instead, a mediator helps bring the parties together by establishing a framework for the negotiation within which all parties agree to participate.
As well as having no determinative power, mediators do not usually offer substantive advice.
Instead, they control the process of the mediation, that is the steps and stages of the meeting, and the parties themselves reach any agreement that is made.
When parties cannot resolve a dispute through negotiation or mediation, many statutory or judicial bodies use conciliation conferences in an attempt to settle matters before their tribunal or court.
Conciliators are usually recognised experts in the field of the dispute and are empowered to suggest or give advice on the probable outcome if the matter were to proceed to court and likely settlement terms.
Independent conciliators (expert appraisers) can also be nominated and mutually agreed to by the parties, without the intervention of the courts.
Although, like mediators, conciliators have no determinative powers, it is not uncommon for the third party conciliator to be very persuasive and to strongly recommend certain outcomes that they believe are suitable.
Like expert appraisal and conciliation, arbitration is a process in which the parties to a dispute present the facts of their case to a neutral third party.
In this case, though, the arbitrator will make a determination; in other words, they will judge the claim.
Therefore, arbitration is a process very close to judicial determination, and parties adopt an adversarial (‘A’ vs ‘B’) stance.
The main differences between arbitration and litigation are that most arbitration proceedings and decisions are private, and the arbitrator is a third-party expert specifically chosen by the parties.
Arbitral decisions (also known as awards) may also be registered at a court to give them the effect of a court order for the purposes of enforcement.
Although litigation is often threatened and even begun in contractual disputes, most cases are not settled by the court; in fact, approximately 95% of civil cases started in court are settled out of court prior to trial.
Very often the methods of settling cases before trial may involve negotiation, mediation or conciliation, expert appraisal, or a combination of these.
In the litigation process, parties submit their dispute to the relevant court and either a magistrate or a judge decides the outcome of the dispute on their behalf.
It is often a very time-consuming and costly process, and for many people the process is confusing even with the assistance of lawyers.
The judicial officer (the magistrate or the judge) acts as an impartial umpire throughout the proceedings and ultimately makes a decision based on the facts and evidence placed before them.
Their decision forms an order of the court and is enforceable in the event any of the parties breaches that order.
This dispute resolution process is the one with the least amount of party control and the greatest determinative power of the third-party neutral – in this case, the judge or magistrate.
As such, it is the least desirable process, and should be viewed as a last resort, especially when you consider that relevant project work inevitably stops in order for litigation to run its course.
A final word
To some extent, the lessons of contract claims management could be extended to the internal disputes that occur when projects deviate from plan, and vice versa.
In both circumstances, the cure is far less palatable than prevention, and it remains very much within the domain of the project manager to ensure – to the extent that it is possible – conflict is anticipated and avoided.