United Arab Emirates: Dispute Resolution In Abu Dhabi Part 1 - Litigation Is Not The Only Way

Last Updated: 3 November 2011
Article by Richard Bell

An introduction to Alternative Dispute Resolution (ADR)

It is sometimes said, quite often correctly, that litigation can be a time consuming, costly and unsatisfactory way of resolving disputes between two contracting parties. It is important to note, however, that it is not the only way to resolve a dispute.

There are many forms of alternative dispute resolution (or ADR) which can offer a faster, less expensive and often more satisfactory mechanism for resolving issues that may arise between two parties in the course of performing their contractual obligations.

In this article, which will be the first in a three part series on dispute resolution in Abu Dhabi, we discuss:

  • what is ADR?;
  • what are the common forms of ADR?; and
  • what are the advantages of ADR as compared to litigation?

What is ADR?

ADR, in essence, describes any mechanism for the resolution of the dispute which does not involve court proceedings. It covers a wide spectrum of dispute resolution processes ranging from informal negotiations between the parties to more formal processes such as adjudication and arbitration.

In this article we discuss the following forms of ADR:

  • negotiation;
  • mediation;
  • expert determination and early neutral evaluation;
  • dispute boards;
  • adjudication1.

It is not necessary for the parties to have a provision in their contract requiring a dispute to be referred to ADR. As long as both parties agree, ADR can be used at any stage of a dispute. It does not matter if the dispute has only just arisen or whether legal proceedings have already been commenced. Indeed, it is not uncommon for disputes to be referred to ADR when both parties are on the doorstep of the courthouse with a trial about to commence. However, if the parties wish to insist on ADR as a pre-condition to arbitration or litigation, there must be a specific clause in the contract to that effect.

Negotiation

While it may come as a surprise, negotiation is an often overlooked as a means of resolving disputes. When a dispute arises under a contract, often the first reaction of the aggrieved to instruct lawyers to send a letter of demand and then commence legal proceedings if payment is not made immediately. This approach often does not work and in many cases will only serve to put the other party on the defensive.

In many cases, an approach from a senior representative of the aggrieved party to a senior representative of the other party to determine whether a negotiated solution can be reached will achieve a more positive result without the need to involve lawyers. In many contracts, the dispute resolution clause will require the parties to have a negotiation at the senior executive level as a precursor to arbitration or court proceedings. It is not necessary, however, to include such provision in the contract in order for them to negotiate. The parties are free to negotiate a resolution to their dispute at any time.

The Middle East, with its history of resolving disputes in the majalis, is well suited for negotiation at senior executive level as a form of ADR. Having said that, it is probably is probably not used as frequently as it should be.

The advantages of negotiation are that if the parties act responsibly, there is minimal cost to either party other than the time of those persons involved in the negotiations. If a negotiated solution can be reached, legal costs will be avoided. Negotiation can also help the parties to preserve their contractual relationship so that they are able to do business with each other in future. In order for negotiation to work, however, both parties need to act in good faith and be prepared to make concessions where appropriate. The parties also need to ensure that they take care to identify what is actually in dispute, otherwise the parties might be at cross purposes resulting in wasted time on both sides.

Mediation

Mediation is a form of structured negotiation which is particularly popular in Commonwealth jurisdictions, Western Europe and the United States. There are a number of international bodies such as CEDR, the LCIA and ICC that provide mediation services.

Mediation is a process by which the parties agree to appoint a neutral third party, the mediator, to assist them to reach a negotiated solution. The mediator's role is not to impose a binding decision on the parties but to give the parties an opportunity to articulate their case, identify the issues in dispute and then assist the parties to overcome any hurdles that may be standing in the way of a negotiated solution. This is harder than it sounds. Parties coming to a mediation can often be very far apart in terms of their respective positions on the facts and/or the law. They may also have entrenched views on particular issues that may make settlement very difficult. The best mediators have had significant training and many years of experience in assisting the parties to get around these difficulties so that they can close the gap between them and reach a settlement.

The advantages of mediation are that it is relatively efficient (with the exception of very large, complicated cases, most disputes can be resolved in one to two days) and inexpensive. While the parties will often be represented by their lawyers in a mediation, this is not strictly necessary. Even if lawyers are involved, legal costs are usually relatively modest as there is no need to prepare extensive legal submissions or call witnesses to give evidence. The other significant advantage of mediation is that, from a statistical perspective, it is a highly successful form of ADR. The best mediators see over 90% of the cases referred to them settled either at or shortly after the mediation.

As with the negotiation, in order for mediation to work, both parties need to be prepared to negotiate in good faith and make concessions where appropriate. If one or both parties take an entrenched position and refuse to budge, mediation will not work. When it does work, mediation, with its focus on assisting the parties on reaching their own negotiated solution, can help to preserve the relationship between the two parties - something that is rarely achieved in litigation and arbitration.

Expert Determination and Early Neutral Evaluation

Expert determination is a process by which the issues in dispute will be referred to an expert nominated by the parties who will give a ruling on the papers without the need for a formal hearing.

Expert determination is often used in contracts which involve a technical element such as construction contracts, ship building contracts and contracts for the supply of engineering services. Typically, the parties will agree on a mechanism to appoint the expert such as the Institute of Chartered Surveyors in the case of a construction contract or Lloyds Surveyors in the case of ship building contract.

While the parties can agree to make the expert's ruling binding, although the usual practice is for the contract to provide that if one party disputes the expert's finding, the matter will be referred to arbitration or court proceedings. Even where the expert report is non binding, expert's determination can still be useful in giving the parties an indication of how an arbitral tribunal or court might rule on the issues in dispute, thus allowing the parties to assess their respective litigation risk before they embark on the expense of a court or arbitration hearing.

Early neutral evaluation is a very similar process to expert determination. It is a procedure by which a dispute is referred to an experienced lawyer or other professional who will give an indication to the parties as to how the tribunal or Court might rule on the matter if it were to proceed to a hearing.

In essence, early neutral evaluation acts as non binding form of private judging. While it is not as prevalent as other forms of alternative dispute resolution, it can be useful in situations where the issue that is preventing the parties from settling is a dispute over a particular provision of law. In such cases, a senior lawyer practising in that area of law can give an impartial opinion on the point at issue which may assist the parties in properly assessing the merits of their claim and the litigation risks to which they may be exposed should the matter proceed to hearing.

Dispute resolution boards

Dispute review boards comprise of an impartial expert or panel of experts who are appointed for the duration of the contract to rule on any disputes that may arise during the performance of the contract.

Dispute review boards are commonly used in the United States on large construction projects although their use elsewhere in the world is growing. The dispute review board usually comprises of a panel of one to three persons who are available throughout the course of the contract to provide an impartial opinion on any legal or factual disputes that may arise. If a dispute arises during the course of the contract, the dispute review board can conduct a hearing whereby each party explains its position and answers any questions that the board may have. In the case of construction contracts, the members of the dispute board can conduct site visits and make enquiries as to the nature and status of the works.

Typically, the dispute board will comprise of three members, one appointed by the employer, one appointed by the contractor with the two nominated board members appointing a third member as Chairman.

In most cases, the decision of the dispute resolution board will provide the parties with a ruling that will provisionally bind them until such time as one of the parties exercises its right to refer the dispute to arbitrational court proceedings. This is particularly useful in contracts for the performance of work where disputes about payment can threaten to halt the completion of the work.

Adjudication

Adjudication is method of dispute resolution where an independent adjudicator resolves a dispute by providing a ruling which is provisionally binding on the parties pending the final determination of the parties' rights by arbitration or court proceedings. In some countries, adjudication is available as a statutory remedy, although the parties can agree on their own procedure in their contract.

Typically, adjudication will provide for the exchange of legal submissions, the filing of witness statements and an oral hearing where witnesses can be called to give evidence in person and be cross examined. To that end, adjudication is a more formal process than many other forms of ADR and can be described as a "mini trial". A key feature of adjudication, however, is that it places reasonably strict limits on the time frame for undertaking these procedural steps. In most adjudications, the emphasis is on providing a fast track procedure for the issuing of the adjudicator's award within a specified period of time so as not to delay or frustrate the contract.

As with dispute boards, adjudication will provide the parties with a ruling that will provisionally bind them until such time as one of the parties exercises its right to refer the dispute to arbitrational court proceedings.

Why use ADR?

There are many reasons why parties to a contract should consider including some form of ADR in the dispute resolution clause in their contract. As stated above, one of the primary advantages of ADR is that it is a significantly less expensive means of resolving disputes than arbitrational court proceedings. As a general rule, ADR is usually less time consuming than arbitrational court proceedings. In all of the forms of ADR discussed above, the emphasis is on resolving the dispute as quickly and efficiently as possible.

Another benefit of ADR is that it gives the parties control over the process. The parties can set their own time table for the form of ADR they wish to use and are not subject to the dictates of a judge.

ADR is also a useful means by which the parties can preserve their contractual relationship. If a dispute arises in the course of the performance of the contract, or between the parties to a contract who are likely to deal with each other in the future, arbitration or court proceedings may be disastrous. Arbitration and litigation is, to a large extent, a zero sum game. When a court or tribunal issues a ruling, there will be a winner and a loser and at least one party (frequently both) will come away disappointed with the result. ADR, however, gives the parties an opportunity to settle disputes on terms that are mutually agreeable to both parties. This can assist the parties to avoid being drawn into a lengthy and expensive legal argument which may end up poisoning the relationship between the parties.

Conclusion

With the exception of certain industries such as insurance, construction and shipping, ADR is not widely used in the Middle East. Frequently, parties will resort to arbitration or court proceedings to resolve their differences. In these testing economic times, however, arbitration and litigation may be the last thing the parties to a contract want or need. ADR offers contracting parties a means by which they can resolve their disputes quickly and efficiently without the need to get bogged down in time consuming and expensive proceedings.

When entering into a contract, therefore, parties would be well advised to consider including a dispute resolution clause which provides for one or more of the forms of ADR set out above.

Footnotes

1. Whilst arbitration is considered a form of alternative dispute resolution, it is a highly formal process which shares many similarities to court proceedings. As such, it cannot really be considered a form of ADR. We will discuss arbitration in the second article in this series.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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