Planning ahead at the contracting stage – considering dispute resolution: Written guide
As the types of disputes which may arise in relation to the provision of technology-related solutions and services are many and varied, so are the potential options for dispute resolution. Finding the most effective option for a specific dispute involves careful consideration of a number of factors, in particular, the nature of the dispute, the remedies required, and the relationship between the parties. Whilst “traditional” options include those listed below, in this article our technology disputes team offer some alternative solutions for a more effective (and mutually beneficial) outcome.
- court proceedings;
- arbitration proceedings;
- expert determination; and
Recent developments to consider:
The last few years have also seen the launch of two new schemes specifically aimed at the fast, efficient and cost effective resolution of specific technology disputes, including:
- the Digital Dispute Resolution Rules (published on 22 April 2021) (DDR Rules) – designed to facilitate rapid, innovative and cost-effective resolution of legal disputes concerning digital technology, such as cryptoassets, cryptocurrency, smart contracts, distributed ledger technology, and fintech applications and providing for a legally binding arbitration or expert determination procedure, with the option for arbitrators to implement their decisions directly on-chain using a private key; and
- the Society for Computers and Law Adjudication Scheme (launched on 15 October 2019) (SCLA) - designed to be a swift and affordable procedure to resolve disputes while aiming to maintain the parties' commercial relationships and goodwill in any ongoing technology projects, it is an adjudication procedure which takes place on condition of confidentiality.
A number of these options can also be used in combination – with mediation often being effectively used alongside more formal, binding procedures and (where non-binding) expert determination and/or the SCLA may also potentially act as a precursor to formal court proceedings.
How do you determine the most effective option?
Whilst court proceedings are often the default position in the absence of a contractually binding agreement to use another dispute resolution method, if the parties maintain a good relationship despite a dispute arising (or there are other compelling reasons for a specific mechanism to be employed) parties will be free to make a new agreement to submit their dispute to a procedure outside the court. The parties can therefore agree to arbitration, expert determination, or adjudication schemes at any time. The factors contributing to such a decision are similar to those which may be considered at the initial contracting stage.
Most alternatives to court proceedings (as well as choice of court and jurisdiction) are, however, fixed at the contracting stage, with negotiation of a variation to what has been agreed potentially more complicated by the fact that the parties are in dispute. Although it is often not at the forefront of parties’ minds to consider potential disputes at the outset of a relationship, careful consideration of the types of disputes which may arise can pay dividends in ensuring the time and cost effective resolution of disputes at a later stage.
Key issues to consider
Nature of dispute
If disputes are likely to be technical in nature, the parties may wish to specify a dispute resolution mechanism which allows for the appointment of a technical expert (as opposed to, or in addition to, a lawyer) as an arbitrator or adjudicator. Schemes such as the SCLA allow for the appointment of a single expert adjudicator, or a lawyer who has the power to appoint their own technical experts. Many arbitration rules allow the parties to specify a panel of arbitrators, and the parties could choose to specify that one or more arbitrators holds specific technical expertise.
Many specialist courts, including the English Technology and Construction Courts are also well used to dealing with technical issues in disputes, and will also have the benefit of expert evidence, if required.
Clarification of issues in long-running contracts
Where a dispute arises in a long-running contract as to interpretation or technical compliance, the parties may well wish to take advantage of a scheme such as the SCLA to allow for a swift and cost-effective resolution, aiding the maintenance of the relationship in the longer term. However, as this does not provide a final, binding decision, the parties may instead wish to avoid the potential for the dispute to run on again by opting for binding expert determination.
Public, authoritative interpretation of a common clause
Where a party has utilised a specific clause in a number of contracts, and it wishes to obtain a final, authoritative interpretation for that clause across all of its contracts, it may prefer to obtain a judgment from the court.
Although many arbitration rules now include provision for the appointment of emergency arbitrators and the issue of interim orders which mandate certain actions, there is some uncertainty over whether such orders are enforceable in all jurisdictions. Where there is the potential for injunctive relief to be required, including, for example, to ensure the continued provision of business critical services, it may therefore be prudent to include express provision for the jurisdiction of courts where such relief is readily available, such as the English courts. If one or more of the parties are based outside the chosen jurisdiction, the parties may wish to consider appointing process agents to receive service in the jurisdiction, in order to avoid the need to seek permission to serve out of the jurisdiction.
Cross-border disputes/ Enforcement
If the parties are based in different jurisdictions (to each other and/or the jurisdiction chosen to host the relevant dispute resolution procedure), consideration may also need to be given to whether or not any award of a court or other competent authority will, in practice, be enforceable.
Although many jurisdictions will, in practice, enforce judgments of the English court, this often involves the need to obtain recognition of the judgment in a foreign court, before commencing local proceedings to enforce against relevant assets. There may be grounds upon which recognition can be challenged, and the process may be more difficult if conflicting local proceedings are started. The process is also often more complicated where the award is a declaration, rather than a monetary award.
These same issues with recognition and enforcement of English court decisions may also arise with enforcing decisions of the SCLA, as that scheme requires the parties to obtain a judgment from the English (or other nominated) court if the losing party does not voluntarily comply.
Where difficulties in enforcement are anticipated, parties often opt for arbitration, which is designed to allow automatic enforcement of an award in over 160 countries which are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (subject only to limited defences).
Where the dispute relates to an issue which is capable of enforcement on chain, the DDR Rules may be utilised to save the time and costs of satellite enforcement proceedings by enabling the adjudicator to implement their decisions directly on chain using a private key.
English court proceedings are, as a default rule, held in public. Sensitive and confidential commercial information may well need to be disclosed, and referred to in open court. Where privacy is important, parties may well opt for arbitration under rules which keep the whole process confidential, or (in appropriate cases) the DDR Rules, which make provision for anonymity. Rules on expert determination often also make provision for confidentiality to be maintained.
Where a contract provides for disputes to be resolved through the courts, parties may choose to mediate at an early stage, in order to arrive at a confidential commercial settlement and thereby avoiding exposure to the courts.
Thinking carefully at the outset of a relationship and/or dispute about what the parties ultimately want to achieve as regards the resolution of their dispute and any potential barriers to achieving that goal can pay dividends in making the process more efficient, in terms of the time and costs, as well as achieving a practical outcome.
There is no “one size fits all” approach, and parties may choose to adopt a layered approach, including the use of several formal and informal techniques, including party to party negotiation, mediation, adjudication, with court or arbitration proceedings used only as a last resort. It will not always be possible to determine at the contracting stage which disputes may arise, or the best way of resolving them; circumstances and relationships change over time. Whatever the options chosen, it is often best to keep dispute resolution procedures relatively simple (multi-layered clauses often engender satellite litigation over what they mean and whether the specific dispute fits into one part or another), and keep them under review – seeking to agree a different method if that would be more appropriate to a dispute which ultimately arises.