By Aoife Walsh, Solicitor, Commercial Litigation and Dispute Resolution Unit
With the unprecedented economic circumstances in which the Irish economy finds itself currently, there has, unsurprisingly, been an increase in the number of commercial disputes. As will be all too well known to many businesses who have found themselves a party to a court action, traditional litigation is public, lengthy and a costly process, not only in terms of financial costs but also in terms of management time. It is for this reason that alternative dispute resolution methods and in particular, arbitration and mediation, have attained prominence as alternatives to traditional litigation.
It is now common for many businesses to incorporate terms into their business contracts and terms and conditions that provide, in the event of a dispute, that any such dispute be referred to mediation or resolved by arbitration. Parties to a dispute can of course, by agreement, mediate or refer to arbitration any dispute which arises notwithstanding that any relevant contract does not provide for disputes to be resolved by that means.
The Arbitration Act 2010 came into force on 8th June 2010 and repealed the Arbitration Acts 1954 – 1998. The act adopts the United Nations Commission on International Trade Law (UNCITRAL) Model Law for international arbitrations and it provides for the Model Law’s application to both Irish domestic and international arbitrations. Ireland hopes that the adoption of the Model Law will assist in promoting Ireland as an international centre for arbitration.
Parties to a dispute may refer a dispute, by agreement, to either mediation or arbitration notwithstanding that traditional legal proceedings may have issued in respect of the matter. The rules governing the Commercial Court promote mediation as an alternative method for parties to resolve disputes coming before that court. They provide that the Court may, either on its own motion or on the application of any party to a dispute, adjourn any dispute before it for up to 28 days to facilitate that dispute being mediated. The statistics show that where the parties themselves remove the dispute from the Commercial Court List in order to engage in mediation, such disputes are settled in approximately 85% of cases. The new Arbitration Act 2010 contains similar provisions allowing for the adjournment of court proceedings to facilitate referrals to arbitration, by agreement between the parties.
What does Mediation and Arbitration Involve?
Mediation is a facilitative and confidential process, where parties to a dispute voluntarily select a neutral and independent third party to assist them in reaching a mutually acceptable negotiated settlement.
Arbitration is a process whereby a dispute is referred to either one or more impartial and independent arbitrators who hear both sides of the dispute and who then make a binding and enforceable decision on that dispute. The arbitrator is usually selected from a panel of available arbitrators or may have already been agreed upon in the arbitration clause in the contract between the parties. Once the arbitrator issues his decision, known as an “arbitrator’s award” the party in favour of whom the award has been made can seek to have that award made enforceable as a court order. The arbitrator appointed will usually have specialist knowledge of the field the subject of the dispute.
Key Differences to Traditional Litigation
One of the most attractive features of both arbitration and mediation is that the dispute remains private and confidential as between the parties and their legal advisers. This can be of great importance to businesses who do not wish for details of their business, which may affect the reputation of the business, to be aired publicly in a court room. In respect of mediation, the mediation agreement usually provides that any submissions or concessions made by either party during the mediation may not be referred to in any subsequent litigation of the dispute, in circumstances where the mediation is unsuccessful.
The mediation process is completed far more expeditiously than traditional litigation. It is the parties themselves who are the driving force behind the process and it is not subject to the procedural rules which govern traditional litigation and which can lead to lengthy delays in disputes being heard by the courts.
Arbitration is also generally accepted to be more expeditious than traditional court proceedings. However, the length of the arbitration will depend upon the nature of the dispute and the willingness of the parties to comply with the directions and time limits directed by the arbitrator.
Mediation, if successful, is a far less costly means of resolving disputes than traditional litigation. Usually the mediation agreement provides that the parties to the mediation split the mediator’s fee equally and that each party pays his own legal costs associated with the mediation.
Arbitration may also be more cost effective than traditional litigation, depending on the nature of the dispute, although at times arbitration may be as costly as traditional litigation. This is because an arbitration hearing is prepared for in a similar way to traditional litigation and the arbitrator’s fee and venue must be paid for by the parties. Under the new Act parties to arbitration may reach prior agreement in respect of the costs of the arbitration itself, failing such agreement the arbitrator has full discretion in relation to the matter.
Maintaining Business Relationships
Frequently disputes will arise between businesses who have had a long and successful business relationship and who wish to reach an amicable resolution of any dispute so as to allow that business relationship to continue and develop into the future. Mediation facilitates such business relationships being maintained by allowing the parties to reach a settlement on terms drawn up by and agreed upon between themselves, rather than a solution being imposed upon them by a court. The parties are far more likely to continue to work together into the future if they have voluntarily reached a solution which is agreeable to them both.
At the end of a successful mediation the parties have a binding written agreement setting out the terms of the settlement which they have voluntarily reached themselves. In circumstances where either party breaches the terms of this agreement, the other party may issue proceedings on foot of that breach.
An arbitrator’s award is binding and enforceable. The award cannot be appealed, save in very limited circumstances. This is in contrast to the decision of a court of first instance.
Choosing mediation as a means of resolving a dispute does not preclude the parties from either continuing with or subsequently instigating traditional litigation or referring the dispute to arbitration, should the mediation process prove unsuccessful. Even if the mediation is unsuccessful, it will at the very least have assisted the parties in identifying and gaining a clearer understanding of the issues in dispute.
While arbitration is a more formal process than mediation, it is widely used in a number of sectors such as the insurance and construction sectors. The arbitrator appointed usually has specialist knowledge of the sector in which the dispute has arisen and the dispute can, depending on its nature, be determined earlier and at less cost to the parties than if that dispute was the subject of traditional court proceedings.
If you require further information on mediation or arbitration contact our Commercial Litigation and Dispute Resolution Unit.
Mediation and arbitration is a more confidential way of resolving disputes than traditional litigation.
When successful, mediation can help maintain business relationships between the parties, be completed far more expeditiously and is less costly than traditional litigation.
The Arbitration Act 2010 reforms the Irish law on domestic and international arbitrations.
Parties can select an arbitrator who is a specialist in the field the subject of the dispute.