In big construction and infrastructure projects and significant trade contracts, especially ones involving parties based in different jurisdictions, it is quite common for contracts to have clauses that anticipate disputes between clients and vendors that might involve issues such as quality of workmanship and costly delays on delivery. Rather than drag these issues through the courts, which can prove extremely expensive, lengthy and unduly fractious to the relationship between both sides, parties can bake-in a better approach to solving their difficulties.
Alternative dispute resolution (ADR) aims to find a solution that keeps parties out of the higher courts and, in some cases, out of the media spotlight too. Such proceedings have a statutory basis in Ireland under the Arbitration Act 2010, which incorporates current international best practice into domestic law.
Alternative dispute resolution is a broad term encompassing various methods of resolving disputes outside of traditional court proceedings, while arbitration is a specific type of ADR where a neutral third party – the arbitrator – hears both sides and makes a legally binding decision. Other ADR methods, such as mediation, focus on facilitating agreement between parties, but don’t make a binding decision.
The key benefits of mediation are efficiency, speed and ability to find a commercial solution that all parties can live with, an approach that is vastly superior to having an enforced solution. Indeed, a court or arbitration solution is often binary whereas a mediated settlement allows parties to be creative and to think outside the box in finding solutions that are not available in a court-type scenario. Another advantage is that the participants remain in control in a mediation but not in a court or arbitration process.
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For SMEs, mediation may be a much better route to solving their issues than dragging a case through the courts or going to arbitration.
There is good availability of professional mediation and ADR services for small- and medium-sized businesses in Ireland and mediation services are often cheaper than the legal services that are required to prepare and present the cases, says Dermot McEvoy, partner in dispute resolution at law firm Eversheds Sutherland.
“What people seem to forget is that if they enter the professional arena, and a dispute or difference arises, good resources are not cheap, and if people are prepared to pay a reasonable and fair fee for the needed professional mediation or ADR service, help is available and at hand. Depending on the nature of the dispute, the complexity and the amounts of money involved, there are different mediators and ADR experts to approach,” he says.
“By way of example, a consumer issue is a totally different ballgame to a dispute between two businesses. Indeed, consumer mediation services are available and are proving effective and good value for money for many state and semi-state organisations, such as various ombudsmen and the Residential Tenancies Board. But if it’s a business dispute don’t try to go cheap – pay a professional and source the right person and you can get value for money,” he says.
Picking the right mediator and establishing that both sides are genuinely happy to seek a compromise is important.
“The process is voluntary, non-binding and without prejudice so it’s important not to be afraid of showing your hand in a negotiation. Mediation allows parties to be real in putting forward their case, but also insists they are prepared to engage and take a bit of pain. There is rarely a perfect solution where everyone is totally happy but this does not mean people can’t find a good acceptable solution they can live with.
“Of course, sometimes – as with every negotiation – people feel they settled too quickly and suffer buyer’s remorse. However, mediation is something to be positive about and not to overly dwell on the negatives and drawbacks. Also, in any negotiation it is important not to overplay a hand and make demands that you can’t stand over, as there is a danger you will lose credibility. I also strongly discourage giving ‘bottom lines’ as this often changes and then you are exposed.”
While certain forms of ADR, such as arbitration, can be relatively expensive and sometimes protracted, there are numerous dispute resolution options available which should suit businesses of all sizes, notes Conall O’Shaughnessy, partner in the litigation, dispute resolution and investigations group at law firm Arthur Cox.
For example, it is common to include a provision in commercial contracts that senior representatives or “principals” of the respective parties engage within a prescribed period of time to see if they can resolve the dispute, he points out.
“This obligation can often provide an opportunity for senior representatives to discuss the issue commercially in the first instance before escalating matters further as necessary,” says O’Shaughnessy. “It may also assist in maintaining the business relationship in a more informal manner. If no resolution is reached, the contract may include a provision that the parties subsequently progress to a mediation, with the appointment of an independent mediator, or indeed arbitration.
“Mediations tend to be efficient and cost effective, and the mediator will often be asked to provide their own independent view of the strengths and weaknesses of each party’s position. A mediation does not necessarily require expert input or a large volume of preparation and a good mediator will often tailor the process accordingly, based on the time constraints, the parties’ resources and objectives,” says O’Shaughnessy.
Patricia Heavey, partner at PF O’Reilly Solicitors, says the benefits of mediation for small- and medium-sized businesses are clear.
“Privacy and speed are two of the biggest advantages,” she says. “Unlike court proceedings, which are public and often drawn out, mediation offers a confidential setting where both parties can reach a resolution quickly.”
Heavey points out that while arbitration and mediation both form part of the suite of ADR options, they differ significantly in approach and outcome.
“In arbitration, the arbitrator acts like a private judge – they hear both sides and make a binding decision. It’s commonly used in construction and technical disputes where the decision maker’s expert knowledge is crucial. Mediation, by contrast, is a facilitated negotiation. The mediator doesn’t impose a solution – they assist the parties to reach an agreement themselves.”
This distinction makes mediation particularly suitable for SMEs, Heavey notes, where maintaining business relationships and controlling costs are often key concerns.
“Mediation tends to be more cost-effective than arbitration or litigation. It avoids the escalation of legal fees and often preserves working relationships, which can be vital in smaller sectors or tight-knit industries.”
That said, she acknowledges that ADR isn’t always a silver bullet.
“It’s not appropriate in every situation,” she says. “For example, where one party doesn’t want to engage or where an urgent court application would be appropriate to stop one party from doing something that might cause irreparable harm to the business. Also, if it doesn’t work, time will have been spent without a result and the mediation adds a layer of costs. But in many commercial disputes, especially those involving ongoing business relationships, mediation can offer a private, pragmatic and efficient solution.”
As to whether ADR clauses should be written into contracts, Heavey says: “Absolutely, but the contract needs to be carefully drafted, and it wouldn’t be appropriate in all business-to-business contracts due to the added layer of costs which might be proportionally more for small contracts. For larger deals and where there is a significant ongoing relationship it definitely should be considered when drafting, even for small- and medium-sized businesses. It can make a huge difference if a dispute arises down the line.”
McEvoy also agrees that it is it advisable to write alternative dispute resolution mechanisms into contracts. “It’s not absolutely necessary but it is a really good idea, as it encourages ADR or mediation as the default risk-free and no-blame first course to follow. If it is not working, you can withdraw with no blame too.”
