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Arbitrate, adjudicate or mediate?

It’s vital companies of all sizes understand the difference between arbitration, adjudication and mediation when seeking effective dispute resolution.

Construction-related disputes associated with liquidated and ascertained damages, defects and resulting financial penalties are all too common. Unfortunately there is no solve-all strategy to deal with a wide range of potentially adversarial scenarios.

In recent years, arbitration, adjudication and mediation as forms of alternative dispute resolution have been seen as a preferred or viable options to court litigation.

In order to avoid lengthy and costly delays, it is now commonly the case that contracts will include provision for a dispute resolution clause.

Difference between arbitration and adjudication

Let’s start with arbitration.

The basic framework of an arbitration process is the mutual election of a third party to resolve a single dispute between two or more groups.

Selection of an arbiter may be agreed mutually and they are likely to hold specific industry knowledge, which often attracts companies towards an arbiter over a judge in litigation.

Although arbitration and adjudication are similar process-wise, adjudication may assess several issues at a time, whereas an arbitrator may only pass an award on single issues.

“The financial implications of a negative outcome in either arbitration or adjudication can lead to entrenched negative attitudes”

This single issue rule may be a detractor but the finality of the award passed by an arbiter is stronger than the less formal award passed by an adjudicator, which may be appealed through court. 

There are fewer circumstances that will warrant the appeal of an arbiter’s decision, although this may depend on the location or seat of the arbitration and the rules which govern the jurisdiction.

An adjudicator’s decision must be made within the 28-day time constraint, forgiving any appeals for extension; mistakes are possible, therefore adjudication may not be deemed suitable for particularly complex issues.

The financial implications of a negative outcome in either arbitration or adjudication can lead to entrenched negative attitudes.

The dispute may well be resolved, but established working relationships are often damaged.

The collaborative nature of mediation

In circumstances involving an ongoing framework, partnership or perhaps when local reputation is at stake, mediation may be more suitable.

Instead of focusing upon a definite win or lose result, mediation provides a more facilitative structure in seeking a mutually agreeable solution.

Solutions might be site-specific, reduce contract costs, change contract terms or allow for unplanned activities.

“Mediation is less likely to be challenged or unfulfilled, as the detail contained within has been reached through a process of negotiation and agreement”

A facilitative mediator will not impose a decision, or provide legal opinion. Control of the process and judgements remain with parties involved.

Within the mediation process, private and separate communications are accepted, which is not the case in other processes.

A mediation agreement carries the enforceability of any other commercial contract if the participants decide to reduce their agreement or settlement to a written document.

It’s less likely to be challenged or unfulfilled, as the detail contained within has been reached through a process of negotiation and agreement for the needs of those involved.

Once supporting documents have been submitted and mutually agreeable arrangements made over the course of a week or two, matters can be resolved through mediation within a couple of days, which in total is a similar timescale to adjudication.

Important to know the differences

Dispute resolution structures have several variables affecting suitability or relevance to a particular situation.

From the smallest subcontractors to UKCG companies, it is important that differences between ADR methods are understood. Legal counsel will of course be best placed to assess suitability on a case-by-case basis.

Callum Murray is a director at Murray & Duncan

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