Given the long term nature of many PPP Contracts and the desirability of maintaining an on-going relationship between the parties, the inclusion of an informal (alternative) dispute resolution mechanism in the dispute resolution clause is often helpful. There are many forms of alternative dispute resolution ("ADR"), ranging from informal meetings of senior executives (see Section 8.3, Sample Drafting 8, Clause (4)) to mediation, the use of a panel of senior representatives and the appointment of an external Disputes Board (see Section 8.3, Sample Drafting 8, Schedule 1, Options 1, 2 and 3). Some of these are discussed further below.
The inclusion of an ADR clause can encourage the informal resolution of disputes, at a relatively early stage, before significant amounts of time and costs have been spent in any formal arbitration or court proceedings and, importantly, before relationships have deteriorated.
The dispute resolution clause should specify if the recourse to ADR is mandatory and a condition precedent to commencing arbitration (or court proceedings) and whether the result of the ADR is binding or non-binding. If ADR is mandatory, the Parties may also wish to provide that they are free to seek urgent (including injunctive) relief from the arbitral tribunal or court if needed prior to or during the ADR process. Parties must always ensure, however, that there is a fall back disputes clause (whether arbitration or litigation) if ADR fails to resolve the dispute.
8.2.4.1 Mediation - It may be desirable to add a requirement for the Parties to attempt to settle their disputes through mediation. Mediation is a settlement process involving an external "mediator" who acts as a neutral facilitator to help parties try to arrive at a negotiated settlement of their dispute. The use of external mediators is increasingly seen in commercial disputes in the United States, in the UK and parts of continental Europe, in Turkey, in parts of the Middle East and in some parts of South East Asia. Mediation can be a useful means of getting parties together and helping to forge a commercially acceptable settlement, before legal costs escalate - this could prove particularly worthwhile in large transactions such as PPP Projects. On the downside, unproductive mediation may simply cause delay in the final resolution of the dispute and increase costs (if the prospect of a negotiated settlement is very low). There have also been concerns about the impartiality of mediators and confidentiality breaches in the process. Parties are always free to agree to resolve a dispute by mediation even if there is no contractual clause requiring them to do so. See Section 8.3, Sample Drafting 8, Schedule 1, Option 1.
8.2.4.2 Disputes Board - A Disputes Board is a more formal mechanism usually involving the appointment of a panel of external individuals at the commencement of a contract to whom disputes can be referred throughout the life of the contract. This process is common in construction contracts and usually requires the parties to pay for the retention of external experts. A key consideration is whether its decision will be final and binding;63 the dispute may have to be re-tried before an arbitral tribunal (or the courts) if the parties do not give effect to the board's decision. Disputes Boards lack the consensual approach of mediation (or a panel of the Parties' senior representatives) and there continues to be a debate about the efficacy and costs of this mechanism. If the decision of the Disputes Board is binding, there is little difference as compared with the arbitration process (therefore the process may be redundant given the inclusion of the arbitration clause). If the recommendation is not binding there may be little difference with the obligation to try to reach amicable settlement - the involvement of and decision by experts may, however, be helpful in steering the Parties towards a resolution. See Section 8.3, Sample Drafting 8, Schedule 1, Option 3.
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63 For example, the ICC Dispute Board Rules give parties a choice between three different types of Dispute Boards: (a) Dispute Review Boards (which issue non-binding recommendations); (b) Dispute Adjudication Boards (which issue contractually binding decisions); and (c) Combined Dispute Boards (which issue non-binding recommendations but may issue binding decisions if the Parties so request). Section 8.3, Sample Drafting 8, Schedule 1, Option 3 illustrates type (a).