IT is a key part of any modern business. The importance of a customer maintaining good relations with their IT supplier should not be underrated.
However, the complexity of IT contracts and changes to the parties' respective requirements and businesses during the life of their agreement mean that expectations are often not met and disputes arise.
When things do go wrong, using the courts to resolve a dispute (litigation) can be expensive, protracted, time consuming and fraught with uncertainty.
Incorporating a well drafted dispute resolution into the IT contract can really help parties settle their differences without recourse to the courts, and avoid the irretrievable breakdown of their relationship and the (often) irreparable damage this might cause to a customer's business.
Parties planning for future disputes have the following forms of alternative dispute resolution at their disposal: mediation, commercial negotiations, expert determination and arbitration. All of which may be preferable to using the courts.
Below is a simple dispute resolution clause which envisages that the parties will attempt to mediate before they turn to the courts:
‘If any dispute arises in connection with this agreement, the parties will attempt to settle it by mediation in accordance with the Centre for Effective Dispute Resolution (CEDR) Model Mediation Procedure. Unless otherwise agreed between the parties within 14 days of notice of the dispute, the mediator will be nominated by CEDR.'
Mediation allows the parties an opportunity to air their dispute in a confidential environment in the presence (usually) of a professional mediator (often a lawyer) with a view to coming to terms.
Parties are given the opportunity to agree the mediator, the time, place and duration of the mediation. It is a flexible form of dispute resolution but does rely on the parties attending the mediation and agreeing terms of settlement.
Requiring the parties to enter into a period of commercial negotiation first before attempting mediation can often result in a quick fix to an otherwise complicated (and costly) dispute, especially in cases where the parties do not want to terminate the agreement and are keen to continue their relationship.
Should commercial negotiations/mediation fail, parties may include a clause in the IT contract which further escalates the dispute and requires it to be resolved by someone independent (be it a judge, an arbitrator or an expert).
There are often matters of a technical nature in IT contracts, which may best be decided by an expert. The clause should also deal with how the expert is to be appointed (usually by agreement or by the appropriate body which regulates that particular type of expert) and which sets clear deadlines.
This can avoid unnecessary delay. The parties will (typically) agree to be bound by the findings of the expert with a very limited right of appeal in cases of fraud or 'manifest error' (where the expert makes a clear mistake).
Alternatively, the parties can elect for their dispute ultimately to be resolved by arbitration or by litigation.
Arbitration or litigation
Nowadays, there is little to choose between the cost of arbitration and litigation as a means of finally resolving a dispute (they are both expensive!).
Sophisticated parties involved in commercially sensitive disputes do tend to prefer arbitration due mainly to the confidentiality of proceedings and the flexible nature of the process.
Furthermore, the decision of the arbitrator is final and (like with expert determination) may be appealed only in limited circumstances (e.g. fraud/clear mistake).
The arbitrator(s) will often be experts in the industry and well suited to decide the dispute. However, their expertise comes at a price - an arbitrator's fees can run to tens of thousands of pounds depending on the complexity of the issues. A typical arbitration clause is below:
‘Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA [London Court of International Arbitration] rules, which rules are deemed to be incorporated by reference into this clause.
The number of arbitrators shall be one
The seat, or legal place, of arbitration shall be London
The language to be used in the arbitral proceedings shall be English
The governing law of the contract shall be the substantive law of England.'
Litigation does have its advantages. There are strict rules (the Civil Procedure Rules) which reduce the ability for parties to delay proceedings. English judges are (generally speaking) excellent.
However, with onerous disclosure requirements, complicated procedural rules and multiple opportunities to appeal, the deep pocketed party can drag litigation out for years - the proceedings often become more about costs than the issues which caused the parties to lock horns in the first place.
Multi-tiered dispute resolution clauses
There is a tendency for parties to an IT contract to include a complicated, multi-tiered dispute resolution clause in their agreement which incorporates a variety of the above options.
Bad drafting can make these clauses unworkable in practice as the parties spend a considerable amount of time and money (on lawyers), trying to interpret how the dispute should be resolved by reference to the clauses in issue.
Keeping these clauses clear, simple and flexible is key. This should keep the parties out of court and ensure that the settlement discussions and their relationship can continue.
Attitude of the courts
These days parties to a dispute are expected to explore all avenues of settlement to avoid the risk and costs involved in court or arbitration proceedings.
Following the case of Halsey v Milton Keynes General NHS Trust  EWCA Civ 576, parties risk a costs order being made against them if they unreasonably refuse to mediate or, by extension, refuse to enter into other forms of alternative dispute resolution.
Courts see themselves as the forum of last resort and are not impressed by parties who ignore genuine attempts to settle. Incorporating dispute resolution clauses in IT contracts, is one way to ensure that parties do not fall foul of this changing landscape.
Dominic Holden is an associate in the Ashfords Commercial Litigation Team specialising in dispute resolution.
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