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A customer refuses to pay up. What do you do? Write it off for the sake of future business or take legal steps to recover what's yours?
You have a major dispute with Debtor Inc, your most valued customer, over an unpaid invoice. Your usual credit control procedures have failed— Debtor says no money is due because you have broken a clause in your contract, although you dispute this. Do you take the softly-softly approach and maintain good commercial relations—or bring in the lawyers, in which case things could get out of control and cost you a fortune?
There are three ways to try to resolve such a dispute: litigation, alternative dispute resolution {A DR) and arbitration.
Litigation
If you believe Debtor has no defence, you can short-cut the usual procedure and apply to the Court for summary judgement. The courts are required to follow evidential rules about the admissibility of documents and duties of disclosure. Remember that litigation can be timeconsuming and expensive. It is also public, and usually kills off a commercial relationship.
ACM
Alternative dispute resolution can be cheaper, faster and more flexible than litigation, but there is no guarantee of an agreement, and it can be hard to enforce an award as the parties are not necessarily bound by it
Arbitration
Arbitration began as way to find a quick, confidential, flexible and cost-effective resolution of a dispute, helped by an arbitrator with expertise in the subject matter. A series of legal decisions made this process slower and more expensive, but the Arbitration Act 1996 has improved matters.
So back to your dispute. Debtor is a bluechip company; you also have an excellent reputation to protect and may need to trade again with Debtor. Relations are strained, but you are still in contact.
If there is an arbitration clause in your contract you will be required to arbitrate—something you should bear in mind when entering into contracts. If not, arbitration is still a good option. It allows you to resolve your dispute in private and to appoint an arbitrator who is an expert on haulage. It might also allow you to salvage your business relationship with Debtor.
The Arbitration Act 1996 is designed to be a "one-stop shop" codification of previous case law and statute. Answers to all your queries should be contained in its no sections.
Section t defines its goal: "To obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense." Both parties are "free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest."
You can opt for what is known as an "ad hoc" arbitration, which is run under the terms of the r996 Act, and agree with Debtor how to proceed; or you can follow a set of rules devised by the arbitration institutions. If you decide on ad hoc, you will draft an arbitration agreement with Debtor which establishes the ground rules and a mutually acceptable arbitrator. Some provisions of the Arbitration Act will automatically come into effect unless you and Debtor fail to specify otherwise. To avoid problems follow this checklist: • Consider the law which should be applied. Section 46 of the Act liberates the tribunal from the constraints imposed upon it by the Rome Convention. This allows you and Debtor to agree that the tribunal may decide the matter in ways that are not in accordance with English law. Otherwise the tribunal must apply the usual conflict of laws rules.
• Consider if you want Debtor to pay you compound interest on the debt Section 40 of the Act allows the tribunal to rule that compound interest is due—unless both parties have agreed otherwise.
• Consider costs at the outset You can decide on no allocation of costs, or some other agreement, or you can empower the arbitrator to decide such matters, including taxation. This will mean neither party can apply to the High Court for taxation of costs. Section 65 of the Act gives the tribunal the power to cap costs, so you and Debtor both need to consider if you should prohibit this, as the tribunal might decide the matter should be dealt with quickly and put a limit on its costs. This might be desirable for a financially weak party if the dispute turns out to be more complicated than it expected, but the winning party might find its own irrecoverable costs wipe out the benefit of any award.
• Consider if you want the tribunal to have the power to appoint experts. Section 37 provides the tribunal with this power, the costs of which must be borne by the parties. You and Debtor will have to reach an agreement if you want to deny it this power.
• Consider if you want the tribunal to make provisional awards so it can order relief on a provisional basis. Ifa lot of money is tied up in a single issue, you might want the tribunal to decide that issue and make an award while the arbitration continues. But this power must be expressly given.
• Consider confidentiality. The people drafting the 1996 Act deliberately omitted the complicated issue of the implied duty of confidentiality. Recent cases have held that the court would have regard for the implied obligation, arising out of the private nature of arbitration, imposed on both sides not to disclose or use for any other purpose documents relating to the arbitration.
However, privacy does not mean confidentiality, so there are exemptions to this ruling. One exception is when producing documents or witness evidence from one arbitration is reasonably necessary to protect the rights of one of the parties in another arbitration. Another is when it is in the public interest. When in doubt, both parties should make an express provision of confidentiality.
If you decide that you would rather follow an existing set of rules, you and Debtor can choose to follow those of one of the arbitration institutions. If so, where they are mandatory you will be bound by them.
Although many of the institutional arbitration rules have been amended by the Arbitration Act 1996, differences remain, and these should be considered carefully before you agree to be bound by them.
by Jane Player and Sarah Walker
Jane Player is a partner and Sarah Walker is an assistant solicitor in Dibb Lupton Alsop's Commercial Litigation Group.