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In the course of commercial life many of us will become involved in disputes which, in the worst circumstances, may involve a visit to the courts. Alternative dispute resolution methods can offer more cost- and time-effective choices. Paddy Maguire explains.

For the purposes of access in relation to commercial disputes, the courts are separated into three divisions depending on the amount in dispute.

These limits were set by the Courts Act in 1991 and have since remained unchanged. They are:

District Court ....... less than €6,350 Circuit Court ........ less than €38,000 High Court ........... more than €38,000

In January 2004, a separate division of the High Court was established to deal with commercial disputes where the amount in dispute exceeds €1m (subject to other qualifying criteria). Any business dispute that exceeds €38,000 will be heard in the High Court. Once a party commences proceedings, it can take three to four years or more before they are completed and it is common to reach a settlement before the hearing.

In preparing and attending at meetings for a case, it would not be unreasonable to expect a minimum of three months management time – the cost of which is often overlooked. It is also worth bearing in mind that cases are heard in the public domain and bring with them the potential additional stress of unwanted media attention.

Alternatives to Court Accountants are of necessity pragmatic problem solvers. As businesses experience pressure on cash resources in the new economic climate, disputes are likely to become more common. This will provide a new challenge and opportunity for professional accountants to use their skills and experience in the developing area of commercial dispute resolution.

The buzz phrase in relation to disputes is Alternative Dispute Resolution (ADR). The three most common ADR methods are:

- Mediation (including Conciliation and /or Facilitation) - Expert - Arbitration

Mediation “Mediation is a flexible process conducted confidentially in which a neutral person actively assists parties in working towards negotiated agreements of a dispute or difference with the parties in the ultimate control of the decision to settle and the terms of Resolution”1

There are no established legal rules in relation to mediation but certain practices have developed over time. The mediator’s role may involve acting as independent chairman, facilitator, conciliator, or a combination of these.

The nature of a dispute determines the input required from an independent neutral third party. In a partnership dispute, for example, the parties may agree to have an independent neutral chairman who works with them, separately and together, to secure a satisfactory resolution to the dispute. The independent neutral does not express opinions or provide advice although, in certain circumstances, if asked to do so, may provide guidance to the parties. If the parties are unable to resolve some aspect of the dispute themselves, they may use the services of an expert. For example, an expert may be called on for independent valuation of work-in-progress while the parties to the dispute are working with their mediator on other issues.

The important feature of mediation/ conciliation is that there is no legally binding obligation on the parties unless a final agreement is reached. At any stage any of the parties may exit the process without any legal obligations. It is important, however, that before engaging in the mediation process, each party signs an Agreement that the content of the discussions shall remain confidential and shall not be available to be brought into court at any later stage.

This protects all the parties involved in a dispute and enables them to talk in an open and frank manner without any commitment or obligation, with a view to exploring every possible option and opportunity to bring a dispute to a resolution.

In terms of time, most successful mediations will be completed within two to three weeks. The process benefits from intense periods of discussion which create an atmosphere in which options for settlement are explored over a short period of time. Where the amount in dispute is less than €75,000, mediation and/or the use of an expert are likely to produce a cost effective and efficient result.

The cost of using a mediator will depend on the complexity of the case. A figure of circa €7,500 would not be untypical. The charge is based on an hourly rate. Mediation can be used at any stage in a dispute and is encouraged by the courts even in the middle of a hearing.

What is an Expert? An expert is someone who, because of his /her extensive skill and ability in a particular area, is acknowledged to have a special knowledge beyond that of the average person. There are no legal obligations on an expert other than the requirement to act honestly.

The expert is under no obligation to hear arguments from the parties involved in a dispute. An expert appointed to value shares, for example, can complete his task without reference to either party.

Experts are sometimes used to provide a non-binding (albeit persuasive) opinion that may assist parties in a dispute to overcome an impasse voluntarily. For example, where the parties are involved in a share valuation dispute, part of which may involve litigation, an expert may be used to express an opinion as to the likely outcome of the legal action allowing the parties in a dispute to continue settling their other outstanding differences via mediation.

Arbitration Arbitration differs from mediation in that the decision of the arbitrator, under the Arbitration Acts 1954-1998, is legally binding, final and enforceable at law, generally without appeal. Arbitrators act under the Constitution as private Judges with no limit as to their jurisdiction. There is no requirement for lawyers to present the case: professional accountants, if appropriate, may represent a party.

Advantages of arbitration include: - The process is less formal than Court - It can shortcut the legal procedures - Parties can appoint an Arbitrator with experience in the subject matter in dispute - It brings a conclusion to a dispute - The process can be completed in less than 2/3 months. - It is cost effective - It is conducted in private

The Arbitrator’s cost is likely to be in excess of €10,000 at a minimum. This together with the parties’ costs means the use of arbitration in commercial disputes where the amount involved is less than €75,000 is unlikely.

When is arbitration used? There are various circumstances in which arbitration is used:

- It may be the dispute resolution method outlined in a contract. - Parties in a dispute will sign an arbitration agreement after a dispute has arisen. - It may be used where mediation has failed and the parties require a final determination. - It may be used where legal interpretation of an issue is disputed, e.g. there may be issues as to the interpretation of clauses in a contract following the sale of a business.

Many arbitrations settle during the course of the hearing. The final decision of the arbitrator can be converted into a Judgment by a simple High Court procedure if one of the parties fails to honour the decision.

What if the dispute resolution method is set out in an existing agreement? In the case of a disposal of shares in a company, the Articles of Association may specify that, in the event of a dispute as to valuation, the shares should be valued by an expert or arbitrator. Unless the parties to the agreement concur, it may not be possible to vary past agreements. Many agreements in recent years provide that in the event of a dispute the parties must first proceed by way of mediation before arbitration.

Where parties have a dispute and there is no pre-existing dispute resolution mechanism in place, they can enter an agreement for either mediation, use of an expert, or arbitration. Any such agreement should be in writing. Where the parties opt for arbitration, the agreement must be in writing under the Arbitration Acts.

Conclusion As Ireland faces into the challenges of more difficult economic conditions, professional accountants who have augmented their skillset to include the ability to act as mediators, experts and arbitrators are likely to find themselves in demand.

Notes 1 Definition of Mediation from the Centre for Effective Dispute Resolution (CEDR). http://www.cedr.co.uk/

Paddy Maguire, B.Comm., FCA, AITI, FCI’Arb. Accredited Mediator, is the principal of Maguire & Company. Email: paddy@maguireacc.ie