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Oil and Gas Law

Alternative Disputes Resolution (ADR):

Legal Affairs Solicitors can assist in the resolution of disputes within the Oil and Gas Industries. These disputes are almost certainly inevitable in view of the complexities of drilling and production activities coupled with the high costs and high risks involved. Disputes do not just occur. In the oil and gas contracts, they may begin with the parties’ misunderstanding of the terms of an agreement which in turn leads to differences or non-performance of that agreement. They may also result to a breach or non-performance of that contract or agreement.

In the event disputes result to a breach of contract or an agreement, the aggrieved party is entitled to an automatic right to claim damages. It is in realisation of these facts that host governments and foreign companies, prior to entering into agreements or contracts, ensure that they insert Alternative Dispute Resolution (ADR) in a bid to deal with the misunderstandings or differences when they arise before they metamorphosed into disputes.

So, what is ADR? Simply put, ADR is the process of settling disputes without the need to resort to litigation.

It became prominent in the United State in the 1960s where, as a social movement, it was used to resolve civil rights disputes through the process of mediation. It soon culminated into a legal movement in the 1970s, particularly as litigants became disillusioned with the delays, costs and inadequacies of the process of litigation.

ADR mechanism may be adjudicative, in which case a neutral third party imposes a decision on the parties. In England and Wales ADR was firmly established with the introduction of the Arbitration Act 1996 and the Civil Procedure Rules (CPR) which came into effect on 26 April 1999 after the changes recommended by Lord Woolf’s ‘Access to Justice’ Report.

ADR received a further endorsement by the CPR which provides that the court should further the overriding objective not only by actively managing cases, but crucially by encouraging the parties to use an ADR procedure if the court considered that appropriate and facilitating the use of such procedure.

For example, in Cable & Wireless plc v IBM United Kingdom Ltd, [2002] QBD the court held that the contract included a clause whereby the parties were obligated to go through the process of initiating mediation, selects a mediator and presenting the mediator with its case and documents and as a result adjourned proceeding to enable the parties to consider ADR. Specifically, the possibility of settling disputes with ADR is encouraged by the CPR at the allocation questionnaire stage when a party may make a written request for the proceedings to be stayed while they try to settle their disputes by alternative dispute resolution, CPR 26.4.  Judges go one step further. They also request the parties to settle their differences or disputes with ADR as a failure to do so in good faith might result in costs consequences.

ADR mechanism may also be included in commercial contracts thereby becoming a process of choice in resolving contractual disputes.

There is no doubt therefore that the one of the reasons for the incorporation of ADR into the Arbitration Act and CPR is not only because of the adversarial nature of litigation but also, because of the perception that parties would achieve justice through it. However, there may be instances where litigation becomes inevitable as in the case of Gold v Mincoff Science & Gold (a firm) [2002] CA. In this case, the judge acknowledged that ADR had failed and allowed the trial to continue.

ADR may be used at any time, whether before, during or outside of litigation. It is probably best before litigation because by going through this process the parties become aware of the strengths and weaknesses of their cases before proceedings are issued in court. However, where the parties settle their differences by consensually agreeing terms through the ADR process, such terms when drafted become contractual in nature and their breach could be enforced by litigation.

The Mechanisms of ADR:

  • Arbitration – Arbitration has been defined as a process whereby parties refer their disputes to an appointed decision maker whose judgement they are prepared to accept as final and binding.[1] As a creature of contractual agreement between the parties,[2] arbitration is said to be an effective way of obtaining a final and binding decision on a dispute without reference to court
  • Conciliation – Conciliation has been defined as a process whereby parties request a third party or persons to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship.[3] It seeks to clarify the differences or misunderstandings that may exist between the parties with a view to reaching an amicable settlement
  • Mediation – Mediation has been defined as a process whereby a neutral third party facilitates negotiations between the parties with a view to assisting them to reach a negotiated settlement.[4] It is an activity voluntarily entered into by the Parties, where a professionally trained and neutral intermediary, using recognised methods, promotes the communication between the Parties in a systematic manner, with the aim of enabling the Parties to themselves reach a resolution of their dispute.[5] The third party intervention is usually with the consent of the parties to a dispute.[6] Mediation is therefore useful in a situation where the parties’ misunderstanding or differences has neither broken down irretrievably nor culminated into a dispute or better still, where parties to a dispute are unable to resolve their differences by negotiation.
  • Negotiation – Negotiation is defined as a process whereby parties confer with themselves in order to reach a compromise or an agreement. It allows the parties to retain the maximum amount of control over their disputes[7] while they negotiate to reach an amicable settlement.