COMMERCIAL LAW

BE 5406
M.SC/PG DIPLOMA IN CONSTRUCTION LAW & DISPUTE
RESOLUTION
LEVEL I SEMESTER III

ON

DISPUTE RESOLUTION & CLAIM

NEGOTIATION

149139R

DEPARTMENT OF BUILDING ECONOMICS

FACULTY OF ARCHITECTURE
UNIVERSITY OF MORATUWA

INTRODCUTION
Dispute in simple form is a disagreement followed by opposition against something.
Specially in Commercial Contracts, it can be a disagreement for an opinion or interpretation
to a matter or a circumstance arises during the execution of contract with one party with the
other party.
1) Resolving of such disagreements or disputes in a range of set up process is called
Dispute Resolution (DR).
2) The Dispute Resolution processes can be divided mainly in two categories such as;
3) Process and procedures provided through the legal system of the Country.
4) Process and procedures alternative to the above stated legal systems which is
generically termed as Alternative Dispute Resolution (ADR) processes.
For the purpose of resolution of many disputes, the aforesaid legal system provides the
necessary structure and resources. The process is technically formal, and constrained by
rules. However, the legal system procedure said to be too slow and too expensive for final
outcome due to formality of the process as well as resource limitations. Most common legal
system process for Dispute Resolution is Litigations.
The Alternative Dispute Resolution (ADR) generally governs on agreement between the
parties, entered in to either before or after the dispute has arisen. Alternative Dispute
Resolution has experienced steadily increasing acceptance because of a perception of greater
flexibility, informality, confidentiality, speed, and cost effectiveness over traditional
litigation.
It can be identified that following process are most common Alternative Dispute Resolutions
in the industry. Such as:

Negotiation

Mediation

Conciliation

Adjudicator

Mini trials

DAB

Arbitration

NEGOTIATION
Negotiation has been defined as any form of direct or indirect communication whereby
parties who have opposing interests discuss the form of any joint action which they might
take to manage and ultimately resolve the dispute between them.
No party is forced to participate in a negotiation. The parties are free to accept or reject the
outcome of negotiations and can withdraw at any point during the process.
In addition, there are no prescribed rules in negotiation. The parties are free to adopt
whatever rules they choose, if any. Generally they will agree on issues such as the subject
matter, timing and location of negotiations. Further matters such as confidentiality, the
number of negotiating sessions the parties commits to, and which documents may be used,
can also be addressed.
It is important to see that the parties have the option of negotiating publicly or privately.
When advantages of negotiations are in concern, it can be seen that in procedural terms,
negotiation is probably the most flexible form of dispute resolution as it involves only those
parties with an interest in the matter and their representatives, if any. The parties are free to
shape the negotiations in accordance with their own needs, for example, setting the agenda,
selecting the forum (public or private) and identifying the participants. By ensuring that all
those who have an interest in the dispute have been consulted regarding their willingness to
participate and that adequate safeguards exist to prevent inequities in the bargaining process
(i.e., an imbalance in power between the parties), the chances of reaching an agreement
satisfactory to all are enhanced. Assuming that the parties are negotiating in good faith,
negotiation will provide the parties with the opportunity to design an agreement which
reflects their interests.
Negotiations may preserve and in some cases even enhance the relationship between the
parties once an agreement has been reached between them.
When it comes to the point of disadvantages of negotiations are in concern, the parties may
be of unequal power and the weaker party (ies) may be placed at a disadvantage. Where a
party with an interest in the matter in dispute is excluded or inadequately represented in the
negotiations, the agreement's value is diminished, thereby making it subject to future

challenge. In the absence of safeguards in the negotiating process, the agreement could be
viewed by a participant or others outside the process as being inequitable, even though the
substance of the agreement may be beyond reproach.
MEDIATION
Mediation is another one of the methods of Alternative Dispute Resolution and is a
confidential and private attempt by parties to resolve a dispute outside of court. Mediation,
which is voluntary and non-binding, typically involves the use of an independent third party
to act as mediator. The mediator may offer suggestions but resolution of the dispute lies with
the parties themselves. Thus, unless the parties agree to resolve the dispute, there is no
resolution. Mediation is particularly appropriate when the primary goal of the parties is to
preserve a current or future business or personal relationship.
Mediation is relatively inexpensive. Seeing a case through trial is an expensive proposition.
Mediation is relatively simple. There are no complex procedural or evidentiary rules which
must be followed. While most would agree that a general rule of fairness applies, the
maximum penalty a party can impose for foul play is to walk away from the mediation and
take his chances in court.
Mediation allows the parties to revise and adjust the scope of their conflict. In a trial, initial
pleadings and rules of procedure limit the issues which a party can raise. In mediation, as
circumstances change so can the topics up for discussion. This increased flexibility makes it
easier for negotiators to act as problem-solvers instead of adversaries.
Settlements reached in mediation are more agreeable to both parties than court
judgments. Because any settlement arrived at through negotiation is necessarily agreed to
voluntarily by both parties, obligations under the agreement are more likely to be fulfilled
than obligations imposed by a court.
The lack of formality in mediation could be a benefit, as noted above, or a detriment.
Mediation between parties of disparate levels of sophistication and power, and who have
disparate amounts of resources available, might result in an inequitable settlement as the lesswell positioned party is overwhelmed and unprotected.

Legal precedent cannot be set in mediation. Many discrimination cases, among others, are
brought with the intention of not only securing satisfaction for the named plaintiff, but also
with the hope of setting a new legal precedent which will have a broader social impact.
CONCILIATION
Conciliation is also a form of Alternative Dispute Resolution methods in which a conciliator
helps the parties to settle their dispute. The conciliator helps by identifying the objectives of
the parties. It is different from arbitration in the sense there is no award at the end of
proceedings. It is different from court proceedings because the conciliator doesnt give
judgments or decisions as is given by a court of law. It is different from mediation because in
this process the conciliator actively participates in the proceeding. He conducts himself
proceedings by going to the parties and asking them to prioritize their objectives. He asks
them to mention which is their first objective and then second and the list goes on.
Similarly, he also may ask the points/issues to which they can be flexible with respect the
case. He then goes to the other party and tries to bring them on one of the objectives. He
starts with minimum of concession then moves on to maximum. So, it is different from
mediation because a mediator encourages the parties to understand or take charge of their
dispute instead of actively participating like this. There is similarity between mediation and
conciliation in the sense that in both of the processes, there is one guy who tries to settle the
dispute. In both, the proceedings are confidential so other party cannot take those in any other
forum. For instance, as it was said earlier the parties cannot rely on this to argue their case or
substantiate their case before any other forum. Another aspect of this is that the conciliation
proceedings are not binding, which is same as is mediation.
When the advantages are in concern, it is important that the cost and time for final outcome is
comparatively lesser than arbitration or litigation. Parties are ready to go for conciliation
because this process is purely confidential and private.
When the disadvantages are in concern, the outcome is not binding like arbitration or
litigation.

ADJUDICATOR
One of the methods of Alternative Dispute Resolution is a process of adjudication through an
adjudicator. The Adjudicator considers information presented to him or her and renders a
decision on the basis of that information. There are a number of different forms
of adjudication, from a court of law where a judge sits on the bench to decide cases to an
informal contest overseen by a panel of adjudicators who will judge at the end of the
competition. The qualifications required for various types of adjudicators vary.
Judges, sometimes known as arbiters or adjudicators, need to have an extensive knowledge of
the law. While on the bench, a judge hears cases, rules on motions, and performs other tasks
related to coordinating a trial. The judge is required to hear cases fairly and to consider all of
the material presented in a balanced way before reaching a decision. That decision must be
rooted in the law and the judge should be able to provide evidence to prove it.
In order to adjudicate fairly in any kind of case, an adjudicator needs to be neutral. People
with a conflict of interest are expected to dismiss themselves to avoid bias. It is also
necessary to have experience and training in the area at hand.
When the point of advantages is in concern in terms of statutory right the adjudication
through adjudicator will apply even if the contract does not provide for it. Adjudication
proceedings through adjudicator are conducted in private the dispute can be resolved without
being heard in open court thus protecting the reputation of the parties. Further, obtaining
judgments by way of adjudication will, in the majority of cases, be a fraction of the cost of
pursing judgments through the courts. Additionally, an impartial decision can normally be
obtained with a number of weeks whereas a case commenced in the courts can take months
or, in some cases, years to conclude. The adjudicator may provide written reasoning for his
decision. It is important that the decision of an adjudicator is normally binding unless
appealed to Arbitration or Litigation.
When the points of disadvantages are concerned for seeking resolution of dispute by an
Adjudicator through adjudication procedure due to time constraints adjudication can
sometimes be seen be rough justice as the responding party may only have a matter of 2-3
weeks to prepare a defense to the claim brought against them. Further, unlike the court, the
adjudicator may not have the power to order the losing party to pay the winners legal costs.

MINI TRIALS
Mini trial is also a form of alternative dispute resolution technique. This method is also
widely used in these days in the commercial world.
In this method, the parties to a dispute select one representative from each party to sit on the
panel. There is also one neutral person who is independent and who is appointed with mutual
agreement. Then parties file their briefs, this is followed by recording of evidence and finally
a verdict which is binding on the parties.
Another important aspect is that in mini trial, the evidence is heard by panel which is
followed by settlement proceedings. The parties try to convince each other regarding the
merit of the case. Now, both parties know the strengths and weaknesses of their case. They
are encouraged to settle the dispute by neutral member of the panel.
If an agreement is reached, then that agreement is binding and if not, then he tries to settle by
convincing the parties. If no agreement is reached at all, then the proceedings automatically
expire within thirty days.
When the advantages of the mini-trial are concerned, it is a settlement technique that aims to
facilitate efficient and effective resolution of civil disputes .The expedited procedure is less
costly and lengthy than litigation and the procedure causes less disruption of business
between the parties. Further, resolution of the dispute is in the hands of parties and the
hearing allows each party to hear the others position and to consider the relative strengths
and weaknesses of each side.
When the disadvantages of the mini-trial are concerned it can be identified that the effort and
expense of the mini-trial may be wasted if the parties could have resolved the conflict
through direct negotiations or mediation. Further, if unsuccessful, time spent at the mini-trial
will have delayed resolution that can be reached through adjudicative proceeding, such as
arbitration or trial.
The trial-like nature of the preparation and hearing may continue to polarize the positions of
the parties rather than promote an atmosphere of cooperation from the outset.

DISPUTE ADJUDICATION BOARD (DAB)

The term Dispute Adjudication Board or DAB is a general usage of international construction
law and practice that connotes the form of dispute resolution in which a panel of between
one and three people, usually technical rather than legal in their qualifications, is convened
(either at the outset of a project on a standing basis or on an ad hoc basis when a dispute
arises) to conduct first (or second) instance review of disputes that arise between the project
participants, and depending on their mandate make either a non-binding recommendation or a
binding interim determination in respect of the issues in dispute.
Dispute Adjudication Board (DAB) adjudicates and makes a binding interim determination in
respect of the matters in dispute.
Number of members of most Dispute Adjudication Boards is comprised of three members,
with each party appointing one member and the two party-appointees selecting the chairman.
Dispute Adjudication Board proceedings and outcomes are usually confidential and are not
able to be disclosed to third parties. The members of the DAB are usually obliged to keep
themselves informed of the progress of the project, including but not limited to the
performance of the parties to the dispute, for example by reading progress reports and visiting
the site.
During the preceding of DAB for its decision the period for 'hearing' the dispute and
rendering the written recommendation or determination is usually short, being typically three
months from the date of referral of the dispute to the board.
Because a Dispute Adjudication Board is a creature of contract, party autonomy applies, with
the result that there is any number of variants. For example, it is open to the parties to specify
the qualifications of the members, the time frame for their deliberations, the extent to which
principles of evidence and natural justice will apply, and the form and effect of the
determination that the members reach.

ARBITRATION
Arbitration is also an alternative dispute resolution process. In arbitration, the dispute is taken
to an arbitrator who is usually appointed by parties or agreed by parties at the time of writing
an agreement. If a contract contains arbitration clause then no matter the contract comes to an
end but the arbitration clause is still valid. Even if one of the parties to dispute is interested to
take the matter before a court of law even then the arbitration clause is valid and it will come
into play. The court will direct the parties to go to arbitration. An arbitrator may be appointed
by parties by mutual agreement. The proceedings are binding on the parties if a party doesnt
co-operate with arbitrator then it may be enforced by award in default and that is enforceable
on such party. The party who gets award may use judicial forum to enforce such award if the
need arises.
Proponents of arbitration cite a number of advantages when compared to filing a lawsuit in a
court of law. In general, arbitration is more flexible than litigation. The parties are often
encouraged to participate in the resolution process. Negotiating within the framework of a
cooperative process may well lead to a mutually beneficial solution to a disagreement.
When the advantages are in concern, the Arbitration is typically cheaper than traditional
litigation. An arbitration case can also be resolved more quickly than a lawsuit. Arbitration
hearings can be scheduled to meet the needs of busy participants, including evenings and
weekends. Litigation in a public court of law is subject to the limitations of a rigid court
calendar. Unlike traditional litigation, complex legal procedures and rules of evidence are not
available in an arbitration case. An arbitration case provides more privacy than litigation.
Arbitration participants can agree to keep the final resolution and sensitive information
completely private.
One of the main disadvantages of Arbitration is that the final decision of an arbitrator is
difficult to overturn. It may not even be possible to seek redress in a court of law. The
extensive budget and legal staff of a major corporation may prove to be a significant
disadvantage.
The cost of arbitration has risen dramatically in recent years. In particular, the cost of
initiating a lawsuit is much less than pursuing an arbitration claim. Arbitration fees,
especially if a panel of arbitrators is involved, can be quite extensive.

LITIGATION
Litigation law refers to the rules and practices involved in resolving disputes in the court
system. In a typical legal dispute, the parties will first discuss the matter with each other
directly. Once it becomes clear that a common understanding will not be reached, one or both
sides will retain an attorney. After investigating the case, the attorney will usually send the
other party a demand letter. As the name suggests, this letter describes what the party
receiving the letter must do to avoid further legal action.

Parties who receive a demand letter from the opposing side may respond by offering to do or
pay less than requested, or they may issue demands of their own, or they may decide to do
nothing at all. At this juncture, the future litigants have no obligation to cooperate and try to
reach an agreement.
If a dispute cannot be put to rest through the initial negotiations, then one party will file a
formal lawsuit. If either party has not yet hired an attorney, now is the time to do so. The
technical rules of filing and responding to a lawsuit are complex, and even small mistakes can
have a drastic effect on the ability of the litigants to obtain relief or successfully defend their
interests. For example, some personal injury claims have a statute of limitation as short as 12
months. Failure to properly file suit within that time will permanently bar the plaintiff from
recovering compensation.
Shortly after a lawsuit is filed, the parties will conduct discovery. Discovery refers to the
mandatory exchange of documents and other information between the parties. It will often
represent the bulk of the litigation work performed throughout the entire case. Preparing and
responding to discovery requests is tedious, and in the field of litigation, tedious means
expensive. Besides the exchange of physical evidence relating to the case, discovery also
involves the deposing (formal interviewing) of witnesses.
The next step in the litigation process is for the parties to review everything they learned in
discovery, at which point the defendant will likely file a motion for summary judgment.
Basically, the defendant argues to the judge that even if the plaintiffs factual contentions are
true, the law does not recognize the situation as one in which the defendant will be held
responsible. If the judge agrees, the case is over and the plaintiff loses. If the judge denies the
motion, the case will proceed to trial.
Finally, after what can amount to years in the pre-trial stages of litigation, the merits of the

case will be heard by the judge or a jury. Witnesses will be called to testify, evidentiary
exhibits will be submitted, and the attorneys for both sides will present argument as to why
their clients deserve to win.
When the advantages are in concern the right to appeal the decision from the litigation should
not be overlooked. Although litigation verdicts are not casually reversed, judges do make
mistakes and the ability to request a second look by an appellate panel is an important
procedural safeguard.
Time consuming is one of the greatest disadvantages to litigation over all other method of
dispute resolution.
COMPARE AND CONTRAST
a) Arbitrators and Adjudicators
Arbitration is submission of disputes by consensual agreement to a third party (the arbitrator)
for a binding decision. Adjudication is submission of disputes by consensual agreement to a
third party (the adjudicator) for an interim decision which will be binding unless the Court
refuses leave to enforce decision or it is substituted by a final arbitral award or Court
judgment.
Arbitration may extend over a long period if hearing protracted; it may take months or even
years to conclude. Procedure and time frame to be agreed by parties. Adjudication may take
very much shorter than arbitration and litigation. Adjudicator has 30 days to decide dispute.
Arbitration cost is higher than mediation and generally higher than litigation because of
thoroughness and expediency. Adjudication cost is lower than arbitration costs because of
faster hearing.
Formality of Arbitration is less formal than litigation, strict rules of evidence do not apply but
procedural rules may be based on institutional rules. Otherwise parties to agree or arbitrator
to decide. Formality of Adjudication is less formal than arbitration; strict rules of evidence do
not apply. Procedural rules may be imposed by nominating body.
When compered the Arbitration Act No 11 of 1995 in Sri Lanka with provision of the
Dispute Boards in the form of contracts such as FIDIC 2005 Multilateral Development Bank
Harmonized Edition following can be identified.

Commencement of Arbitration in the Arbitration Act 1995 under Sub Section 18 such as;
An Arbitration shall be deemed to have been commenced if --(a) a dispute to which the relevant arbitration agreement applies has
arisen: and
(b) a party to the agreement --(i) Has received from another party to the agreement a notice requiring that
Party to refer, or to concur in the reference of, the dispute to arbitration; or
(ii) Has received from another party to the agreement a notice requiring that
Party to appoint an arbitral tribunal or to join or concur in or approve the appointment of,
an arbitral tribunal in relation to the dispute.
While Sub Clause 20.2 of FIDIC 2005 Multilateral Development Bank Harmonized Edition
provides provision to incorporate such commencement within the terms of the Contract
between parties such as
Dispute shall be referred to a DB for decision in accordance with Sub Clause 20.4[Obtaining
Dispute Boards Decision].The Parties shall appoint a DB by the date stated in the Contract
Data.
In addition, as per the Sub Section 26 of Arbitration Act No 11 of 1995 in Sri Lanka has the
similar nature of strength of the Award like most of the arbitration act around the world such
as;
Subject to the provisions of Part VII of this Act, the award made by the arbitral tribunal
shall be final and binding on the parties to the arbitration agreement.
While Sub Clause 20.4 of FIDIC 2005 Multilateral Development Bank Harmonized Edition
provides provision of Party to disagree [Notice of Dissatisfaction]on the Decision made by
the DB and seek further relief through Amicable Settlement[20.5] or Arbitration[20.6].

b) Arbitration and Mediation

An arbitrator is a neutral person chosen to resolve disputes outside the courts whereas a
Mediator is usually one who resolves disputes between people, organizations, states or any
other communities.
An arbitrators judgment is considered final and binding. But a mediator does not deliver a
judgment. A mediator facilitates dialog between the 2 parties and it is up to them to come to
an agreement. An agreement reached after mediation is not binding.
An arbitrator is a judge of the dispute and provides resolution measures which is binding on
the parties. A mediator is more a facilitator who assists in developing options and achieving a
mutually agreed resolution. He does not make a decision for the parties.
c )Adjudicating and Mediation
Adjudication is simply another adversarial method of dispute resolution in which one party
wins and the other loses. However, unlike traditional litigation where costs follow the
award, in adjudication the losing party only becomes liable for the adjudicators fees and
each party stands their own costs.
Mediation however is non-adversarial and seeks to find a solution to the dispute which is
acceptable to both parties, thus also attempting to preserve the business relationship. A
settlement in mediation is not necessarily associated with an immediate transfer of money
from one party to the other and more imaginative settlements can be achieved, for example
discounts on future business, additional work carried out at no cost, staged payments or even
something as simple as an apology. Similarly, the parties are free to agree their own
apportionment of costs, although initially at least each party generally bears an equal
proportion of the mediators fees.
With adjudication, each party hopes that the adjudicator will arrive at a favorable decision to
them, with no control over the outcome. Admittedly, a party dissatisfied with an adjudicators
decision can still go to arbitration or litigation to resolve the matter, but this action simply
perpetuates the adversarial methods, again with no guarantee of success.
With mediation, each party retains control of the negotiations and is under no compulsion to
agree to a settlement if they do not wish to do so. Whilst this might be viewed as a recipe for

disaster, it does not reflect the commercial acumen of the majority of parties involved in a
mediation or the skill and training of the mediator.
Mediation can be very informal both in terms of the meeting itself and the preparation
undertaken prior to the mediation. Furthermore, legal representation is not essential.
However, whilst adjudication also does not demand legal assistance, most parties feel that it
is essential for legally qualified persons to prepare the submissions for the adjudicator where
points of law are under consideration and taking into account that a decision will be made
solely on the basis of these written presentations.

CONCLUSION
Disputes and their mode of resolution depend on the nature of dispute and parties who
involve in the matter of dispute. If the parties are closer each other in their business relation
than contractual binding the Negotiation, Mediation and Conciliation are more practicable as
those have similar nature of deciding freedom to the parties and some cases improve the
business relation. On the other hand dispute resolution through Adjudication and Dispute
Boards in more formal and better for early decision with the parties who are having
contractual binding such as parties in the field of Construction. Arbitration and finally
Litigation process is required where final outcome of the Award is important and beneficial
than any relation of the parties. If the dispute arises between the parties in the construction
industry in Sri Lanka are in concern, all the above Alternative Dispute Resolutions are in
practice in different scales but still Arbitration and Litigation are limitedly used but actively
run in the industry where considerable amount is in Dispute for resolution.

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