Disputes are an unavoidable part of doing business. Indeed, businesses are subject to ever increasing risks of litigation; ranging from class actions to employee causes of action to actions by regulators. Traditionally, disputes were resolved by the parties either directly or with the assistance of their lawyers, engaging in positional bargaining discussions with a view to reaching a negotiated outcome. If those discussions failed to resolve or narrow the issues in dispute, then the parties in effect relinquished control of their dispute by submitting it to a judge to determine according to his or her views of the merits and the applicable law. This article examines processes which provide an alternative to litigation for the resolution of disputes, and makes a case for boards to adopt policies to give prominence to those processes.

The shortcomings of litigation

Litigation is a ‘blunt tool’ for the determination of disputes. It has a number of features which, as businesses have increasingly come to appreciate, provide a less than ideal environment for the resolution of disputes. These features include the following: (i) the parties lose effective control of the dispute; (ii) the outcome is inherently uncertain; (iii) it is costly not only in terms of defence and other expenses but also involves the diversion of executive and other resources which could be more productively deployed elsewhere; (iv) the litigation process is conducive to delay, including those associated with appeals; and (v) the dispute is generally determined in a public hearing with all the attendant reputational and other commercial risks to the parties.

Apr-Jun 2016 issue

Australian Institute of Company Directors (AICD)

12 Wentworth Selborne Chambers