At last – a new and better way to resolve disputes involving technology services

  • Posted

Disputes about technology contracts and what is delivered can have a devastating effect on a business. In the past the legal costs have meant few smaller businesses feel able to take a case on and put up and shut up.  In April 2020 everything changes and we talk you through what this means.

New three month resolution system for technology disputes

However, a new adjudication scheme will see the introduction of a three-month resolution procedure for “technology” disputes – meaning any dispute arising from a contract for the provision of tech-related goods and services including software development contracts, outsourcing arrangements, systems integration contracts, IT consultancy contracts, software licensing agreements, block chain/smart contracts and cloud computing contracts.

Fundamental driver to the new adjudication system

The fundamental driver behind this initiative is an appetite for quicker, cheaper and necessarily somewhat rough and ready dispute resolution in the IT/technology industry. The need for effective resolution is acute in the sector because contracts are often high value, technically complex and long-lasting and projects.

Parties to technology contracts may therefore be more than happy to exchange the existing costly and time-consuming but ‘Rolls Royce’ service provided by English litigation and arbitration, for this new accelerated adjudication procedure, in order to achieve the benefit of a reasonably certain reduction in time and cost.

The adjudication scheme is the result of considerable work by a dedicated group of members of the Society for Computers and Law (SCL) over the past two years, growing out of the SCL Better Contracts Initiative. The scheme was launched on 15 October 2019 in London and will be implemented in early 2020.

What are the new developments and how will they benefit SMEs?

Lengthy technology disputes can derail projects, postpone go-to-market dates, stunt cash flow, compromise investment and reduce profitability. SMEs developing their own technology face an uphill battle of unaffordable legal costs against the backdrop of a slow court system which can have a catastrophic effect on scaling up.

By using the new adjudication scheme these risks can be reduced.

Adjudication is faster and cheaper

Adjudication is a faster, cheaper form of dispute resolution that avoids the need for costly court action and limits disruption to cash flow. The proposed initiative aims to match the adjudicator to the dispute – at the outset the parties would appoint an expert in their field of technology to determine the outcome of the dispute that has arisen.

(i) Efficient and expert determination

The new procedure would include other key features such as:

  • No constraints on type, scope or value of disputes, other than that the dispute arises from a contract for the provision of tech-related goods and services.
  • A tight three-month timeline (with the option of extension only for highly complex cases)
  • A choice of specialist adjudicators from a pre-selected qualified panel, including lawyers and (non-lawyer) IT specialists
(ii) Binding decisions

The decision of the adjudicator will be binding unless court action is later pursued by one of the parties but a time limit of six months for commencing subsequent court proceedings will reduce the risk of protracted disputes running on indefinitely. In the meantime the parties must comply with the adjudicator’s decision. For example, where an adjudicator’s award requires payment from one party to another, the payment must be made and cannot be recovered unless a court subsequently reverses the award – a ‘pay now, argue later’ philosophy.

The Technology and Construction Court will be the relevant court for appealing the decision of an adjudicator within the six month period. It is also the court that will deal with applications to enforce an adjudicator’s award where a party refuses to pay.

(iii) Low appeal rate so lower costs?

It is anticipated that the number of appeals to the Technology and Construction Court will be relatively low on the basis that the parties are likely to trust the decision of a suitably qualified industry expert whose rationale a court would probably follow in most cases.

(iv) Industry-specific solutions

The consequences of this initiative are far-reaching. Common disputes about breach of supply will be covered, but so will disputes about more specific issues involving investors and founders/developers. In such circumstances where the business may be cash-poor, adjudication allows for more creative, innovative and industry-specific solutions, such as the investor settling for ownership of the intellectual property and taking the product to market independently.

Such solutions offer broad appeal. With the rise of new methods of contracting, such as smart contracts, the legal ‘waffle’ lagging behind successful businesses and investments can, for the first time, keep up with its technology subject-matter – and crucially become borderless. The increasing availability of online dispute resolution and the more bespoke solutions offered by adjudication could be the beginning of a new era for the commercial world. Business owners and investors need to be ready.

What does the future hold for adjudication of technology disputes?

Since its introduction in the 1990s adjudication in the construction industry has been hugely successful. It is underpinned by statute – the parties to construction contracts who have a dispute must go through an adjudication process before going to court.

The new adjudication scheme for technology disputes will be a voluntary process.

Until the scheme has the legislative footing afforded to the construction industry contract draftsmen are being encouraged to include model terms by which the parties are compelled to use the new scheme.

Are there alternatives?

Existing frameworks continue to be available for technology disputes. Where court action and arbitration are too expensive and onerous, one option for early-stage disputes remains mediation. Although voluntary and non-binding, facilitated, confidential negotiation can often resolve many contract issues before they spiral into full-blown costly disputes.

How we can help you?

The Gannons technology dispute team, headed up by partner and SCL member John Deane , is tech-savvy and can help your business navigate the minefield of technology dispute resolution, whether it’s by mediation, adjudication or ultimately court action – always with the aim of minimum disruption to your business. We deal equally with businesses complaining about the technology service delivered as defending themselves.

Please do give us a call to see how we can help your business on 020 7438 1060.