The traditional forms of dispute resolution, litigation and arbitration, are increasingly perceived as being complex, time consuming and expensive. These criticisms have fuelled demand for alternative forms of dispute resolution, commonly referred to as ADR.
ADR is an umbrella term which covers a range of methods of dispute resolution, falling between litigation and arbitration on the one hand and negotiation on the other. These include:
- case evaluation
- early neutral evaluation
- expert determination
- mini-trial or executive tribunal
- dispute review board.
The objective is to allow parties to conclude disputes in a more satisfactory and mutually advantageous manner by focusing on their interests and commercial objectives.
ADR procedures are well established in the US and are gaining in popularity in England and Wales. A number of ADR centres have been established and the rules which govern the conduct of court proceedings (the Civil Procedure Rules) now incorporate requirements for parties to consider the use of ADR both before the commencement of and at various stages during proceedings.
Main features of ADR
While ADR has been found to be suitable for resolving a wide range of business disputes both domestic and cross-border, it is particularly useful in disputes where the parties have a long term relationship and want that relationship to continue.
The more important features of ADR include:
- Consensual. Reference of a dispute to ADR can only be made if the parties agree to do this. Furthermore, the result of such a reference only becomes binding on the parties once an enforceable agreement has been concluded embodying the terms agreed by the parties. Until then, either party can withdraw and commence, continue or resume proceedings before a court or an arbitral panel.
- Privacy. Most hearings before the courts are public and the results may be reported by the media. In ADR the procedures are carried out in complete privacy and on a without prejudice basis. This means that if the reference to ADR does not result in a settlement and litigation or arbitration starts or continues, generally speaking neither party may in those proceedings use or refer to any matters arising during the ADR.
- Flexibility. ADR allows parties to seek solutions which accommodate their commercial needs and interests and the form of procedure can be tailored to reflect this. Such solutions may not be available through litigation or arbitration.
- Inexpensive and quick. Compared with litigation and arbitration, ADR is inexpensive, particularly if it leads to resolution of a dispute before litigation or arbitration commences. It is also quick to set up and implement; in most cases the negotiation stage takes no more than a day.
Types of ADR
Mediation is the most common form of ADR. It is a process in which a neutral person (the mediator) actively assists parties in working towards a negotiated agreement of a dispute. The purpose of the mediator is to facilitate settlement by bridging gaps. It is not the mediator’s function to make a decision and the parties remain in ultimate control of the decision to settle and the terms of the settlement. The mediator may (if requested) give a neutral and confidential evaluation of each party’s case which may in practice have weight in the parties’ negotiation.
The typical stages in a mediation are:
- Reaching an agreement to mediate.
- Selecting a mediator.
- Pre-mediation contact between parties and with the mediator. The parties submit a summary of their position and supporting documents to the mediator and to each other.
- Preparation for the mediation. The parties and their lawyers need to decide who will attend and work out their negotiation strategy.
- The mediation itself. The parties agree the length of the mediation (usually one or two days) and the mediation begins with a joint meeting at which the parties present their side of the dispute (through lawyers if they wish). Once the parties have presented their case, they usually separate. The mediator then shuttles between the parties assisting them to move towards a settlement. The aim is to sign a settlement agreement before the parties leave the mediation. This can be incorporated into a court order or award or remain as a separate agreement which can be enforced in the same way as any other contract.
- If a settlement is not reached by midnight on the final day, then the mediation is deemed to have failed, and the parties continue as if the mediation had never taken place. Having said that, it is common for disputes to settle within two weeks of a failed mediation.
There is no consistent usage of this term. The term is often used interchangeably with ‘mediation’, though ‘mediation’ has become the preferred term. ‘Conciliation’ is widely used to describe the facilitated settlement discussions that occur in the employment arena. It is also the term used in Europe to describe the function performed by judges when they hold settlement conferences with the parties in an attempt to assist them to reach a settlement of their dispute.
This involves a case being submitted to an evaluator or panel that considers submissions and may hear witnesses substantially as an arbitrator might and then evaluates the case for the parties. It is a non-binding determination that allows the parties to obtain a neutral evaluation without the cost, formality and risk of trial. It is particularly suitable for cases where the parties have different perceptions of the relative strengths of their cases and cannot therefore agree settlement terms. It may not be appropriate, however, where the parties are seeking a resolution based on factors other than their rights or where they (or any of them) would not shift position whatever the evaluation might be.
ENE (Early Neutral Evaluation)
A process whereby the court provides for a without prejudice, non-binding early neutral evaluation by a commercial judge of a dispute, or of particular issues in it. The process produces a judge’s preliminary view on a question of law, therefore it may be more appropriate for disputes which centre on questions of law rather than ‘complicated issues of fact or quantum’. It is designed to help parties avoid further unnecessary stages in litigation.
This is a hybrid between mediation and arbitration and can be used where mediated negotiations do not lead to a settlement. In those circumstances the parties can agree that the mediator becomes an arbitrator and issues a final and binding award on the outstanding matters. Not a particular popular form of ADR as the prospect of a mediator becoming an arbitrator is perceived as inhibiting full and frank discussions in the mediation.
This is the opposite of Med-arb where the arbitrator will hear submissions from the parties and reach a determination in the usual way during an arbitration. However, rather than hand down the award to the parties, the arbitrator will place it in a sealed envelope, pending the mediation of the dispute. Only if the parties are unable to reach a settlement is the envelope opened and the award formally handed down and takes effect.
A process in which an independent third party, acting as an Expert rather than judge or arbitrator, is appointed by the parties to decide the dispute. The parties make a binding agreement to accept the Expert’s decision (determination). There is no right of appeal, giving parties finality. Expert determination is most appropriate for disputes where the parties are separated by issues of quantum/value or the dispute is of a technical nature.
Unlike arbitrators, Experts are subject to little or no control by the court. Another crucial difference relates to enforcement; Experts' decisions, whilst final and binding as a matter of contract, cannot be enforced in the same way as a court order or arbitration award. Instead, failure to abide by an Expert's decision would entitle the non-defaulting party to refer the matter to the courts or arbitration for breach of the defaulting party's contractual obligation to abide by the Expert's decision.
For more information, see our Expert Determination Briefing.
Mini Trial (also known as Executive Tribunal)
A procedure in which a representative of each party makes a formal presentation of their best case to a panel of senior executives from each party, usually with a mediator or expert as neutral chairperson. Ordinarily, no witnesses are called but the parties may call experts to explain technical aspects of the case. Each presentation will usually not last more than half a day and often less. The objective is to enable the tribunal to assess the strengths, weaknesses and the likely outcome of a case, and then to have the opportunity to enter into settlement discussions on a realistic, business-like basis. It is unlikely to be suitable where the case turns exclusively on issues of law or credibility. It is generally used for substantial cases and not for smaller disputes where the cost and time factors would not be warranted.
A key figure in this procedure is the neutral adviser, who may be a lawyer, or any other person with appropriate competence in the field of the dispute, and who chairs the presentation session and then usually adopts a mediating role in any settlement discussions which follow. It is important that the senior executive of each party should participate with complete authority to settle the dispute and it is preferable that he or she should not have been actively involved in it.
A statutory procedure which allows a party to a construction contract to resolve a dispute using an adjudicator. It applies to construction contracts entered into after 1 May 1998, and covers most construction operations carried out in the UK as well as appointments of construction professionals, such as surveyors. It is normally used to ensure payment, although most types of dispute can be adjudicated. An adjudication procedure must comply with certain minimum requirements which govern issues such as the maximum time allowed for the appointment of an adjudicator, the time within which a decision must be reached and the powers and obligations of the adjudicator. The decision of an adjudicator is binding.
Dispute Review Board (DRB)
A panel (usually of three neutrals) is appointed at the start of a project. The panel visits the site of the project, usually three or four times a year, and deals with disputes by providing an interim binding decision (like adjudication). The parties can challenge board decisions via arbitration or litigation. The board can have a preventative effect on disputes. DRBs have tended to be used for large scale construction projects, for example, the Hong Kong Airport and, more recently, for construction of the Olympic Stadium for the London games in 2012.
Timing of ADR
Subject to the points mentioned below, there is no particular time at which a case should be referred toADR. In practice, this is likely to occur either before the commencement of litigation or arbitration or at some suitable stage during its course, for example, when the parties have exchanged their statements of case or, subsequently, witness statements. Or it may occur when settlement negotiations have become deadlocked.
In an increasing number of cases, parties are inserting clauses in contracts requiring any disputes to be referred to some form of ADR before the commencement of litigation or arbitration. Such a clause can, if drafted correctly, be enforceable by the English courts. Whether enforceable or not, such clauses are useful as they give a party the opportunity to refer the dispute to ADR once it has arisen. The further such proceedings have progressed the greater is likely to be the concern of a party wishing to propose ADR that this will be perceived by his opponent as a sign of weakness. The inclusion of an ADR clause in the contract in dispute should go a long way to overcoming this understandable concern.
Cases suitable for ADR
The vast majority of cases are capable of, and in fact are, resolved by negotiation. Often, however, this only happens at a very late stage in the proceedings (sometimes even during trial) after very considerable costs have been expended. ADR procedures such as mediation are essentially more sophisticated methods of negotiation. Thus if a case is capable of settlement by negotiation, it is also capable of being settled by mediation and probably more effectively and at an earlier stage. The fact that a case is complete and/or involves a multiplicity of parties and/or issues does not militate against mediation. Frequently, the cost of litigation or arbitration in such cases militates positively in favour of ADR. Experience, both in the UK and in other countries such as the US, demonstrates that ADR is more than capable of resolving high value and complex disputes. Cases not suitable for ADR Although there are a number of factors which make ADR very attractive to parties, not all matters are suitable forADR. In the following examples litigation or arbitration is likely to be unavoidable, preferable, or even essential:
- where an issue of legal principle is involved which necessitates a binding and public precedent;
- where emergency injunctive relief is sought - but ADR can then be instituted once the injunctive relief has been obtained; and
- where a party institutes or defends an action for tactical reasons and it becomes clear that recourse to ADR does not reflect a genuine wish to resolve the matter.
While there can be no guarantee that ADR will be successful in all references which are made to it, the experience of the Centre for Dispute Resolution (CEDR), the leading ADR organisation in Europe, is that over 75% of all mediations held under its auspices are successful.
If you do become involved in a dispute you should give serious consideration to whether or not it is suitable for reference to ADR and, if so, the best moment to take this step. If you are involved in negotiating contracts, you should consider including an ADR clause.