Chapter 4: Alternative Dispute Resolution PDF

Alternative Dispute Resolution 59 CHAPTER 4 Alternative Dispute Resolution 4.1 The nature of ADR 59 4.2 Advantages of ADR...

Alternative Dispute Resolution 59 CHAPTER 4 Alternative Dispute Resolution 4.1 The nature of ADR 59 4.2 Advantages of ADR 60 4.3 Disadvantages of ADR 61 4.4 Types of ADR 63 4.5 Organisations providing ADR 66 4.6 Using ADR 66 4.7 Choosing ADR 67 LEARNING OUTCOMES This chapter develops further the concept that it may be possible to use less confrontational modes of dispute resolution to reach a quick, cheap and commercially realistic solution. It explains: how alternative dispute resolution differs from arbitration and litigation the advantages and disadvantages of alternative dispute resolution the various types of methods available to resolve disputes the organisations that may be able to help if the parties do choose to use some method of dispute resolution instead of arbitration or litigation. 4.1 THE NATURE OF ADR Alternative dispute resolution (ADR) is a means of resolving disputes by using an independent third party, who may help the parties to reach their own solution but who either can (‘determinative ADR’) or cannot (‘non-determinative ADR’) impose a solution. It is voluntary and confidential. The parties choose the process and can withdraw at any time. 4.1.1 How ADR differs from other forms of dispute resolution Litigation is not voluntary (save in the sense that the claimant chooses to issue a claim in the first place). Once the case is started, usually neither party can withdraw without paying the opponent’s costs (see 13.6). If the parties are unable to negotiate a settlement, the court will impose its own solution. The winner will enforce that solution. Arbitration is voluntary in the sense that the parties voluntarily entered into an arbitration agreement. When a relevant dispute arises, however, one party can force the other to arbitrate against their will because of the original contractual agreement to do so, provided it is enforceable. The arbitrator will impose a solution which the winner can enforce. Of course, parties can always voluntarily take a dispute to arbitration. Strictly speaking, arbitration is a form of ADR. We have already dealt with it at 2.9.1 and shall not consider it further in any detail in this chapter. Strictly speaking, negotiation is a form of ADR. It is both voluntary and non-binding. However, there is no independent third party and the negotiators will normally be identified 60 Civil Litigation with their respective ‘sides’. We introduced the topic at 2.9.4 and consider it further at 13.1. Negotiation is also dealt with in Skills for Lawyers, Chapter 12. 4.1.2 The independent third party The independence of the third party is an essential feature of ADR, as is the fact that in non- determinative ADR they cannot impose a solution. As the parties know that the third party is independent and cannot do anything to harm them, they are more likely to trust and be open with the third party. They are less likely to be aggressive towards each other, and they will not want to be seen as an obstacle towards a settlement and are likely to be more accommodating, in the presence of the third party. The third party may therefore be able to defuse the dispute and make settlement more likely. A further advantage is that the independent third party not only will be trained to act as a neutral, but also should have any necessary industry knowledge required to understand the dispute. The third party can help the parties to settle their dispute in another way. A commercially- minded neutral may come up with ideas that the parties might not have thought of, and which solve the problem without either side losing face. 4.1.3 What affects choice? We will now go on in this chapter to consider the advantages and disadvantages of ADR. These will obviously be factors affecting a client’s choice of dispute resolution process. As you consider each, reflect on how the following considerations may be relevant: the client’s attitude to publicity; any difficult points of law that need resolving; any need to set a legal precedent; the type and amount of evidence involved; the remedy required; time and cost; and the possible effect on the parties’ relationships. 4.2 ADVANTAGES OF ADR The CPR 1998 specifically recognise the advantages of ADR. Rule 1.4(2)(e) provides that the court may further the overriding objective of dealing with cases justly by encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure. In Practice Statement (Alternative Dispute Resolution) (No 2) 1 WLR 1024, Waller J said: [T]he settlement of actions by means of ADR (i) significantly helps to save litigants the ever mounting cost of bringing their actions to trial; (ii) saves them the delay of litigation in reaching finality in their disputes; (iii) enables them to achieve settlement of their disputes while preserving their existing commercial relationships and market reputation; (iv) provides them with a wider range of settlement solutions than those offered by litigation; and (v) is likely to make a substantial contribution to the more efficient use of judicial resources … The Practice Direction on Pre-action Conduct and Protocols (see 3.7) emphasises the importance of settlement and ADR in paras 8–11. Arbitration and ADR procedures are confidential. Nothing said can be referred to in any later court proceedings unless all parties agree to waive confidentiality. However, court proceedings are usually conducted in open court. The media can attend and are able to report on most proceedings. As a general rule, anyone can obtain a copy of a statement of case, order or judgment that is on a court file (see CPR 1998, r 5.4C(1)). Some of these points are amplified below. 4.2.1 Cheapness and speed Apart from the fact that an independent third party may find it easier to lead the parties to a settlement, ADR has many other attractions. It can be significantly cheaper than both  Alternative Dispute Resolution 61 arbitration and litigation. This is because it is quicker. A skilled neutral can, in most cases that are suitable for ADR, help the parties to resolve their dispute in a relatively short period of time. The parties do, of course, have to pay the third party for their services. The parties will usually instruct lawyers to help them on the day, and they will have to pay those lawyers. If ADR works, however, there will be a significant reduction in the amount of time the lawyers spend in preparing and presenting the case. This will save costs. Even more importantly, the client saves on the indirect costs involved in its employees and executives having to spend time reading court documents, consulting lawyers and attending court. However, clients should not be given the impression that ADR comes at bargain basement prices. Any lawyer representing the client will want to be fully prepared, and that will take time (including the client’s time in dealing with the lawyer’s enquiries) and will cost money. 4.2.2 Flexibility Speed and cheapness are the principal attractions of ADR, but it is also very flexible. The parties can choose one of several forms of ADR. They can choose the procedure to be followed in conjunction with their chosen neutral. They do not have to comply with any statutes or rules of court. There is not even any case law limiting what the parties or the neutral can do. 4.2.3 Preserving a business relationship Arbitration and ADR share the virtue of privacy. Alternative dispute resolution is also ideal for cases where the parties to the dispute are going to have to continue to deal with each other. The fact that they have chosen a non-confrontational method of solving their problem makes it much easier for them to continue their relationship, since the solution is theirs and has not been imposed upon them. 4.2.4 Commercial reality A third party unconnected with the dispute may be able to assist the parties to arrive at realistic and workable terms of settlement. 4.3 DISADVANTAGES OF ADR 4.3.1 It does not bind the parties to the procedure As a general principle, no one can be forced to resolve a dispute by any form of ADR against their wishes. If one party suggests ADR, the other parties do not have to agree; and even if the parties have started to resolve a dispute by ADR, most ADR agreements allow any party to withdraw at any stage before a solution has been agreed. It will then be necessary to resort to litigation or, if there is an arbitration agreement, to arbitration. The court can stay litigation that has been commenced in breach of an agreed method of resolving disputes. This is the case even if that method is not technically an arbitration agreement under the Arbitration Act 1996. Indeed, the courts have increasingly stayed proceedings for ADR to take place, whether or not pursuant to a contractual agreement. For example, in Cable & Wireless v IBM UK Ltd BLR 89, the parties were directed to pursue a previously agreed ADR method. The court held that there were strong case management grounds for allowing the reference to ADR to proceed. Any delay was not such that it would be unfair to impose the ADR procedure. In Ohpen Operations UK Ltd v Invesco Fund Managers Ltd EWHC 2246 (TCC) the parties had included a tiered DR clause in an agreement. This provided for dispute resolution to be undertaken in stages starting with less formal negotiation and concluding with mediation by the Centre for Effective Dispute Resolution (CEDR). Only if mediation failed did the agreement permit the parties to commence court proceedings. Following an unsuccessful negotiation and without completing the staged DR process provided for by the agreement, 62 Civil Litigation the claimant issued proceedings and the defendant sought a declaration that the court would not exercise any jurisdiction to hear the claim and to stay the proceedings pending compliance with the tiered DR clause. O’Farrell J ordered that the proceedings should be stayed and stated the following principles: i) The agreement must create an enforceable obligation requiring the parties to engage in alternative dispute resolution. ii) The obligation must be expressed clearly as a condition precedent to court proceedings or arbitration. iii) The dispute resolution process to be followed does not have to be formal but must be sufficiently clear and certain by reference to objective criteria, including machinery to appoint a mediator or determine any other necessary step in the procedure without the requirement for any further agreement by the parties. iv) The court has a discretion to stay proceedings commenced in breach of an enforceable dispute resolution agreement. In exercising its discretion, the court will have regard to the public policy interest in upholding the parties’ commercial agreement and furthering the overriding objective in assisting the parties to resolve their disputes. For a case where the ADR clause did not meet the above requirements, see Children’s Ark Partnerships Ltd v Kajima Construction Europe (UK) Ltd EWHC 1595 (TCC). 4.3.2 The awards are not so easily enforceable There is no equivalent of s 66 of the Arbitration Act 1996 (see 2.9.1) enabling ADR awards to be enforced as if they were court judgments. However, if the parties do agree to terms suggested as a result of non-determinative ADR, they have entered into a contract. If one of the parties does not carry out that contract, they can be sued for breach of contract, and the claimant would usually expect to obtain summary judgment (see 10.5.2) under Part 24 of the CPR 1998 without any difficulty. It is standard practice in many forms of ADR to provide that no agreement will be binding upon the parties unless it is put in writing and signed by the parties. A party who has commenced court proceedings but then resolved the dispute by ADR, can record the agreement reached in a consent order, which can be enforced by the usual methods. 4.3.3 The facts may not be fully disclosed The speed of ADR has an associated disadvantage. Because there is no equivalent of disclosure, there is a risk that the parties may resolve the dispute without knowing all the facts. This may lead to the wrong decision. Many businesspersons, however, take the view that a quick decision, even if it is not completely accurate, is better than wasting time and money on a protracted dispute in order to get a more correct decision. They often feel that litigation is a lottery anyway. 4.3.4 ADR is not appropriate for all cases Alternative dispute resolution is not appropriate in the following cases: (a) where the client needs an injunction or security for costs (though afterwards ADR may become appropriate); (b) where there is no dispute. If the case is a simple debt collection matter, the creditor should issue a claim form followed by a summary judgment application (see 10.5.2), or consider insolvency proceedings (see 15.5.6); (c) where the client needs a ruling on a point of law. Whether or not ADR is appropriate in other cases can often be a moot point. What about the client with a very strong case, who fears that mediation means that some concessions will  Alternative Dispute Resolution 63 have to be made unnecessarily? If the client reasonably believes that they have a watertight case, that might well be sufficient justification for a refusal to mediate (see Swain Mason v Mills & Reeve EWCA Civ 498 and further at 14.3.3.6). Are cases concerning complex areas of law unsuitable for mediation? Not always. For example, disputes between neighbours might involve complex legal issues but the parties may be better advised to seek practical solutions through mediation (see Faidi v Elliott Corporation EWCA Civ 287). Parties should also consider using judicial appraisal (see 4.4.5) to clarify legal issues. The increasing importance that courts attach to the consideration of ADR is evidenced by a standard direction in proceedings, which requires a party who rejects a proposal for ADR to file a witness statement detailing their reasons for doing so (see Appendix B(7)). That witness statement will then be available to the trial judge when the issue of costs is considered (see Chapter 14). 4.4 TYPES OF ADR 4.4.1 Mediation and conciliation Mediation and conciliation are usually interchangeable terms. For ease of reference, the term ‘mediation’ will be used to cover both processes in this chapter. In a typical mediation, the third party who has been selected as mediator will have received written statements from both parties. Following that, the mediator will discuss the case with the parties. They will tell the mediator what they think about each party’s case on a without prejudice basis. The mediator will not pass on to the other party information which is confidential, unless they are given permission to do so. These discussions help the mediator to identify the real areas of disagreement and the points that are most important to the respective parties. They can then move the parties towards constructive solutions to the problem. The method of mediation described above assumes that the mediator and the parties will meet in the same building. This enables things to be dealt with quickly because, if necessary, the parties can meet face to face to iron out their differences. There are, however, other forms of mediation. The parties do not have to meet. The matter can be dealt with by correspondence and telephone conversations. It is vital that the parties are represented at the mediation by people who have authority to instruct their lawyers to reach agreement. 4.4.2 ‘Med-arb’ Under this form of ADR, the parties agree to submit their dispute to mediation and, if this does not work, that they will refer the matter to arbitration. They may, if they wish, use the person who has been acting as their mediator as their arbitrator. This will save costs, because the arbitrator will already know the facts of the case. There is a risk, however, that during the mediation, they will have become privy to confidential information belonging to one of the parties. This would compromise their position as arbitrator, so any agreement for ‘med-arb’ should give either party the right to object to the mediator’s becoming the arbitrator. 4.4.3 ‘Mini-trial’ or ‘structured settlement procedure’ Under this procedure, the parties appoint a neutral who will sit as chair of a tribunal composed of the chair and a senior representative of each of the parties. These representatives may not be immediately connected with the dispute and should have authority to reach such compromise as they see fit. They will then hear and/or read the cases of the two parties (sometimes with an expert), after which they will negotiate with each other with the help of the independent arbiter. 64 Civil Litigation 4.4.4 Expert appraisal The parties can refer all or part of their dispute to an expert in the disputed field for their opinion. Their opinion is not binding on the parties but could influence their approach to subsequent negotiations. It will be for the parties to choose the appropriate procedure, which could even involve a short trial before the expert makes their recommendation. 4.4.5 Judicial appraisal The Centre for Effective Dispute Resolution (CEDR) has a scheme whereby former judges and senior counsel are available to give a quick preliminary view on the legal position, having heard representations from both parties. It is a matter for agreement between the parties as to whether this opinion is to be binding on them or not. 4.4.6 Expert determination Expert determination is a halfway house between arbitration and ADR. As in arbitration, the parties select an expert to decide the case for them. They agree to accept the expert’s decision, and if one fails to do so, the other can sue for breach of contract. The expert’s decision cannot, however, be enforced as a court order, and they do not have the powers of an arbitrator under the Arbitration Act 1996. Also, unlike an arbitrator, they can be sued in negligence by a party who thinks their decision was wrong. 4.4.7 Final offer arbitration The parties can instruct their chosen neutral that they will both make an offer of the terms on which they will settle, and that the neutral must choose one of those two offers and no other solution. Neither party can afford to make an unrealistic offer, because that will mean that the neutral will choose the opponent’s offer. Thus, at least in theory, the offers are likely to be realistic. 4.4.8 Early neutral evaluation As its name suggests, this method allows the parties to instruct their chosen neutral to make a preliminary assessment of the facts at an early stage in the dispute. Normally the parties submit written case summaries and supporting documents. The evaluator then makes a recommendation. This very often helps the parties to negotiate a settlement (or move to another ADR method), avoiding the expense of litigation. Rule 3.1(2)(m) of the CPR 1998 provides that the court may take any step or make any order for the purpose of managing the case and furthering the overriding objective (see 1.1.1 and 2.9.2), including hearing an early neutral evaluation (ENE) with the aim of helping the parties to settle the case. Can the court order that a judicial appraisal take place by way of ENE against the wishes of the parties? Yes, see Lomax v Lomax EWCA Civ 1467, because it is part of the court process which can assist with the fair and sensible resolution of a case. In addition, the parties may benefit from judicial ENE as Master McCloud summarised as follows in Telecom Centre (UK) Ltd v Thomas Sanderson Ltd EWHC 368 (QB): 6. Early Neutral Evaluation is a procedure which involves, in this instance, an independent party expressing an opinion about a dispute or parts of it. The evaluative nature of ENE means that positive or negative views as to merits are expressed, perhaps robustly, by the judge. It is therefore different from many forms of ‘mediation’ where the focus is facilitative. The process to be adopted for Judicial (or any other form) of ENE is not stated in the Civil Procedure Rules and it is intended that the approach can be tailored to the needs of any given case. Thus one may for example proceed wholly on the basis of written evidence and submissions or by way of written evidence and written argument supplemented at an oral hearing. 7. In the [K]BD, an ENE process may be useful for example where a view on merits is needed on the merits of points of law and construction… or whether alleged breaches if proved would likely amount to repudiatory breaches. Consideration may be given to ENE in respect of any or  Alternative Dispute Resolution 65 all issues in a case and may also be especially useful where the resolution of some key issues would encourage settlement of others, or where the trial time estimate and use of resources and costs would be significantly reduced if parts of the case are resolved as a result of ENE. 8. ENE is a confidential process. The judge dealing with the ENE will thereafter not (absent agreement) try the case or deal with contentious applications. It will therefore be the case that in this instance once I have dealt with ENE I will release the case to another Master who will not be aware of the views expressed at the ENE appointment. That Master may then try the case if appropriate or release to some other judge or court in the usual way, perhaps on a much reduced trial time estimate if any issues have been resolved as a result of the ENE. 9. in the Chancery Division the Guide indicates that the opinion of the judge will be provided informally and that it may be necessary for a hearing of half a day to take place. In my judgment in the [King’s] Bench Division given the vast range of types of case and complexity handled by Masters it is a matter for the judge to decide the form and degree of informality or formality of the opinion given, and to consider an appropriate time estimate which may well be more than half a day depending on complexity and substance in a [KB] case. 10. The outcome of Judicial ENE is normally ‘without prejudice’ unless privilege is mutually waived and is normally not binding unless the parties agree. It is possible that agreed terms of ENE may be that the decision is binding only upon the happening of certain events, or binding only for a defined period such as where an issue is dealt with on an interim basis. 11. Papers considered at the ENE will be returned to the parties at the end and not retained in the court file so as to ensure that subsequent judges or the public will not access them. The following specimen ENE order can be found at para 10.13 of the King’s Bench Court Guide: Upon the parties requesting at a CMC the Hon Mr(s) Justice /Master/ (“the Judge”) provide an opinion about [the relevant issue] IT IS ORDERED THAT: 1. The parties shall exchange [position papers/written submissions] by 4pm on [date]. 2. The parties shall [serve upon/indicate to] each other the written evidence upon which they wish to rely for purpose of the ENE by [date] 3. The parties shall agree a core bundle of documents for the Judge/Master which shall be lodged by [date] 4. The ENE appointment shall take place [in private] at … on … before [Master/the Hon Mr(s) Justice …] with a time estimate of [x]. 5. The parties estimate the judicial pre-reading to be [x] hours. 6. The Judge/Master shall consider the submissions made by the parties and provide an informal non-binding opinion about the likely outcome of the claim [or the issue] in such form as the judge decides. 7. The opinion shall be without prejudice to the claim and the opinion shall remain confidential to the parties. 8. After the ENE is concluded, the papers relating to it shall be removed by the parties and shall be confidential unless the parties agree otherwise. No non-party shall be entitled to obtain a transcript of the hearing. 9. The Judge/Master shall have no further involvement with this claim or any associated claim. 10. The costs incurred by the ENE shall be costs in the case. 4.4.9 Ombudsman and similar schemes The number of ombudsman schemes has grown over the years as the Government, as well as various public and private sector organisations, has sought to resolve complaints without litigation. Thus you can find schemes covering such diverse matters as financial services, pensions, police, telecommunications, local government, housing, estate agents, legal services, and the like. Full details can be found at the Ombudsman Schemes in the UK website, at. Some service and goods providers also offer similar schemes. Probably the best known is the travel industry ABTA arbitration scheme. 66 Civil Litigation 4.5 ORGANISATIONS PROVIDING ADR Anyone can provide help in resolving disputes, but the job is not as easy as it sounds. It should be done by someone who has been trained. The Centre for Effective Dispute Resolution (CEDR) is an independent, non-profit-making organisation promoting ADR, which runs training courses and maintains a panel of neutrals. The ADR Group is a private company that undertakes mediation and training, and which has established a network of mediators in firms of solicitors throughout the country. Two other organisations very active in the field of ADR, although their principal raison d’être arose from other functions, are the Chartered Institute of Arbitrators and the Academy of Experts. Lastly, there is Mediation UK, whose general services include all forms of mediation. Many professional bodies, like the Royal Institution of Chartered Surveyors (RICS), provide ADR services for disputes involving their members. The judges of the commercial list in the High Court may be prepared to offer their services to help litigants to resolve their disputes without going to trial. 4.6 USING ADR Parties to a dispute can always reach an ad hoc agreement, when the dispute arises, to use any form of ADR they see fit to solve their problems. It is more proactive, however, to agree in the original contract that, if any dispute does arise between the parties, they will resolve it by some specified form of ADR. Such contracts may not be effective (see 4.3.1), because a party cannot be forced to reach a consensual solution, but they do give the parties an opportunity to resolve their disputes peaceably. There is a very strong case for recommending that existing contracts which include an arbitration agreement should be amended, so that the agreement provides for mediation before the parties go to formal arbitration (which they would do only if mediation failed). 4.6.1 Disclosure obligations An agreement to use ADR should include clauses dealing with some of the potential pitfalls associated with ADR. The parties should decide whether to have a clause requiring full disclosure. The drawback of such a clause is that the more information the parties have to provide to each other, the longer the proceedings may take and the more expensive they will be. Its advantage is that it would be possible to set aside any settlement reached, as a result of ADR, on discovering that one of the parties had concealed vital information. To prevent vexatious applications to set aside any settlement, it might be wise to stipulate in the disclosure clause that a settlement can be challenged only for fundamental non-disclosure of matters which would significantly have affected the result of the ADR process. 4.6.2 Confidentiality A confidentiality clause in the agreement will encourage full disclosure. The mediator is always under a duty of confidentiality, but the parties will be more likely to disclose information to each other if they know that the other party has agreed not to divulge the information to anyone else. However, if the parties are commercial rivals, who need to keep their methods secret from each other, disclosure and confidentiality clauses are pointless. 4.6.3 Other matters An ADR agreement should explain how the mediator or other arbiter will be appointed and specify the procedure they should follow. It should also specify that the representatives who attend any ADR process must have full authority to settle the dispute there and then.  Alternative Dispute Resolution 67 4.7 CHOOSING ADR A solicitor should discuss with the client the possible uses of ADR whenever a dispute arises in a commercial matter. If the client is willing (or has already agreed) to use ADR, it should be used unless it is obviously inappropriate, for example because an injunction is required, or the other party cannot be trusted to comply with an award or to cooperate in the process. There is no point, however, in proceeding with ADR if it looks like failing. In such cases, at the first sign of non-cooperation or lack of trust (eg, where the opponent will not help in the selection of the neutral), litigation or arbitration should be used. This does not mean abandoning ADR altogether – it may be appropriate to continue with ADR in conjunction with litigation, using the latter as a spur to cooperation with the former. Not surprisingly, given r 1.4(2)(e) (see 4.2), parties who do choose to litigate may well receive judicial encouragement (and sometimes a degree of pressure) at the case management conference (see 9.6.3.2) and other hearings to attempt ADR. The importance the court attaches to proposals for ADR is evidenced by r 26.4 which provides for the stay of proceedings for ADR to be attempted by the parties (see further 9.5.1.1). Moreover, failure by a party to respond to a reasonable proposal to attempt settlement by ADR pre-action or during proceedings may have a significant impact on any subsequent order for costs (see 14.3.3.6). In an unreported case, a High Court master has made what is believed to be the first ever order for compulsory alternative dispute resolution. The order, made by consent, arose in the context of a claim made under the Civil Liability (Contribution) Act 1978 in a high-value case. Master Davidson ordered a stay of proceedings until the end of February 2022 to enable the parties to attempt resolution of the proceedings via mediation. The parties were ordered to ‘meaningfully engage in the mediation process in a genuine attempt to reach settlement of these proceedings’. The order went on: ‘The mediation shall be conducted on a without prejudice save as to costs basis and either party shall be at liberty to make an application relying on evidence as to the conduct of the parties at the mediation either with regards to the cost consequences of that conduct or with regards to the court deciding whether or not either party has failed to engage with the mediation process.’ 68 Civil Litigation