Reading Material_ADR_Shubham Joshi_UPES_2024.pdf

Reading Material Alternative Dispute Resolution Prepared by Shubham Joshi Asst. Prof. School of Law, UPES Semester IX August to December 2024 List of Topics Covered in this Reading Material Unit I – Fundamentals of ADR Introduction to Alternative Dispute Resolution Need for Alternative Dispute Resolution Different Types of Alternative Dispute Resolution Methods Fundamentals of Negotiation Overview of Mediation Drafting ADR Clauses Emerging Trends and Future of ADR Unit II – Introduction to Arbitration Introduction to Arbitration in India Historical Evolution of Arbitration in India Legislative Framework of Arbitration in India Unit III – Arbitration Agreement and Laws Applicable to Arbitration Essentials of Arbitration Agreement Drafting of Arbitration Clauses Separability of Arbitration Agreement Law Applicable to Arbitration Unit IV – Arbitral Tribunal and Interim Measures Constitution and Establishment of Arbitral Tribunal Jurisdiction of Arbitral Tribunal Appointment of Arbitrators Independence and Impartiality of Arbitrators Interim Measures by Court Interim Measures by Tribunal Prepared by Shubham Joshi | [email protected] Unit V – Conduct of Arbitral Proceedings Fundamentals of Conducting Arbitral Proceedings in India Court’s Assistance in Conducting Arbitral Proceedings in India Unit VI – Arbitral Awards Making of an Arbitral Award in India Correction and Interpretation of Arbitral Award Stamping and Registration of Arbitral Awards Unit VII – Recourse against Arbitral Awards, Enforcement and Appeal Setting aside of Arbitral Awards and its Various Grounds Recognition and Enforcement of Arbitral Award Right to Appeal and its Limitations Unit VIII – Enforcement of Foreign Arbitral Awards Enforcement of Foreign Arbitral Awards in India Indian Resolutions for New York Convention, 1958 Additional Important Topics Comparative Analysis of Arbitral Legislations of India, England and Singapore Arbitrability of Disputes Managing Cost and Time in Arbitration Emergency Arbitration Guerilla Tactics in Arbitration in India Group Companies Doctrine Concept of Seat and Venue Arbitration and Technology Summary Proceedings in Arbitration Choice of Foreign Seat in Domestic Disputes Prepared by Shubham Joshi | [email protected] Unit I – Fundamentals of ADR Introduction to Alternative Dispute Resolution Stephen J. Ware, ‘Chapter 1 Introduction’ in Stephen J. Ware, Principles of Alternative Dispute Resolution (3rd edn., 2016). 222nd Law Commission Report on Need for Justice Dispensation Through ADR (2009) [optional – not included in the reading material]. Need for Alternative Dispute Resolution Jean Francois Guillemin, ‘Chapter 2: Reasons for Choosing Alternative Dispute Resolution’ in Arnold Ingen-Housz (ed), ADR in Business, Practice and Issues Across Countries and Cultures, 13 - 47 (Kluwer Law International, 2010). Need for Alternatives to the Formal Legal System – Special Address by Dr. S. Muralidhar in an International Conference on ADR, Conciliation, Mediation and Case Management Organised by the Law Commission of India at New Delhi on May 3-4, 2003. Afcons Infrastructure Limited v. Cherian Varkey Construction Company Private Limited, (2010) 8 SCC 24 [optional – not included in the reading material] Different Types of Alternative Dispute Resolution Methods Gracious Timothy Dunna and Kabir Duggal, ‘Chapter 13 – Mixed Mode Dispute Resolution’ in Gracious Timothy Dunna (ed), Conciliation and Mediation in India, Global Trends in Dispute Resolution, 331 – 368, Vol. 11 (Kluwer Law International, 2021). Fundamentals of Negotiation Basics of Negotiation William Ury, et al, ‘Negotiation Fundamentals’ in William L. Ury, Jeanne M Brett, Stephen B. Goldberg, Getting Disputes Resolved, 3 – 19, (1988). Roger Fischer and Willam Ury, Chapter 1 of Getting to Yes (3rd edn., 2011). Prepared by Shubham Joshi | [email protected] Jay Narayanan, The Art and Science of Negotiation, Insights @ IMD, International Institute of Management Development (2018). Negotiation Process Leigh Thompson, ‘Chapter 2 – Preparation: What to do Before Negotiation’ in Leigh Thompson, The Mind and Heart of the Negotiator (Pearson, 7th edn., 2021). Roger Fischer and William Ury, Chapter 2 of Getting to Yes – The Method (3rd edn., 2011). Approaches to Negotiation Leigh Thompson, ‘Chapter 3 – Distributive Negotiation: Claiming Value’ in Leigh Thompson, The Mind and Heart of the Negotiator (Pearson, 7th edn., 2021). Leigh Thompson, ‘Chapter 4 – Integrative Negotiation: Expanding the Pie’ in Leigh Thompson, The Mind and Heart of the Negotiator (Pearson, 7th edn., 2021). Negotiation Strategy Roger Fischer and William Ury, Chapter 3 to 5 of Getting to Yes (3rd edn., 2011). BATNA Basics: Boost Your Power at the Bargaining Table, Program on Negotiation, Harvard Law School. Jonathan Hughes and Danny Ertel, What’s Your Negotiation Strategy? Harvard Business Review (2020). Negotiation Styles Leigh Thompson, ‘Chapter 5 – Understanding Personality and Motivation’ in Leigh Thomson, The Mind and Heart of the Negotiator (Pearson, 7th edn., 2021). G. Richard Shell, ‘Introduction and Chapter 1’ of Bargaining for Advantage – Negotiation Strategies for Reasonable People (3rd edn., 2018). Hal Abramson, Fashioning an Effective Negotiation Style: Choosing Between Good Practices, Tactics, and Tricks, 23(2) Harvard Negotiation Law Review, 319 (2018) [optional – not included in the reading material]. Prepared by Shubham Joshi | [email protected] Overview of Mediation Gracious Timothy Dunna, Chapter 1: Introduction to Mediation and Conciliation in India, in Gracious Timothy Dunna (ed), Conciliation and Mediation in India, Global Trends in Dispute Resolution, 3 – 36, Vol. 11 (Kluwer Law International, 2021). Mediation Training Manual of India by the Supreme Court of India [optional – not included in the reading material]. Drafting ADR Clauses Guide to Drafting ADR Clauses by Saudi Center for Commercial Arbitration. Drafting Dispute Resolution Clauses: A Practical Guide by American Arbitration Association [optional – not included in the reading material]. Emerging Trends and Future of ADR Aranya Chatterjee and Sharique Uddin, ‘Online Dispute Resolution: An Effective Mechanism and Alternative Tool for Justice at a Reasonable Time’ in Stavros Brekoulakis (ed), Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, 529-549, Vol. 87(4) (Kluwer Law International, 2021). Niti Aayog, Designing the Future of Dispute Resolution – The ODR Policy Plan for India (2021) [optional – not included in the reading material]. Jeffrey Maurice Waincymer, Online Arbitration, 1 to 23, Vol. IX(1)Indian Journal of Arbitration Law (2020) [optional – not included in the reading material]. Prepared by Shubham Joshi | [email protected] KluwerArbitration Document information Chapter 2: Reasons for Choosing Alternative Dispute Resolution Publication Jean-François Guillemin ADR in Business: Practice (★ ) and Issues across Countries and Cultures II 1 Introduction Alternative dispute resolution (usually referred to by the acronym ADR, which hereinafter, Bibliographic however, is used to refer to Amicable Dispute Resolution), is the focus of growing interest in the business world, and particularly the international business world. Contract drafters reference are continuously inventing new ADR procedures, most of which are derived from or Jean-François Guillemin, inspired by mediation, although in fact this is only one type of ADR. Mediation centres 'Chapter 2: Reasons for have been established, and the major arbitration institutions are offering their own Choosing Alternative methods and services. Writers have classified and analysed the various forms of ADR, and Dispute Resolution', in the legal issues which they raise are gradually being identified and studied. Mediation Arnold Ingen-Housz (ed), procedures are often ordered by national courts. Even universities are beginning to teach ADR in Business: Practice ADR techniques. and Issues across Countries All this might suggest that ADR was dreamed up by lawyers and foisted on a business and Cultures II, (© Kluwer world that has gradually been won over by the advantages of ADR. However, the real Law International; Kluwer underlying reasons for its growing popularity are much more complex. There is no single Law International 2010) pp. P 14 explanation, not even the convenient if simplistic argument that ADR is a way of 13 - 47 avoiding lengthy, complex and costly litigation or arbitration procedures. There is no doubt that ADR has emerged out of practice. There is a very broad range of alternative means of dispute resolution used in an equally broad array of circumstances. Paradoxically, though, these increasingly popular procedures have an apparent underlying weakness in that they can be broken off at any time, as most forms of ADR are simply variations on mediation. The role of the Neutral is simply to draw the two sides together. Although ADR is similar to arbitration if the Neutral is asked to take a decision (as is sometimes the case), that decision is never enforceable by forcible execution; however, it may be binding on the parties as a contractual term. Thus, they always have a right of recourse to litigation in national courts or arbitration. Furthermore, the methods used to resolve the dispute or the difficulty are often so far removed from the usual contentions procedures that they may lead to objections or a superficial or hasty assessment of the situation. In short, there is a risk that neither party will be satisfied. So, far from seeking legal security or predictability as one might expect, this suggests that companies are prepared to take the risk of prolonging and exacerbating their dispute by spending time and money on a preliminary procedure whose outcome is at best uncertain and at worst dangerous. It is clear, therefore, that the goals pursued by users of ADR go beyond legal considerations. Their overriding priority is to prevent difficulties, ensure continued performance of the contract, maintain the contractual relationship and make their joint project a success. This is more important than the dispute itself, even though ADR might fail and also have a negative impact on the ensuing litigation or arbitration. Growth in the use of ADR simply reveals that companies are increasingly aware of the fact that contracts often give rise to disagreements about their meaning or performance. There is always a risk that the contractual relationship will be broken off or harmed by the discovery of information that was not known at the time of signing the contract, or by a contract that leads to unforeseen difficulties, or by changes in the environment surrounding the contract, and many other factors. In short, companies increasingly see disputes and the sensitive issues inherent in any technique used for their resolution as an inevitable part of successfully completing a project. This is a problem that, like any other, is a matter for the parties themselves and would be better overcome if they agree to anticipate it and try to handle it themselves with the assistance of a neutral third party. Taking this approach a step further, it may be said that ADR can be a real ‘management tool’ and is in fact used as such in many circumstances. Prevention and resolution of disputes is of such importance that parties make provision in their contract to use ADR as a contractual ‘monitoring’ mechanism that can be easily set in motion by either party; this will trigger the intervention of a neutral, wherever necessary. The purpose of this type of ADR is to ensure that the contract operates properly, rather than simply to remedy the consequences of any failure in its performance. We are not saying that the presence of lawyers, among other advisers, is not desirable in P 15 an ADR procedure. On the contrary, they should be involved in devising and organizing the procedure. However, they should be aware of its implications and take a different approach than they would in litigation or arbitration. ADR is not a question of asking a neutral to settle a dispute by taking a decision. It does 1 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. not boil down to a bald examination of the dispute after the event. Its primary objective is not to consider the dispute in the context of the law in order to obtain a binding legal decision by applying the appropriate rules of law. What it does is to provide the parties with a means of making their negotiations more effective through the intervention of a neutral. In the form of assisted negotiations, it is a way of helping them seek a mutually acceptable compromise when they are in conflict or simply faced with a difficulty that has not yet become a real dispute. Its aim is often to restore or preserve the dynamics of the contract, though sometimes its function is simply to encourage resumption of dialogue between the parties. The key players in ADR are therefore not the neutral, legal advisers, witnesses or any of the other people usually involved in litigation, but the parties themselves, or more specifically the company's management team responsible for the matter or project in question. ADR only makes sense and can succeed if they want it to and if it is appropriate for resolving the difficulty they have encountered. This chapter aims to provide managers with a framework for assessing the relevance and appropriateness of using ADR. It is not intended to offer guidance on choosing between the various methods of ADR nor to give practical advice on how to implement the chosen method. Its purpose is to contribute to the initial assessment underpinning the decision to suggest, accept or reject the principle of initiating an ADR procedure, and following it through. Managers must have an understanding of how the dispute is likely to develop and what the possible outcomes are, with or without ADR, and they must ask the right questions. Should we take an unbending position based on circumstantial legal arguments? Try to negotiate if still possible? Suggest a form of mediation or other means of neutrally assisted dispute resolution? Or wait until the conflict develops or worsens, or until new circumstances or expected events indicate the most opportune or best advised approach? Is the dispute of a nature that naturally lends itself to ADR? Does ADR present an advantage or disadvantage in light of the company's position as either plaintiff or defendant? Will it have the same effect at different stages of the dispute? What will be the consequences of having recourse to ADR before, during or after litigation or arbitration? These issues are crucial, but are only a few examples of the questions that should be asked. The initial assessment process is designed to provoke a list of those questions, and which are practical questions, and not the intellectual or theoretical suppositions for which lawyers are often criticized. The purpose of this paper is to give a clear presentation of all the issues involved. Conflict is an inherent part of business life. It arises in the course of most business operations, during negotiation and performance of agreements, and as part of the interrelationship between various contracts which deal with the same overall project but P 16 which have perhaps been entered into by other parties and are governed by other legal systems or contractual terms. The conflict itself may evolve slowly, it may recede or be held in abeyance. It may also arise suddenly, forcing the parties to take action, and urgent decisions in a moment of crisis and organize themselves accordingly. In all these cases, the parties involved will have to analyse the circumstances and their objectives and weigh all the factors to determine which approach will permit the fewest possible errors. This may prove to be a properly controlled alternative means of dispute resolution, in which case the company must define the boundaries beyond which it is not prepared to go (section II). The company's management must be the guiding force behind this assessment of the advantages and disadvantages of ADR. It is a crucial aspect of their management role. They must take full responsibility for the decision to use ADR, with their lawyers providing guidance as to the most appropriate form. A wealth of existing experience can be used to identify the positive reasons for choosing ADR. It may be appropriate because of the nature of ADR itself (Section III) or, indeed, the nature of the contract (Section IV). However, it is rare that one single reason leads to the choice of ADR. In practice, it is usually a set or combination of different factors. It is essential to carry out this assessment as ADR is not necessarily always a better choice than arbitration. In some circumstances it may be the only sensible option; in others, litigation or arbitration may appear to be a better, or indeed the only, way of resolving the dispute. Sometimes it makes sense to use ADR as well as or after conventional dispute resolution procedures. In fact, in many cases, ADR is instituted during arbitration or court proceedings, once the legal issues have been dealt with or simply clarified. Sometimes neither arbitration nor ADR is an option, for example, in cases where the parties have too close a relationship or they are too interdependent. Conflict is simply not a possibility for them, and negotiation is therefore the only means of resolving a dispute. When used properly, ADR can be very valuable, but it is only a better solution or a useful stage under certain circumstances and certain conditions. This paper starts from the premise that ADR has become an essential practice, different and independent from, but complementary and in no way contradictory to, arbitration. 2 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. 2 A Choice Based on an In-Depth Assessment of the Chances of the Adr Procedure Being Successful This preliminary comment may seem trite, but the assessment stage, preceding the decision to have recourse to ADR, is of enormous importance. That decision must be prepared with at least the same care as was the decision taken to establish the underlying partnership or business project and enter into the contract. ADR is simply a contractual mechanism and a business practice, whose aims are P 17 numerous and go beyond purely legal considerations (resolving an existing problem, avoiding quarrels with a partner, communicating to ensure better formation, performance or termination of a contract, etc.). It is a delicate process for the reasons already set out above. It does not offer the relative predictability of conventional litigation. Nor will the parties find any answer to their questions or the beginnings of an answer in procedural codes, cases decided in the national courts or writings by learned authors. Neither the parties nor the neutral will be locked into a system of set patterns and procedures. Companies should see ADR as a method of risk management. It should not be a cause for concern but rather for reassurance, as they know instinctively that taking a risk, if properly planned and controlled, usually leads to progress and success. 2.1 Management Involvement The first important step is to obtain management involvement in the decision to have recourse to ADR and then in its actual implementation. American ADR specialists rightly insist that active management involvement is a decisive success factor. So much so that it must be said that ADR is unlikely to succeed without full management commitment on the part of all companies involved. Practitioners know how difficult it is to get managers involved in arbitration or litigation. It is a world in which they do not understand the language or sometimes even the rationale. They see it as the exclusive preserve of experts or too far removed from their own concerns for them to be able to have a positive influence on the course of the proceedings. Management involvement is simply a means of bringing people into the dispute who, in principle, have a real talent for analysing complex situations and deciding what action to take. If they are reticent, their commitment can often be won through a direct but tactful approach from the neutral. Negotiation, arbitration between conflicting interests and seeking compromise are an essential part of daily management life. Managers have to be aware that ADR is one of those procedures with which they should be familiar and that it can be brought to an end at any time (unless the parties themselves have fixed any constraint in that connection). Paradoxically, this revocability, which is of the essence of ADR, is often seen as a positive factor, indeed as one of its key strengths in that it does not lock the parties or the neutral into a procedure that will end in a decision enforceable by forcible execute. Furthermore, through their involvement, the managers often discover important aspects of the dispute that have either been ignored or not sufficiently highlighted in the company's internal reports. The origin of the dispute may lie with them since they were too remote from the field and were thus led to a poor assessment or a combative position that fails to recognize the true value of the arguments or legal position. Or they may not have been given the relevant or reliable information that would have led to a better assessment of the position. Hope of turning the situation around, fear of sanctions or simply blindness to the facts may drive subordinates not to reveal the true situation. P 18 Managers' involvement, for example, simply meeting the other party or the neutral, generally changes their assessment of the situation. They may of course harden their position, but it is more likely to have a different effect. 2.2 Audit of the Contractual/Conflictual Position It is only after a careful analysis of the facts that the reasons for having recourse to ADR, or not, will become apparent. The second step, therefore, is to conduct an audit of the contractual or conflictual position facing the company. The term ‘audit’ has strong connotations, but it is used here deliberately. Practitioners will agree that failure to conduct an in-depth audit is often the reason for poor dispute resolution clauses or litigation strategies that prove to be dangerously ineffective. This recommendation holds good for all contentious situations. It is not possible to prescribe a cure without first carrying out a full diagnosis. The managers must have a clear understanding of the difficulty and the environment surrounding it. The dispute may be due to a simple misunderstanding, or it may have arisen from personal conflict, poor advice or encouragement from a consultant with a vested interest in provoking litigation. An in-depth analysis may reveal the beginnings of a solution. It often 3 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. provides a better understanding of what the future holds, in other words, the repercussions of the dispute, which may in itself be enough to make management aware of the advantages of reaching a compromise. Conducting an audit of the contractual or conflictual position is always a useful step, whether it takes place before the contract is drawn up or during its performance. It should not be a one-off event, but a continuing process repeated each time an obstacle is overcome or a new problem emerges. On the other hand, it is not always an easy step to take, as the negotiating team or team responsible for performance of the contract often finds it difficult to accept such a focus on weaknesses or deficiencies. However, it is extremely important because it involves preparing and organizing the company's last line of recourse in the event of any such problem. Many issues need tackling, whether the audit takes place before the contract is drawn up, during its performance or when the dispute arises. What are the foreseeable difficulties or those already encountered in performing the contract? What is the likely nature of future disputes and the nature of the current dispute? What is really at stake? Identifying and clearly understanding the risks already represents substantial progress. These risks may be financial or human or of some other kind, for example, risk of damage to the company's reputation. Careful attention should be paid to all of them. The conclusions of the audit will provide management with what may well be the most important aspect of the assessment process, namely, the scope of the possible solutions. P 19 It would be unreasonable to embark on mediation or any other form of ADR without having at least an idea of what a realistic outcome might be. Finally, this in-depth audit should include a question no less crucial as the very feasibility of ADR depends on the answer. Assuming the other party accepts this approach, does the governing law contain any provisions that might prohibit the procedure envisaged by the parties or render it ineffective? 2.3 Advantages and Disadvantages of ADR from the Position of Plaintiff or Defendant The audit of the contractual or conflictual position is all the more important in that it often reveals whether the company's true position is that of plaintiff or defendant. Practitioners have all had the experience of circumstances where a company believed itself to be the plaintiff but ultimately turned out to be the defendant or meetings where the managers discover that the clause on which they were relying to defend their position was not as clear as thought or indeed had the opposite effect to that which they had imagined. What can ADR offer the plaintiff or defendant? If the plaintiff has solid grounds, considerable time and money can be saved by involving a neutral who can make the other party aware of the true position. A defendant whose position is critical from a legal point of view would surely have a vested interest in persuading the other party, with the support of a neutral, to carefully examine the situation and perhaps understand that a legal victory would cause the contractual relationship to deteriorate to the point of jeopardizing completion of their joint project. There are any number of possible scenarios since ADR can be used at various times during a situation of crisis, – before, during or after litigation or arbitration. For example, ADR may not initially offer benefits for the plaintiff who needs a court judgment. However, once the judgment has been handed down, the problem of enforcing it might lead the plaintiff to suggest ADR. A company needs to know whether to act forthwith or on the contrary to wait for the right moment, especially when the defendant is in a troublesome situation. 2.4 Assessment of Subjective Factors The reasons for choosing ADR set out in parts 2 and 3 below are mostly based on objective factors. However, there also may be subjective reasons for using ADR that should be examined early on in the process. This is an important consideration because ADR, as explained earlier, is a revocable procedure. Its success depends on the parties' willingness to embark on that route and, before that, their shared belief that ADR is capable of providing a mutually satisfactory solution or an acceptable settlement. P 20 Managers seeking to determine the potential benefits of ADR should review a number of issues that, although far removed from the legal considerations, are nonetheless critical: – Is it too late for ADR? Is a settlement still possible? – Are the managers able or prepared to take responsibility for a decision proposed by the neutral? – Are the managers of the other party able to take a decision or impose a solution involving risks? – Is the involvement of the parent company or one of its shareholders inevitable? Should discussions be held at that level? 4 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. – Do other people hold the keys to the dispute, for example, insurers, bankers, sub- contractors or suppliers? – Do the company's practices, culture or country of operation lend themselves to the use of mediation? It might be added that there is a danger that certain complex clauses imposed by customers in some major projects may be used as a means of pressure to create difficulties for the other party to the contract. Other factors must also be analysed. Is there a strong probability that the other party will respect the settlement with the assistance of the neutral? Will the highly delicate nature of the dispute prove to be too great an obstacle; for example, could the other party be driven to hide certain key information? If the other party is advised by a highly influential lawyer, who is not inclined to reach a settlement or whose legal culture is totally alien to the context of the contract and/or dispute, this can be a dissuasive factor. Lastly, difficulty in understanding the reasons why the other party allowed the situation to deteriorate can be an indication of a hidden agenda. These uncertainties may well give rise to justifiable doubts as to appropriateness of ADR. Managers ask themselves these psychological or tactical questions continuously during contract negotiations. They are also important when choosing between the various means of dispute resolution, and they may or may not lead to the choice of ADR. In this connection, analysis of precedents is important. How did the other party behave during previous negotiations? Were previous experiences of ADR successful? Are these practices common in the country or company concerned? If the company has little or no influence over the choice of the neutral, great care should be taken and it should reject ADR if that is possible whenever the personality of the neutral seems to present risk. All practitioners have, at one time or another, regretted their failure to understand that a long, costly and destructive court or arbitration case could have been avoided if a neutral had intervened at the right level and at the right time, even if only to advise both parties of the reality behind their dispute. 2.5 Act or Wait? Before proposing ADR or seeking to implement a contractual ADR clause, managers P 21 should ask themselves whether it is better to act immediately or wait for the other party to take the initiative. If they act, will this put the other party into a position where it may be able to use delaying tactics or leave its opponents to take the initiative? This issue is an extension to the assessment of the advantages and disadvantages of ADR in light of the company's position as plaintiff or defendant. Whichever position the company is in, a decision to propose ADR may be seen as an admission of weakness. It may also be seen as a manipulation, or even a trap, with the initiator being suspected of trying to take control over the dispute in order to gain time or improve its position by encouraging the neutral to express conclusions embarrassing for the other party. However, taking the initiative, if well presented and done at the right time, may on the contrary be seen as a positive, constructive approach, a sign of desire to restore relations to their original state and a sign that the initiator is confident and believes that discussions, albeit assisted, can help find a mutually satisfactory solution. 2.6 Assessment of ADR's Ability to Bring Something New The benefits of mediation can be obscured by factors such as force of habit, amplification of the disputes and reticence on the part of external advisers reluctant to allow conduct of the procedure for resolution of the dispute slip from their hands. ADR is most frequently induced by the emergence of a new fact seen to be an event that creates both a new situation and a real opportunity to find a solution. ADR is of interest only if the situation which it creates could not happen in a conventional process of dispute resolution or by discussions between the contracting parties without the intervention of a third party. The parties may consider using ADR after a procedural incident has upset the smooth path of conventional dispute resolution or when there has been yet another incident in performance of the contract. But a much more important event is usually required before they will abandon conventional dispute resolution techniques. For example, to obtain the other party's agreement, the proposal to use ADR probably has to show that the initiator, whether plaintiff or defendant, has a very strong case, has a new argument or is in a position to proffer the beginnings of a solution. This is an appropriate moment to speak of the practice of ‘caucusing’, a procedure that is not available to a judge or arbitrator and is one of the key controversial issues between the supporters and opponents of ADR. Caucuses are meetings that the neutral holds separately with each side of the dispute. The parties can each therefore speak more freely to the neutral than if the other side 5 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. were present. Moreover, the neutral can express an opinion on the behaviour or position of the party present, point out the strengths of the other side's arguments and begin to test his or her initial ideas and suggestions. Well-conducted caucuses can free the parties from the climate of opposition and systematic rejection that destroys the contractual relationship. It can help both sides take stock of and begin to understand the neutral's proposed solution. It can drive the P 22 process forward by allowing one side or the other to ‘save face’, particularly if the neutral presents any proposals as his or her own ideas, rather than as coming from the opposition. Caucuses (which may be seen as a dialogue between absent parties) can reassure the parties and even push them to action as they realize that, after all, it is their last chance to restore dialogue. However, this approach is not without danger. Indeed, both sides gain a better understanding not only of the other's strengths but also their weaknesses. Lawyers see it as a breach of the principle that each side must be able to answer the case of its opponent, as well as present its own case, since the neutral may begin to form an opinion before hearing both sides on all issues raised. In most cases, of course, the neutral is simply giving an opinion that will remain confidential if ADR fails. But neither the existence of an ADR procedure nor the neutral's opinion are insignificant matters, and any error or even disclosure might weigh heavily on the ensuing conventional dispute resolution procedure. Finally, caucusing can only be used if the cultural context permits. It may cause a problem in some countries. It is and will remain a controversial practice, but it can have its uses. The neutral and both parties are taking a risk, but few practitioners of mediation and ADR would deny its effectiveness. It creates the new situation mentioned above that may restore dialogue and gradually reveal a mutually acceptable solution. 2.7 Taking the Initial Steps ADR is not bound by a tried and tested set of rules and practices, and in most cases its success depends on an uncertain event (agreement between the parties). Thus, the decision to use one form or another of ADR cannot sensibly be taken until some initial steps have been taken to test the chances for a positive outcome. It requires one of the parties to approach the other, and not merely through in-house lawyers or external advisers. The approach must convince the other party that there is a true willingness to embark on and follow the rules of ADR. Here again, management involvement is essential during the exchanges during which the parties agree to open negotiations to set up an ADR procedure. However, the nature of the other party and the cultural context must be taken into account. Sometimes it is essential for a third party to make the initial approach. A third party (who might subsequently be appointed to conduct the ADR process) is often better equipped to pass on the message so as to avoid giving the impression that this first step is a mere tactical manoeuvre. The initial approach is particularly important and must give out an immediate, strong signal, which will be all the more credible if delivered by a neutral. After the initial approach, the parties will then have to agree on the appropriate form of ADR and settle some organizational issues. However, this stage is much more than a question of settling procedural or practical considerations. It will begin to reveal the attitude of each party and whether they are really ready and willing to negotiate in good faith, an essential pre-requisite to success. As this is not always the case, it is important to probe the real willingness and commitment of each side. P 23 During this stage, the parties should also think about the choice of neutral and whether he or she should be approached by both parties jointly or separately. Can the right person be found? An astute tactic can be to choose a neutral from the opposition's background. This will either reassure or worry the other party, which may be a positive factor. If the right neutral can be found, is the person independent and does he or she have the technical expertise required and the specific qualities needed for the role? Can he or she make themselves heard and understood by the companies' managers? Does he or she have the requisite authority and skills? And, most importantly, is the person available, which is essential for the ADR to have any prospect of success. Any neutral must have one very special quality, which is not required of a judge or arbitrator, namely the ability to create a new situation by incursion into the contractual relationship in such a way that it will make both sides change or modulate their attitude. The person must be able to assimilate and analyse the facts quickly and act with the same speed. Experience shows that mediation or other forms of assisted negotiation will succeed in a few days or a limited number of weeks … or never. Speed is most definitely the determining factor in the success of any ADR process. We are not suggesting that a businessman makes a better choice of neutral than a lawyer or a professional magistrate. Some businessmen do not have the skills required to bring 6 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. two opposing sides together to find common ground. They are often more accustomed to imposing their own views and deciding rather than reconciling. All in all, then, an ability to understand and handle people is more important than prestige or high position. Here again, these discussions on the choice of neutral give both sides the opportunity to sound each other out and, of course, the neutral who will play a crucial role in easing the contractual relationship or resolving the dispute. One last thing should be checked before going any further. In most cases, ADR will succeed only if the neutral and both parties can preserve some privacy. The less cumbersome the process, and the fewer the people involved on each side, the greater will be the chances of success. If the other party has too many people involved in decision-making, too many layers of authority or more generally a collegial management style, it may be better to abandon the idea of ADR. These assessments must be carried out before opting for ADR. But there are other factors of equal importance that should be considered and which may favour the choice of ADR. 2.8 Is the Business Climate – Growth or Crisis – a Factor to Consider? We have already seen that cultural factors play a key role in the success of ADR. Some cultures are not naturally inclined toward mediation, whilst others see it as an essential means of dispute resolution. P 24 Is the general business climate also a decisive factor? This is a question worth asking at a time when the world economy is going through a period of unprecedented crisis. The development of ADR and examples of successful experiences are relatively recent. The use of ADR really only began to take off in the ten years before the crisis hit –, in other words, during a period of growth and prosperity. Does this mean that a prosperous economic climate is crucial to the success of ADR? When companies are making comfortable profits and therefore have more bargaining power, when growth means that business is more robust and companies are ‘forced’ to live side-by-side, when their main concern is to generate more profitable business, it is tempting if not natural to seek compromise and avoid wasting resources on litigation or arbitration proceedings that are often considered to be not only time-consuming and costly but also unpredictable. Things are quite different during times of crisis, when orders are thin on the ground, margins poor if not non-existent, financial resources scarce and limited and asset disposals or purchases sometimes unavoidable. Difficulties, disputes and contractual anomalies then become a real headache and a direct threat to the annual profits of each contracting party or indeed their company or group itself. This makes negotiating contracts much harder. Companies are asked to make more specific and firmer commitments. They do not have the additional resources to absorb contingencies or incidents. It might be tempting to postpone the resolution of the dispute to save cash or to put more pressure on the other party if it needs a quick decision. Is not such an environment detrimental to ADR? There is some evidence to support this, such as the significant increase in the number of arbitration cases referred to the International Chamber of Commerce. But it would be premature to draw a definite conclusion. No one knows yet what impact the crisis will ultimately have on the business world. For example, accounting standards have been tightened up and, for listed companies, so have stock market regulations, all of which requires companies to disclose much more information about disputes and to take prudent provisions for them in their financial statements very early on. The negative impacts of disputes are therefore numerous, immediate and costly. In addition, dispute management is much more complex because companies have to provide regular information on developments to their external auditors and, for listed companies, to the general public. As a result, disputes are and will be very much more in the spotlight than before, which could lead companies to use ADR schemes more extensively. 3 A Choice Inspired by the Nature of ADR We shall see later that certain types of contract lend themselves naturally to ADR. However, ADR will have to provide a more satisfactory solution than litigation or arbitration or a more effective solution than the parties' endeavours to reach mutual agreement by themselves. P 25 It is useful, therefore, to examine the nature of ADR itself before committing to that route. Why choose this less common means of dispute resolution? As we saw earlier, ADR is not a matter reserved for lawyers and whether it should be used. It ought not, therefore, to be a decision delegated to the company's lawyers, even though they may have the skills to guide management in the assessments described above. Indeed, whether ADR should be attempted is a general management issue that requires 7 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. the careful consideration and approval by the company's management team. Section 2 above described various forms of ADR. However, at this stage, we simply need to stress the importance for management fully to understand how the chosen form of ADR works and what the possible outcomes might be, more particularly when compared with other forms of dispute resolution. This second stage in the assessment may well reveal that ADR could be used in some way other than simply to settle a specific issue arising from a certain aspect of a contract. It is not always the ‘haute couture’ solution to contractual or contentious problems, nor is it restricted to certain business sectors or highly specific circumstances. Through its very nature, it has a much more general scope. Parties should not refuse to consider ADR, even in situations in which there is no overriding reason to avoid litigation or arbitration. In other circumstances, ADR may be the only possible solution. Finally, the very nature of ADR may even make it an inappropriate choice. 3.1 Reasons to Do with the Occasional Mandatory or Quasi-Mandatory Nature of ADR In some situations, parties are put under a legal obligation to have recourse to ADR. In many American states, the courts may order a mediation procedure. In Great Britain, the courts can put strong pressure on both sides to accept mediation and will issue a warning that a party refusing to do so will be ordered to bear the costs. Although not so robust as these methods, a common legal practice, particularly in France, is for the courts to recommend mediation, which is often so forceful that neither side dare refuse. 3.2 Reasons to Do with Rejecting Litigation or Arbitration We have already seen that the reasons for rejecting conventional procedures for dispute resolution are not enough to explain the growth in ADR. But it is an important contributory factor. The legal context in which the contract is made and performed may be highly complex or conversely under-developed. For example, the use of ADR is very popular in the United States. The reasons for this are the huge expense and time involved in conventional P 26 litigation, the complexity of the law and the uncertainty caused by the involvement of juries in certain cases. In some business sectors, companies make a general undertaking to use ADR before recourse to litigation. The same trends can be seen in the United Kingdom. For example, under British construction law, adjudication is mandatory in many circumstances, although as the adjudicator's decision is binding on the parties, this process can no longer really be classified as ADR. Conversely, many countries do not have a legal system that guarantees minimum legal security. Others have not developed laws governing certain activities or do not have the necessary procedures, such as urgent provisional orders in ex parte proceedings. Difficulties such as these can be found in Eastern European countries as well. Lastly, other legal problems can lead to a preference for ADR: – rules on admissibility of evidence, which may prevent a proper analysis and presentation of the dispute; – over-extensive use by the courts of the concept of public policy; – ease in obtaining interim measures through quick summary procedures, which could render any subsequent ruling on the substance of the dispute ineffectual; – uncertainty as to the forcible execution of the award or judgment; – difficulties in bringing third parties into the proceedings. The legal environment surrounding the contract which may either have too many constraints or gaps may therefore be a good reason for choosing ADR. Furthermore, the same criticisms are levelled at international arbitration – high costs; sets of procedural rules with unnecessary or dangerous provisions providing too many opportunities to create incidents; excessive bureaucracy imposed by the arbitration institutions; appointment of arbitrators with little knowledge of the business, country or law concerned; continual self-appointment of the same people; tendency for advisers and arbitrators to mindlessly follow ‘Anglo-Saxon’ practices (not necessarily properly understood or applied); delaying tactics; a plethora of written submissions, hearings, witnesses, expert opinions; mobilization of a disproportionate number of a company's staff; and so forth. But time, money and the terror of cross-examination are not even the most serious drawbacks. Another is the lack of confidentiality, since the procedure and award may create the right to go to the courts. Further, there may be a lack of interim awards in cases of emergency; moreover awards may be worthless because they can never be enforced or do not provide a real solution. Then there are awards that only half settle a dispute, a not uncommon occurrence resulting from desperate attempts to satisfy both parties or all three arbitrators. Some arbitration procedures turn into a subtle intellectual game in which any concrete information about the dispute ends up 8 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. mysteriously disappearing. Lastly there are awards without proper reasons which, although they provide a financial solution, do nothing to settle the debate, misunderstanding or incomprehension between the parties. This long list of criticisms may appear exaggerated and unfair, especially in light of the P 27 continuing importance and popularity of arbitration. But these things do happen, and such experiences have undeniably contributed to the renewed interest in mediation and other new forms of dispute resolution. Companies are increasingly nervous about putting the future of their project, alliance or business enterprise in the hands of an arbitrator. Each of the criticisms levelled in the previous discussion may be a perfectly good reason for choosing ADR, which offers a means of resolving a dispute without the disadvantages of arbitration. This is ADR's great strength. Both sides have full control over the situation, and their fate does not lie in the hands of an arbitrator against whose award they have no right of appeal. They are bound only by their own acceptance of the mediator's proposals, which are often revised as a result of discussion and negotiation. This control of the conduct of the dispute resolution procedure is often a key success factor in mediation. The conflict is not bound by the legal straitjacket of pleadings and terms of reference that encases arbitration. It is entirely in the hands of the parties involved. The probings, crises and false trails can be highly beneficial and often reveal the route to solution. The neutral's freedom of thought and speech can also be a powerful driving force in finding a solution, for example, the ability to take a speedy position on a decisive point of law. The solution may also take innovative forms that are not available to the courts, for example, the well-known settlement agreement accompanied by an amendment to the contract. This type of agreement embodies a subtle balance between remedying a contractual breach, an agreement on purely technical questions, and amendments to the provisions of the contract such as an extension of the time for its performance. A compromise involving painful sacrifices but reached at the right time is far better than an award that is legally correct but has come too late or whose remedies and relief granted are inappropriate. As we pointed out in the introduction, ADR is a purely voluntary procedure that can be abandoned at any time by either party. This essential feature offers two advantages, which are perhaps the main reasons for ADR's growing success. First, the solution is usually better understood by the parties as it is the result of open communication and, more importantly, mutual agreement between them. It is also usually more effective as neither side is pressured by the need to defend a legal position and convince a court of its arguments. Discussions cover all aspects of the dispute and explore all possible solutions. ADR does not dwell on the past like conventional dispute resolution procedures, but looks to the future, in other words toward action. The second advantage is that ADR can lead to a broader array of possible solutions, as the courts can only deliver rulings or remedies and relief permitted by law. Lastly, there are disputes whose resolution is urgent. Sometimes, immediate action is crucial because the technical or financial repercussions of waiting would be just too great. In theory, litigation and arbitration both provide solutions to these needs, but in practice, who has not experienced difficulty in obtaining an interim award from an arbitration tribunal? Who has not been faced with a court reluctant to take interim measures for fear of taking a position on the substance of the dispute? P 28 However, each of the criticisms levelled at arbitration should be kept in mind when choosing and organizing ADR. If ADR has been chosen to avoid conventional dispute resolution procedure, it is only of value if it offers a real remedy and a real alternative and is not a procedure with similar flaws and weaknesses. 3.3 Reasons to Do with Rejection of Class Actions This chapter would not be complete without a brief discussion of the debate currently being held in Europe on the introduction of a US-style class action system in EU law or the national laws of its member countries. This discussion is relevant for several reasons: First, of course, because one of the solutions envisaged in certain circles is the expansion of mediation schemes, sometimes through official bodies. Again, the rationale behind this solution rests upon an innate aversion to the very thought of class actions and all that they entail. Contingency fees, discovery, opt out, punitive damages and just the cost in general –, all of these peculiarities of the American system horrify the Europeans. But no one can seriously oppose the contention that any legal system should have some specific means of redress for victims, even if the amount claimed by each plaintiff is small and the number of consumers concerned very high. Many professionals believe that mediation is a simpler, quicker and cheaper route, and they can support their argument with many examples of successful experiences. Second, while referring to the European debate on class actions, we can extend the scope of this chapter to business – consumer relationships. One might think that ADR is only relevant to business relationships and sometimes relationships between businesses and 9 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. governments or local authorities. But it would be a serious omission to ignore all the forms of mediation currently being developed in many countries to resolve ‘consumer disputes’, which cover both individual and group actions. Finally, it is important to note that mediation is not just considered to be the ‘least bad solution’. It has undoubtedly become the obvious solution for many official organizations or bodies that are considering introducing a group action system in Europe. Indeed, in many countries and business sectors, such as mobile telephony, consumers already have recourse to alternative means of dispute resolution through various forms of independent mediation such as watchdog or ombudsman schemes. Sometimes these organizations are recognized public bodies. According to a recent French parliamentary report ‘In the past few years, we have also seen rapid but fairly disparate growth in the number of professional mediation organizations and bodies with very different statuses, and many business sectors and even major private and public companies have their own mediator and publish a specific report on their activity each year’. ‘The vast majority of minor disputes can be handled through systematic recourse to mediation in all sectors. It is P 29 clearly simpler, quicker and cheaper for consumers to win their case by going to a mediator if they are not satisfied with the way their complaint has been handled by the company's customer service department. Mediation, if it works and produces results, is preferable to legal action, even when collective’ (Senate information report no. 499 of 26 May 2010 on group actions). It is interesting to note in this respect that the European Commission has been unable to ignore this trend, although it is basically suspicious and not convinced that ADR can provide a solution to collective and/or low-value lawsuits. The Commission has already published two recommendations on out-of-court consensual resolution of consumer disputes (Recommendation 98/257/EC of 30 March 1998 and Recommendation 2001/310/EC of 4 April 2001). It was encouraged to do so by the European Parliament: The European Parliament in its opinion on the proposal for a regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, called for the extensive use of extra-judicial dispute resolution for consumer transactions, in particular where the parties are domiciled in different Member States and in view of the cost and delay associated with going to court. The Commission had already taken a position on the use of ADR in e-commerce: Member States should ensure their legislation does not hamper the use of out- of-court schemes, available under national law, for dispute settlement. New technology can contribute to the development of electronic dispute settlement systems, providing a mechanism to effectively settle disputes across different jurisdictions without the need for face-to-face contact, and therefore should be encouraged through principles ensuring consistent and reliable standards to give all users confidence. The Recommendation of 4 April 2001 states that impartiality and fairness are the two fundamental principles underlying any form of ADR and provides a very clear definition of it: The present principles should be respected by any other third party procedures, no matter what they are called, which facilitate the resolution of a consumer dispute by bringing the parties together and assisting them, for example by making informal suggestions on settlement options, in reaching a solution by common consent. The European Mediation Directive 2008/52/EC encourages the use of mediation as a means of resolving cross-border civil and commercial disputes and more generally the use of all forms of voluntary dispute resolution. In its Green Paper on consumer collective redress dated 27 November 2008, the Commission was forced to accept that alternative methods of dispute resolution can be an interesting option for resolving collective disputes: Member States could have the choice on how to establish collective alternative dispute resolution schemes. They could either adjust their existing P 30 schemes or establish one or more new alternative dispute resolution schemes to deal with consumer collective claims. This could be achieved by a Recommendation or a Directive. In parallel, the Commission could bring stakeholders together to develop a standard model for a collective alternative dispute resolution scheme which is easy to use, in particular in a cross-border situation. It is still too early to know which side will win – the supporters of the American-style class action, the supporters of a court system of redress designed to avoid the excesses of the 10 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. American system, or the supporters of ADR. But we do know that in Europe, in this area, ADR will have, or rather will keep, its place and its uses. Practitioners, professionals and consumer associations all promote and will continue to promote the use of ADR in business-consumer relationships. 3.4 Reasons to Do with the Existence of Litigation or Arbitration ADR is sometimes presented somewhat hastily as no more than a stage preceding litigation or arbitration. This is indeed often the case when its use is agreed at the time when the contract is made (e.g., a clause in the contract requiring disputes to be referred to a major organization such as the International Chamber of Commerce). However, that is too narrow a description as ADR can still be valuable even when litigation or arbitration has already begun. This is proved in practice by the fact that ADR most frequently takes place during the litigation or arbitration process. Practitioners have all experienced those special moments when litigation or arbitration begins (receipt of the writ or statement of claim, or the parties' agreement on the scope of the dispute), the hearings end, pleadings close, or an interim ruling or award is delivered. They often present real, through delicate, opportunities to resolve the dispute through negotiation or mediation. It is at such times that both sides might finally discover the truth behind their dispute or finally understand the true legal position. They are then better able to evaluate the real implications and their own room for manoeuvre. Alternatively, as they see the legal solution beginning to take shape, they realize that it would be much easier to end the dispute through a quicker and less cumbersome procedure than continuing down the legal route. Often, the legal issues need to be clarified or settled before the parties can see clearly. The arbitration process serves to exhaust their arguments and strengths, leading them at the end essentially to a more enlightened view of the situation. At this stage, ADR can effectively take over from arbitration and it will be the fruit of an entire arbitration process that has made the parties aware of the realities and convinced them of the benefits of voluntary settlement. The value of a contentious procedure lies in draining the parties of their strength and the illusions that they probably needed previously. P 31 Finally, ADR may also take place once arbitration or litigation terminates with an award or judgment. It can be useful at this stage where, for example, enforcement of the award or judgment presents difficulties by reason of its terms or the occurrence of circumstances complicating its enforcement. Because the dispute has been settled, it may be in the parties' mutual interest not to prolong this painful episode. 3.5 Reasons to Do with the Nature of the Dispute The very nature of some disputes virtually rules out recourse to litigation or arbitration. Take the example of a shareholders' agreement containing complex provisions that can have a paralyzing or disturbing effect on the company's operation, such as changing the simple majority vote requirement or giving right of veto to one or another of the shareholders. The dispute does not necessarily involve points of law, but simply non- performance of the agreement or a decision that is not in the company's best interests. It may involve disagreement over a business plan or project to extend the company's activity. While the dispute may be fierce, it is almost impossible to lay the blame on one side or the other. They are in disagreement over the company's future or have a different view of the risks involved. However, the consequences can be extremely serious because one side has the contractual right to paralyze the company's development. In these cases, the two parties are more likely to seek a different approach to settling their dispute, as litigation and arbitration are ineffectual for this type of problem. In other circumstances, the subject of the dispute may be so technical and the expertise required so specialized that only an expert or highly experienced person can take an appropriate decision. 3.6 Reasons to Do with Confidentiality A more classic reason for using ADR is confidentiality, a common concern in our increasingly media-driven business world. Most court cases take place in public, and in regard to arbitration, practitioners have long since lost their illusions, as there is no real guarantee of confidentiality. Confidentiality is undoubtedly one of the most fundamental reasons for choosing ADR. Wrong or incomplete publicity about a dispute can harm a company's commercial activity, share price or ability to raise finance. A dispute between two companies bound by a strategic alliance can be wrongly interpreted as an indication of impending divorce. The announcement of a director's departure as a result of a dispute may be interpreted as a sign of suspect practices. Disputes can also arise between members of a family- owned company or between companies belonging to the same group, disclosure of which could have a devastating effect. The choice of ADR may also stem from a desire not to 11 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. P 32 add communication difficulties to an existing dispute or a concern to control dissemination and reliability of information. With ADR, it is much easier to preserve confidentiality of the dispute, the discussions and the outcome reached. Major international tender invitations often contain a clause requiring bidders to reveal their pending or past involvement in legal procedures for the settlement of disputes. This information, or non-disclosure of a relevant dispute, can become a reason for disqualification, and it is therefore important to find solutions other than conventional dispute resolution procedures. More generally, a company involved in numerous public disputes runs the risk for losing business opportunities where the same investors, public bodies or major clients are involved. In some countries, a reputation for having resort to legal proceedings way be particularly damaging because of the local culture. ADR undoubtedly offers better protection in terms of confidentiality because the parties have total control over the institution and conduct of the procedure. However, proper precautions should be taken by drawing up a detailed confidentiality agreement. 3.7 Reasons to Do with the Absence of Dispute or Desire to Avoid a Dispute Arising To say that the absence of dispute is a good reason for choosing ADR may sound silly or smack of lawyer sophistry. However, experience shows that it is in fact a very relevant reason. One of the most useful features of ADR, which is perhaps its real strength and the reason for its current popularity, is that it offers both sides a framework in which to handle situations which are not or have not yet become a dispute. ADR can be used not only to resolve a dispute between parties but also when a mere ‘difficulty’ arises or simply when a decision needs to be taken. The neutral's role may take on a variety of guises, as illustrated by the following examples: – giving the parties an objective explanation of the facts underlying the dispute; – providing an analysis of risks that were not foreseen at the time the contract was drawn up; – recommending interim measures pending an arbitration award or decision by a court; – providing the parties with an interpretation or analysis of a legal contractual provision; – providing a critical analysis of the contractual framework binding the parties; – drawing up and proposing new contractual provisions; – explaining the usual business customs, practices or conduct in such circumstances; – assisting the parties in contractual negotiations by giving advice on what might be a fair solution at each stage and for each key issue; P 33 – proposing additional provisions to complete the contract; – preparing meetings between the two management teams involved in the dispute; – assisting in the harmonious performance of several contracts with the same purpose but governed by different clauses and laws; – organizing a truce during which the parties will attempt to resolve their differences themselves while continuing to perform the contract. The parties may therefore be seeking to prevent the emergence of a real dispute, or else using ADR simply as a means of performing the contract. To do that, they have to break out of the usual legal bounds, mutually agree to take the risk involved in rapid decision- making and introduce a neutral party to the contractual relationship whose approach will not necessarily be a legal one. 3.8 Reasons to Do with the Complementarities between Expert Determination and ADR Expert determination is becoming increasingly popular. It may be a contractual requirement or used during performance of the contract and no longer merely to provide the parties or the court with the clearest and most comprehensive picture of events. It is now being used more as a decision-making tool and to overcome obstacles which are not seen by the parties as disputes but as events inherent in performance of the contract. Expert determination is therefore a management tool, a means of clarifying the origin and causes of a difficulty in order to avoid disputes and lead the parties to take a joint decision. Experts who have gained credibility by providing a rational and relevant technical analysis will often see their assignment extended to recommending a solution and overseeing its implementation. They may even be offered a permanent advisory role with the task of undertaking a regular risk analysis or helping to resolve disputes. These developments are a strong underlying trend. Conversely, an ADR procedure can turn into expert determination, for example, when the 12 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. neutral's involvement reveals that the dispute really boils down to a predominantly technical issue. The best way of illustrating the importance of these trends is through a practical example. A contractual relationship may run off the rails, with the parties in opposition over false or minor issues. These disputes often conceal a real technical difficulty that neither party is prepared to identify or tackle for fear of putting themselves in a position of weakness. For example, they may be confronted with a technical difficulty in performing the contract which could not have been foreseen at the time of the negotiations and which changes the financial implications of the project in question. They may then be tempted to embark on trench warfare, attempting to create unrelated difficulties for the other side in the secret hope of forcing them to accept a negotiation that would settle the fundamental issue at the same time. An example of this is when P 34 initial delays in performance are exploited by both sides to try and obtain an amendment to the contract including a waiver of all recourse, which would then protect them from a serious complication such as a design fault in the subject matter of the contract. An expert determination that turns into ADR or vice-versa can then be extremely valuable. The expert appointed by the two parties or the court will draw up a report on the realities of contract performance. This will often focus the parties' attention on the key issue, the need to resolve the fundamental problem whose existence can no longer be ignored. The expert can then quite legitimately offer his services to help find a solution. The terms of his report may also lead the parties to suggest this of their own accord. ADR can often only achieve its goal by first revealing the truth, which may lead the neutral to make an expert determination or offer to appoint an expert. It is only once the true situation has been revealed that the neutral can begin to deal with the real problems and embark on the process of assisted negotiations. So there are strong complementarities between expert determination and ADR. Good expert determination or good ADR is carried out by a competent person who sticks strictly to the terms and bounds of his or her assignment, but also at the right time knows how to induce a new dimension to the matter at hand. 3.9 Reasons for Not Choosing ADR Management's assessment of the advisability of ADR should cover both its benefits and disadvantages. Some features of ADR may make it an inappropriate solution. The first fundamental reason is that the mediator's opinion or decision is not enforceable by a process of forcible execution. This is the great weakness of ADR and the great strength of arbitration or litigation. In many circumstances, a company cannot afford to take a risk on the outcome of a dispute, for example, delay in performance of an already badly affected contract. However, we would stress that the parties can easily confer binding power on a solution reached through ADR by way of an executed settlement agreement, binding as a contract but not enforceable. Legal opinion is divided as to whether the terms of such settlement agreement may be transformed into an arbitral award, thus permitting its enforcement. Sometimes, for the company in the position of plaintiff, the situation is so clear cut that recourse to a neutral to find a compromise seems useless or even dangerous. In other circumstances, one of the parties, faced with a conflict that is general in scope and could hinder it in the context of other contracts, may feel the need for a precedent, in other words the judgment of a court, which will avoid it having to the same problem in the future. Lastly, the contractual relationship may have deteriorated so far, or be surrounded by such specific circumstances, that ADR can be ruled out. Hence, the importance of the assessment stage described earlier, which will indicate whether ADR makes sense in the P 35 circumstances. For example, it may be that the tensions between the parties are so strong that they will only be made worse by informal meetings arranged by a neutral who has neither the authority nor the means of a court of law. We would stress again that it is essential to understand the behaviour and mentality of the other party. If they have very strong beliefs or a very rigid approach, it may be better to give up the hope of reaching an agreed settlement. If they are indecisive, there will be little hope of them taking a decision, even though assisted by a neutral. If a party has acted in bad faith in the past, that must be carefully considered before suggesting ADR. The involvement of an experienced and courageous neutral can be very useful, for example, if he can make the company's management aware that their representative is not acting properly. In most cases, however, the success of ADR lies in the meeting between people acting in good faith, even though they may be in violent opposition and intent on using all legitimate means in their power to defend their respective positions. In an ADR procedure, the neutral can arrange separate meetings with each party, an advantage that can often be a decisive success factor as the neutral will obtain information more easily and can reveal all or part of the other side's ultimate position in order to speed up the reconciliation process. But recourse to this practice can be 13 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. dangerous if one of the parties does not act in good faith and uses this important information to initiate arbitration or litigation proceedings. ADR can be transformed into a method of extremely effective delaying tactics, with one party seeking to manipulate the neutral or stringing out negotiations by causing continuous incidents or making false or minor concessions. It is clear that ADR cannot succeed in all situations. There are circumstances where arbitration or litigation is inevitable, and others where ADR has some chance of working. The parties should not hesitate to abandon the process in certain circumstances, even when they have already agreed on the neutral and embarked on discussions. If negotiations become too long and drawn out, or the neutral proves clumsy or incompetent, or insurmountable obstacles emerge or if there is a change of team, method or attitude on the part of the other side which causes the climate to deteriorate, it may be better to give up. We have seen that speed and the ability to create a new event, situation or climate are the keys to success. ADR has the great advantage, which is also its great weakness, of allowing either side to break off negotiations at any time or at the very least after any short minimum period that might have been agreed upon. 3.10 Should the Contract Contain An ADR Clause? Some contracts require the parties to use ADR once or on several successive occasions before embarking on the more conventional procedures for dispute resolution. Is it wise to include an ADR clause when we have just seen that ADR is not always the right choice? These clauses raise many queries and objections. They often appear in contracts where P 36 one of the parties is in a powerful enough position to dictate most of the terms. Making ADR compulsory and automatic deprives it of one of its greatest strengths, namely, that it is agreed upon freely between the parties, which in itself represents the first sign of reconciliation. If the contract contains an ADR clause, one party can be forced into negotiations against their will, or alternatively both parties can be forced into it, even though ADR is inappropriate for the situation that has arisen for reasons not anticipated at the outset. Involvement of a neutral or recourse to ADR can also prove costly and may lend itself to delaying tactics. For example, one party can delay payments by invoking each of the ADR mechanisms in turn, thereby putting further pressure on the other side to accept a less than favourable settlement. Other clauses may prove better, such as deliberately postponing any arbitration to the end of the contract or establishing a ‘clearing’ period during which disputes accumulate in order to deal with them all at the same time. On the other hand, as we shall see, ADR clauses can be extremely useful for some contracts, which by their very nature tend to generate if not disputes, then at the very least numerous problems. It is generally easier to provide for an ADR clause in the contract than to arrange it when the dispute has arisen. The terms are not negotiated in a climate of dispute, but in the climate of partnership that reigned when the contract was first signed. When ADR is used as a prevention mechanism, detailed rules can be drawn up in advance and, more importantly, create a precedent and a reference, as each party will have expressed its desire at the contract drafting stage to resolve disputes through assisted negotiations. ADR becomes an essential part of the terms binding the parties, and both sides will be obliged to honour their commitment to ADR. The difficulties referred to above, for example, those relating to the position of plaintiff or defendant, will be attenuated. Much time will be saved when the dispute materializes. Lastly, an ADR clause has an obvious legal benefit. The neutral's skills and the limits and terms of his or her involvement have been clearly set out in the contract. Apart from establishing the neutral's legitimacy at the outset, an ADR clause should in principle also eliminate the objections and delicate negotiations over the very principle of involving a neutral. It is important, therefore, to evaluate carefully the advantages and disadvantages of including an ADR clause in the contract or waiting until a dispute arises. Practitioners are simply advised not to neglect this consideration when drawing up the contract. The sensational examples described later will reveal the advantages and dangers of these clauses, which must be drawn up carefully once the principle of using ADR has been decided. Section IV of this chapter contains recommendations in this respect. 4 A Choice Inspired by the Nature of the Contract The very nature of the contract may lend itself to ADR. These considerations may not always have much to do with legal issues. P 37 4.1 Reasons to Do with the Parties Themselves In some circumstances, the parties simply cannot afford to fall out. Take the example of the relationship between global retailing groups and major food processing groups. As 14 © 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. described earlier, negotiation is the only way to resolve a dispute in these cases. However, many other factors may also make ADR a sensible option, for example, a small number of market operators, the weight of business practice, the existence of true mutual trust or conversely fear of retaliatory measures and the degree of interdependency between the parties. ADR would be the natural choice for disputes between companies that are subsidiaries of the same group. The parent company could appoint an employee or a neutral to find a solution, without the need for involving management. Cross-border mergers can also generate conflict. Difficulties often can be more easily referred to a neutral party than to a new management team seeking to avoid any criticism of being biased toward one of the two parties to the merger. When two or more groups have frequent contractual relationships or when disputes and conflict are unavoidable, establishing a system of ADR can help avoid deterioration in their relationship and create a framework that suits both parties and protects their mutual interests. For example, companies that often form joint ventures or consortia have every interest in not exchanging costly performance bonds and in settling their disputes without jeopardizing the future of their alliance. A contractual system involving a neutral party helps achieve this goal effectively, discreetly and economically. However, there can be cause for concern when one of the parties is so powerful that it can dictate its own contractual terms, including an ADR clause. If the shareholders of a joint venture company have signed an agreement supplementing the company's articles of association, they may well have an incentive to seek alternative means of resolving disputes, which is more appropriate to their relationship under that agreement. In some circumstances, the parties may use a very specific form of ADR that consists of appointing in-house representatives rather than a neutral to resolve the dispute. For example, the shareholders' pact may contain a ‘ladder clause’, which requires the dispute to be referred first to the chairmen of the parties' parent companies, then, if the disagreement continues, to the chairman of the board of their joint subsidiary. The goal here is to take the decision that is in the company's best interests, not the interests of one or the other of the parties. Long, complex and costly litigation is particularly disruptive for listed companies. They are subject to increasingly stringent transparency and short-term profitability requirements. Generally speaking, listed companies are forced to avoid any factors that might create uncertainty or value loss because of their continuing need to raise finance in the market and satisfy their shareholders and the more active management role played by some shareholders. It is more difficult to make new share offerings or achieve a satisfactory stock market performance when the company is faced with long, protracted disputes. P 38 The situation of multiple parties having entered into contracts relating to one project requires particular attention. Globalization of invitations to tender underline the importance of local alliances and the need to share risks. These factors increase the number of parties involved, making contract performance and dispute resolution more complex. For example, practitioners know that it is virtually impossible to obtain a consolidation agreement allowing a single arbitration procedure to reso

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