8. ADR Flashcards
Negotiation
Negotiation is a communication process between parties that is intended to reach a compromise or agreement to the satisfaction of both parties.
Mediation
Mediation is a confidential process intended to facilitate the resolution of disputes through the medium of an impartial third party – the mediator. Generally, each party (usually with legal representatives) will be present in the same location but in different rooms. The mediator will move between the rooms delivering settlement offers and guiding each party to reflect on those offers and the alternatives to reaching an agreement. The mediator has no authority to make any decision which is binding on the parties. In the event that the mediation does not end in an agreed resolution, the content of the mediation will remain confidential and will not be made known to the court.
Arbitration
Arbitration is a process by which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed will be final and binding. By agreeing to arbitrate disputes parties are agreeing to oust the jurisdiction of the court to hear the matter, and to give the jurisdiction to a different impartial party (the adjudicator) instead.
Typically, the question of whether to arbitrate or not arises at two key stages:
- When negotiating a contract the parties may decide to include an arbitration clause in their agreement to cover disputes that arise in the future; or
- When a dispute has arisen, the parties can choose to deal with it by way of arbitration (ie even where there is no arbitration agreement in their underlying contract).
It can be a long and formal process which is governed by rules and statute.
Advantages of choosing to arbitrate include privacy, easier enforcement in certain jurisdictions, the ability to choose a specialist to determine the dispute and the additional flexibility of arbitration which can be adapted to suit the needs of the parties and the dispute.
Med-arb
Med-arb (mediation/arbitration) is a process whereby parties agree that, initially, they will try to resolve any dispute by mediation. In the event that this does not result in satisfactory resolution of the matter, the matter will move on to an arbitration pursuant to which a binding determination will be made.
Early neutral evaluation / expert appraisal / expert evaluation
These terms all refer to processes where an independent party is appointed by the parties. The independent party will provide a non-binding assessment of the matter(s) referred to it. The parties will have to pay them for their time and costs. The assessment provides an impartial ‘opinion’ which might usefully influence the parties in future settlement discussions. The independent party could be a lawyer, but alternatively could be an expert in a relevant matter – such as a medical or engineering expert.
Expert determination
Expert determination is where an independent expert on the subject matter is appointed by the parties to determine the dispute.
The procedure is determined by the contract between the parties.
This form of ADR is particularly suitable for disputes requiring a technical knowledge, but may not be suitable if the parties wish to be fully heard and there are issues of credibility.
Assessment tip: At first glance expert appraisal and expert determination appear similar but they are different in important regards.
Expert appraisal: expert appraisal does not deliver a binding decision – just an opinion.
Expert determination: the expert does give a binding decision.
Conciliation
Conciliation involves an independent neutral third party in helping parties to resolve their dispute. The process is usually facilitative, like a mediation, but may occasionally involve more of an evaluation, like ENE. The term has no clear meaning, so the parties should ensure they understand what is involved in any particular conciliation before embarking on it. The details you have been provided in relation to other forms of ADR (like mediation and ENE) will apply by analogy depending on the precise nature of the conciliation involved.
Conciliation often forms part of a statutory scheme or other regulatory scheme, and that scheme might provide who the conciliator should be, and the process involved. This is unlike mediation, where these are matters purely for the parties.
Why use ADR?
The court expects the parties to explore ADR
The court expects the parties to act reasonably in relation to considering and engaging in ADR, and can impose sanctions if they do not.
Preserves or creates a better relationship between the parties
In many forms of ADR, factors such as business relationships, reputational issues or personal emotions can be taken into account as necessary. This means that the process can assist the parties in maintaining a commercial and/or personal relationship. Parties can explore emotional dimensions, or agree a future trading relationship. Court proceedings do not offer such opportunities.
Less expensive
An appropriate form of ADR, if successful, can lead to a resolution at less cost than litigation.
Saves time
An appropriate form of ADR can also lead to a conclusion more quickly than litigation.
Greater privacy / confidentiality
Litigation involves filing documents at court which might be accessible by the public, and hearings (including the trial) will generally be public. All the forms of ADR already identified are essentially private and confidential.
Less disruption to clients
Forms of ADR such as mediation can be much less disruptive to clients – they might not need to search for documents, engage in as many internal meetings or attend court the way they might in the case of court proceedings.
Outcomes that reflect risks.
In non-binding forms of ADR the parties can agree a settlement that reflects the risks to each side. For example, in a financial claim, the parties might agree that the claimant has a 60% chance of winning, and if the claimant wins, they will recover £100,000. In such circumstances, both parties might be attracted by a settlement by which the defendant pays £60,000 to the claimant – less than the full sum to reflect the possibility that the claimant loses and recovers nothing.
In court proceedings, the judge cannot decide the claim in such a way. The judge must decide each issue and then give a judgment accordingly, and cannot discount the judgment sum to take into account the uncertainty that it is the right judgment.
Greater control over the process
In many forms of ADR, the parties have greater control over the process.
One aspect of control is the ability to choose any third party involved (eg an arbitrator or mediator). Parties cannot control the court process in the same way nor choose the judge.
Greater involvement of the parties themselves.
Clients often prefer mediation (for example) to litigation as there is a greater opportunity to get involved in the process and have their say. Litigation can feel like an alienating and detached process for many clients.
Role of lawyers
A legal representative acting in their client’s best interests will:
- Ensure their client is fully aware of the options for ADR.
- Help their client to pursue any ADR which it wishes to pursue.
- Act within the authority to settle granted by the client in any settlement discussions. It is generally prudent to involve the client directly in the final approval of any settlement agreement.
Which types of case are not suitable for ADR?
Very few. In practice, most concerns about the suitability of a case for ADR can be overcome if the ADR is appropriately chosen and timed.
Timing
Firstly, a contract between the parties may already have specified how and when ADR should be used. For example, a commercial contract might provide that before the parties commence proceedings in relation to the subject matter of the contract, they first need to refer certain issues for expert appraisal.
Secondly, some forms of ADR can only be considered at particular times. For example, arbitration is an alternative to court proceedings, and therefore will almost always be pursued before any court proceedings have been commenced.
Factors suggesting earlier is better
- Cost saving: the earlier the ADR, the greater the cost saving in the event of success
- Better relationships and information: even if ADR does not lead to a settlement, it can improve the relationship between the parties and produce useful information (for example, an opinion gained during early neutral evaluation might inform the way a party approaches litigation).
Factors suggesting later is better
- If ADR is attempted later, the parties will better understand each other’s case. However, this should be relatively clear by the time statements of case are finalised, if not earlier.
- If ADR is attempted later, the parties will better understand the evidence that each party has available: but it will rarely be justifiable to wait until all information / evidence is available. In addition, an exchange of information /evidence can often be agreed in advance of an ADR procedure or as part of it.
- If a party engages in ADR too early, it may have incurred costs doing so when the dispute is not genuine and would not have been pursued anyway.
As well as these general considerations, the CPR also contain various provisions which have implications for when ADR should at least be considered.
- The various pre-action protocols and the practice direction on pre-action conduct require the parties to consider ADR;
- The guidance accompanying Precedent H (costs budget) requires the inclusion of some elements relating to negotiations and advising on settlement.
- Directions Questionnaires (Fast / Multi-track) require legal representatives to confirm that they have explained to clients the need to try to settle, the settlement options and possible cost sanctions. It also includes the option to request a stay for settlement. Parties must state expressly why a settlement might not be achieved at this early stage in the proceedings, if they do not require a stay of the proceedings. Whilst a stay following DQs is common, the court has the power to stay the proceedings at any stage.
- At a case management conference, the court is likely to want to know what steps the parties have taken to explore alternative dispute resolution. The court can give directions that are aimed at encouraging ADR (as explained elsewhere in this element). The court is required to manage cases including by encouraging and facilitating ADR if appropriate (CPR 1.4(2)(e)).
How does the court encourage the parties to engage in ADR?
The starting point is that the court can:
- Provide information about ADR; and
- Encourage parties to consider ADR and engage in it.
However, the court cannot generally compel a party to engage in ADR.
Costs
The usual costs order at the end of an English court case is that the unsuccessful party pays the successful party’s costs. Costs are, however, always at the discretion of the court. One of the factors which the court will consider when making a costs order is the conduct of the parties (CPR 44.2 (4)), which includes conduct before, as well during, proceedings (including compliance with pre-action protocols) (CPR 44.2(5)).
Accordingly, the court can encourage the parties to engage in ADR by rewarding positive ADR behaviour and punishing poor behaviour in costs. Note that the court will rarely know (for example) exactly what happened at a mediation, as this will be ‘without prejudice’, but it will know whether or not a party has agreed to mediate at all.
One issue that comes before the court is where the successful party in the litigation would normally be entitled to its costs but that party has refused to engage in ADR. If a party refuses to engage in ADR then when it comes to assessing costs the court will consider whether that refusal was reasonable, and if not, the court might impose a costs penalty. The burden of proof will be on the unsuccessful party to show the court why it should depart from the general rule on costs to deprive the successful party of some or all of its costs on the grounds that it refused to agree to ADR.
The court will look at all the circumstances, including:
- The nature of the dispute – how suitable it is for ADR;
- The merits of the case – a refusal to engage in ADR may be more justifiable if the party justifiably believes it to be very strong.
- The extent to which other settlement methods have been attempted.
- Whether the costs of ADR would be disproportionately high (but note that free or fixed-fee mediations are potentially available in relation to low value claims which might make the costs proportionate even for such claims);
- Whether any delay in setting up and attending the ADR would have been prejudicial – particularly if it is very close to trial; and
- Whether ADR had a reasonable prospect of success – this by no means requires the alleging of unreasonable behaviour to show that it would have succeeded.
The points above are about whether a party should be penalised for refusing to engage in ADR when invited to do so. The court does not take the same approach when considering what the consequences should be for a party who has simply failed to suggest ADR. The court will not refuse to award costs to a successful party simply because it did not positively suggest ADR. Clearly where such a failure amounts to a breach of court order or of one of the pre-action protocols / PD on Pre-action Conduct, then the situation is different.
On the other hand, silence in the face of an offer to engage in ADR is likely to be considered unreasonable and to be sanctioned in costs (unless the parties are already engaged in a form of ADR).
Practical advice
It flows from the above that upon receipt of an offer to engage in ADR, a party should:
- Consider with its legal advisors the merits of that offer;
- Respond promptly, in writing, setting out reasons for its decision, and noting the principles above;
- If it does not wish to engage in ADR, explain in what different circumstances it would agree to ADR. It would very rarely be appropriate to indicate that ADR will at no stage be appropriate;
- Make that letter ‘open’ or ‘without prejudice save as to costs’; and
- Consider making a separate note of any reasons for refusal that it is unwilling to express to the opponent at that time, in a form which can be later shown to the court if necessary.
Other forms of encouragement
We have mentioned above the various stages in proceedings when the court rules specifically require that consideration be given to ADR. At a CMC, the court has various powers that can be used to encourage ADR. For example:
- The court can order a stay in order that the parties can explore ADR;
- The court can direct the parties to consider ADR and require an explanation of the parties’ thinking in that regard.
- The court can reinforce the direction mentioned immediately above, for example with the following direction:
“At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise”
The requirement to produce a witness statement creates a record of the situation so that the court can consider this when it comes to costs and encourages the identification of any obstacles to the adoption of ADR in order that they might then be overcome (29 PD 4.10(9)).
