UK: Appropriate Dispute Resolution

Last Updated: 28 December 2006
Article by Hew Dundas

The resolution of disputes through litigation is, in most countries, a lengthy and expensive process, sometimes with unexpected results, and, in addition, the effect of major litigation on a company, particularly a small or medium-sized one, can be devastating in the effect on staff morale and health and in the deterioration of the business through diversion of key management resources. Further, business relationships between companies tend not to survive major litigation. Although judicial systems in many countries have sought to alleviate these potentially serious effects through streamlining and simplification of litigation, the fundamental problems thereof do not easily go away. Further, while arbitration offers (or should offer - it does not always do so) faster and more cost-effective resolution of disputes it is, at least in common law countries, still adversarial, often confrontational and does not provide a complete answer to the foregoing problem areas.

Alternative Dispute Resolution (ADR) offers a range of alternatives to traditional adversarial dispute resolution; in particular, while mediation is the best-known and most widely practised ADR process, it is by no means the only one and it should be appreciated that there exists a range of ADR processes, offering the disputing parties (and the neutral dispute resolver) a comprehensive toolkit.

Mediation focuses on parties’ interests, not necessarily their rights. Note that ‘mediation’ and ’conciliation’ are often synonymous, e.g. in civil law countries, although in others a distinction is drawn. Mediation is a process whereby a third party neutral assists the parties in discussions concerning the dispute with a view to identifying, and working on, the real issues, leading to a settlement; such issues are often of a personal nature such as will not be evident in litigation or arbitration pleadings. The mediator may conduct discussions with the parties jointly but, in most cases, will spend time with each party individually to gain a greater understanding of that party's interests, needs and priorities. A classic, possibly apocryphal, example of mediation concerns a dispute over ownership of a cargo of oranges where, as it transpires, one party wants the flesh for juice and the other wants the rind for use in food flavourings and perfumery. Litigation or arbitration will merely address the legal issue of who owns the cargo whereas a mediator will find out very rapidly that the parties’ interests are not only non-competing but entirely complementary. In the classical mediation style generally adopted in the UK, mediators will refrain from expressing any kind of opinion or evaluation of the parties' positions but, particularly in the USA, mediators undertake a more proactive approach geared more to deal-making and ‘getting a result’. However, all mediators employ a technique known as reality-testing where each individual party’s assumptions and thinking are challenged, possibly vigorously.

Mediation offers a number of significant advantages over litigation/arbitration: first, the process is entirely flexible and under the control of the parties (with the assistance of the mediator) whereas litigation and arbitration are driven by rules (even if, in arbitration, the rules are by agreement of the parties and can be amended); second, everything which occurs in the mediation process is held confidential and, further, exchanges between one party and the mediator are held confidential as regards the other party so that the parties individually can discuss their interests completely freely; third, most mediations last one or two days thereby offering a very significant reduction in costs compared to a multi-week litigation or arbitration hearing; fourth, the flexibility of the process allows the introduction of new issues not originally forming part of the dispute and, in many cases, mediation sweeps up a wide range of issues between the parties such as would be impossible in litigation; fifth, the outcome of a successful mediation will be a settlement agreement between the parties which is highly likely to preserve, possibly even enhance, the business relationship; sixth, experience of the process shows that the opportunity for individuals (and for companies) to vent their feelings and frustrations can prove positively cathartic. Finally, mediation is very effective in personal injury/accident cases, or in cases of medical negligence, where an individual is facing a large organisation such as a Health Authority or an insurer, since the disparity in power can be bypassed.

It is often overlooked (and, worse, people do not know at all) that ADR encompasses a wide range of processes and is not synonymous with mediation; these other processes include Early Neutral Evaluation (ENE), Expert Determination (ED), private mini-trials and various combinations. In ENE the parties put their cases, typically in documented form with a short oral presentation to follow, to a mutually chosen third party neutral, often a retired judge (as is common in the USA) or even a sitting judge, as is possible in the English Commercial Court. The neutral provides a non-binding opinion as to the relative merits of the case: this is normally given informally and in confidence but, to take a simple example, if both parties think they have a 75+% chance of winning in litigation and the neutral’s opinion is finely balanced (e.g. 50/50) the parties will necessarily have to think very carefully before committing to litigation which they might well lose. ENE is often effective when facing very optimistic assessments of a case given by the parties' lawyers.

Another interesting ADR process is Arb-Med where an arbitration is conducted, possibly in an accelerated procedure, on the conclusion of which the arbitrator renders an award but in a sealed envelope and then conducts a mediation between the parties with the sealed envelope notionally lying on the table between them. There are many cases where neither party will wish to see the contents of the sealed envelope, e.g. although they might win the main case they might suffer in costs. Further, all the benefits of mediation apply with the added advantage that if the mediation is unsuccessful then the sealed envelope can be opened and a binding, enforceable award is revealed, whereas in conventional mediation the conclusion is a settlement agreement which is binding in contract but not otherwise at law.

In many countries, courts can order parties to ADR, whether mediation or otherwise; the English Court of Appeal has expressed the view that compulsory ADR may be inconsistent with Art. 6 of the European Convention on Human Rights which entitles parties to a trial of civil disputes. With respect, that view is fundamentally flawed and there is no objective bar to compulsory ADR. In England, parties who have unreasonably refused ADR may be penalised in costs and, while judge-ordered ADR is ruled out for the present, judges are permitted to (and, in fact, obliged to) ‘robustly encourage’ parties to attempt it.

The common theme of all ADR processes is the ability to deal with disputes very quickly and often at minimal or almost zero expense; further, by reducing or eliminating all the confrontational aspects of litigation and arbitration, the effect on the people involved (and on the companies) can be much reduced.

ADR has the potential to change the dispute resolution landscape for the better; it must become an ingrained part of dispute resolution culture at all levels so that resort to courts (or arbitrators) is very much a last resort.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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