UK: Alternative Dispute Resolution

Last Updated: 17 February 2000

Craig Perry

One of the most important changes resulting from the new civil procedure rules, and one of the most discussed, is the focus that it places on methods of alternative dispute resolution ("ADR"). Under the new rules, the Court now has the power to stay a claim if the parties agree to refer the matter to ADR or if the Court itself thinks that the claim can be dealt with by ADR. The main attraction to litigants is the potential costs saving and the fact that a form of ADR can be chosen to suit a specific type of claim. Since the new rules were introduced, one of the best known ADR bodies (the Centre for Dispute Resolution "CEDR") has recorded a dramatic increase in the use of ADR. CEDR's figures show that the number of cases being referred to ADR has increased by 100% compared to the same period last year, and there is no sign, in the short to medium term, that this dramatic increase is likely to slow down or level off. In comparison, the number of claims issued in the High Court since April 1999 has fallen by approximately one third.

Types of ADR

The best known alternative to Court proceedings is arbitration, but there are a number of other forms of ADR (some better known than others) and a brief description of the main forms of these is set out below.

Mediation

A neutral third party is appointed to help the parties reach a negotiated settlement. The process often involves `shuttle diplomacy' by the mediator and, subject to the parties' wishes, it can be facilitative or evaluative. The latter allows the mediator to give a view on the merits or some of the issues between the parties.

Conciliation

Similar to mediation, but the neutral third party is appointed only to try and facilitate a settlement. The process does not involve any third party comment on the merits or issues.

Mini Trial

A more formal type of mediation which is structured like a Court hearing. The process often involves legal presentations to a panel of senior directors of each party with a neutral chairman. After the presentations, the executives attempt to negotiate a settlement based on what they have heard.

Expert determination/adjudication

The parties agree to refer the dispute or particular issue, often on a technical point, to an independent third party who will provide the parties with his view as to how the matter should be resolved. The parties will often agree, before instructing the expert, to be bound by the decision.

Early neutral evaluation/appraisal

The parties send submissions to an independent third party, often a judge or senior lawyer, who will then provide his view on the likely outcome. The process can often be non-binding but it may help a party decide whether it should continue to pursue or defend a claim.

Does ADR Work ?

Over recent months, numerous articles have been written which highlight the benefits of ADR but, notwithstanding the amount of material available, little is heard about the potential downsides or how ADR really compares to other forms of dispute resolution. This is particularly relevant if one considers that, historically, the vast majority of High Court litigation (80-85%) normally ended in an out of Court settlement without any formal reference to ADR. The benefits of ADR are often listed under the following headings:

  • Cost
  • Speed
  • Flexibility
  • Confidentiality

However, the problems with ADR are rarely discussed. Some of the most obvious can be summarised as follows:

  • The parties must first agree to refer a matter to ADR and this is often the most difficult stage in the whole process.
  • Referring a matter to ADR may increase costs, especially if the reference fails and High Court litigation is ongoing.
  • A substantial amount of time must be set aside by both advisors and clients in order to prepare properly and ADR should not be seen as an easy "short cut" to dispute resolution.

Anyone who is involved with ADR must therefore seriously consider whether its perceived benefits do actually give it an advantage over Court litigation on the one hand, and normal negotiation on the other. Macfarlanes' ADR Group have, collectively, been involved with ADR for many years. Indeed, both Macfarlanes' senior partners in the group, David Wyld and Tony Blackler, are accredited mediators and have been closely involved in the increased use of ADR as a way of resolving commercial disputes. The overall impression that the ADR Group has is that, though ADR will not always be suitable and it can never guarantee a satisfactory conclusion, it does provide a very real and effective alternative that the parties to a dispute should always have in mind, no matter what stage they have reached in a dispute.

ADR in Practice

In July 1999, members of Macfarlanes' ADR Group were involved in a one day mediation that provides a practical example of how the process can be used to good effect. The matter was not one that automatically suggested itself as being suitable for mediation, as the central issue was principally a question of law. However, after disclosure of documents had taken place, the parties agreed to refer the matter to mediation. Macfarlanes acted for the Claimant and the dispute related to financial advice that had been provided by the Defendant firm of brokers, and its failure to monitor and administer the Claimant's investments. The claim was sizeable, over £1 million, and the mediation involved the solicitors for the parties, experts and the Defendant's insurers. No barristers were instructed. As with all mediations, it required detailed preparation, as the mediators (two senior partners from city law firms) wanted a clear understanding of the relevant arguments and the parties wanted to understand the cases that were to be made against them. Short written submissions were therefore exchanged and a bundle of core documents was prepared. Both the bundle and the submissions were provided to the mediators some days before the start of the mediation, so that they were able to do some preparation.

After initial presentations and closed sessions between the parties and the mediators, the crucial moment came when the two experts were allowed to swap views and opinions in open session. It very quickly became clear that one expert was weaker than the other on a number of points and the exchange of views in open session enabled the mediators, the clients and the Defendant's insurers to hear the strengths and weaknesses of the relevant arguments. Very soon after the open session had come to a close, the mediators were able to encourage the two principals to meet face to face, without advisors, and this very quickly resulted in a successful conclusion to the dispute. Not only did the Claimant feel that he had recovered a suitable amount, compared with the total loss that he had incurred, but the settlement also covered other issues, such as who would have the benefit of the investment if there was a residual value, and the future relationship between the parties. Indeed, the basic terms upon which the Defendant would continue to advise the Claimant were included in the wording of the settlement agreement. This could not have been dealt with in a court judgment.

This was only one example of a mediation which, though it did not appear immediately suitable for ADR, does highlight the benefits that are available to parties when they choose an alternative way of resolving a dispute:

  • Cost: The matter was resolved before the parties had to go to the expense of preparing for trial.
  • Speed: The dispute was resolved in one day, just after disclosure, rather than the week scheduled in 6 months time that had been set aside for the trial.
  • Flexibility: The settlement made provision for the future relationship between the parties.
  • Confidentiality: The parties were able to put forward evidence, especially from experts, in the knowledge that nothing said or written could be referred to in the event that the litigation was reactivated.

The parties in this mediation not only left Macfarlanes' offices at the end of the day on affable terms but they also left knowing that they had saved a considerable amount in time and costs. How often can that be said of Court litigation? The reference to ADR also allowed the parties to discuss the dispute in a structured way and this would not have been possible if settlement negotiations had been left on an informal basis or through normal without prejudice correspondence.

In summary, the great attraction of ADR is that it has the potential of allowing both parties to win, or at least feel as though they have accomplished something, and this compares to the often unsatisfactory feeling that can be left by normal litigation, when even the successful party has to face the prospect of paying the irrecoverable costs of an often long and expensive trial.

Macfarlanes' ADR Group

This group is responsible for keeping abreast of all developments in this field and it organises the firm's education and training programme on ADR. Any member of Macfarlanes' ADR Group is available to advise on the following:

  • Whether a dispute is suitable for ADR
  • Model ADR procedures
  • Draft dispute resolution clauses
  • Third party providers of ADR services (such as CEDR)
  • Recommendations on the identity of individual mediators, adjudicators, arbitrators, experts etc

The group is headed by two litigation partners who are also accredited mediators, Tony Blackler and David Wyld. The group also includes another partner, Simon Nurney, and a number of assistant solicitors who have particular experience of ADR.

This note is intended to provide general information about some recent and anticipated developments as of the date at the head of this note, which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice. It will not necessarily be updated and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

If you wish to know more about particular forms of ADR or ADR generally, please contact Simon Nurney.

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