by Giles Dixon and Eileen Carroll
Alternative dispute resolution (ADR) is a phrase which encompasses various methods of settling disputes. The essence of ADR is that it presents an alternative to the traditional procedures of litigation and arbitration.
There is nothing new in resolving disputes without going to court, but with litigation (and the associated costs) on the increase and the delays in having cases heard the alternatives to litigation are becoming more important.
“Alternative dispute resolution” originated in the United States, where various techniques have been developed for arriving at a commercial settlement of a dispute. Some of these will be examined below but, whichever ADR procedure is adopted, its features will include the “four Cs” — consensus, continuity, control and confidentiality.
Consensus
ADR can be adopted only if both parties agree. It is worth noting that the ADR process will frequently not be binding, so that arbitration or litigation will not be precluded if ADR does not work: indeed, it is often conducted “without prejudice”. However, if the ADR process results in a settlement of the dispute, the parties will record that settlement into a legally binding document.
Continuity of business relations
The parties often want to avoid upsetting potentially useful relationships and, as part of a settlement, there may be agreement over some new business and/or pricing arrangement for the future.
Control
Linked to the last point, ADR, because of its flexibility, provides scope for tailoring a solution to a commercial result, rather than one governed wholly by “the rule of law” and legal principles which could be too restrictive or inappropriate.
Confidentiality
Unlike court proceedings, no publicity need be attracted which might adversely affect public confidence in a company or organisation involved in a dispute.
This consensual and commercial attitude contrasts strongly with the adversarial approach of proceedings in court. Moreover, ADR techniques are designed to get the parties directly involved in settling the dispute. With litigation, the procedural complexities of the law, coupled with the long time which elapses before the hearing, means that the conduct of a case tends to be left to the lawyers, with management in the client company taking a back seat, and nobody actively monitoring the case. ADR procedures involve direct dealings between the parties (albeit supported by their lawyers) with an independent neutral playing a key role. This can be illustrated by a review of the two more important ADR procedures — “mini-trial” and “mediation”.
Mini-trial
To the extent that a mini-trial involves each party’s lawyer presenting his client’s case, the name “mini-trial” has a degree of relevance. In other respects, however, a mini-trial is very far from a trial in the real sense — rather it provides a forum for an information exchange followed by settlement negotiation. It is a consensual process with the parties agreeing the ground rules in advance, and the principal features are:
- A panel is set up consisting of one executive from each party and a third-party neutral adviser. The executives are senior managers with authority to settle the case, and it is often recommended that they should not previously have been involved in the subject matter of the dispute. The role of the neutral adviser, who may either be a lawyer or a specialist in some discipline appropriate to the dispute, is to advise the parties and to give his objective views on matters of fact and/or law, as appropriate.
- Each party’s lawyer makes a short presentation of his client’s case, concentrating on the principal issues and omitting the less important claims except, perhaps, to point out their tactical use in the event of full-scale proceedings.
- Witnesses — expert or other witnesses may be called, but the use of witnesses is usually very restricted and confined to essentials. For example an expert witness may be required when a major part of a claim depends on a technical issue requiring expert evidence.
- Following the presentations, the managers enter into negotiation in an attempt to settle the dispute, assisted by the neutral adviser. It is not uncommon for the negotiating to go into a number of sessions.
- If settlement is not reached immediately following the information exchange the parties may ask the neutral adviser to give a non-binding opinion as to the likely outcome of litigation. This can often trigger a settlement if it has not been achieved by the negotiations.
A mini-trial needs preparation and, therefore, involves expense. But it is going to be considerably cheaper than the expense of court proceedings. Moreover, if settlement is not reached, the work would not be wasted, since it is work which would otherwise have had to be done preparing the case for trial.
Mediation
In a procedure less formal than a mini-trial, the parties appoint an independent mediator to assist them in arriving at a settlement. The qualifications of the mediator will depend on the nature of the dispute: sometimes he may be a lawyer or an engineer or have a qualification particularly relevant to the nature of the claim.
Mediation usually begins with a joint session at which an informal presentation to the mediator is made by each party. This is followed by a series of “caucuses” between the mediator and each of the parties in turn. His job is to persuade each party to focus on its underlying interests and try to steer them towards settlement. A successful mediator will take a pro-active role in encouraging the parties to find a creative solution to their problem.
As with the mini-trial, it is important that the representatives of each party have authority to negotiate on behalf of their companies.
At the outset, there is likely to be a time-limit placed on the mediator to avoid the process being used as a delaying tactic.
ADR in the construction industry
ADR is well suited to the resolution of claims in the construction industry. Building claims tend to be made up of numerous items: time extensions and fluctuation, for example, all have to be detailed, documented and proved in proceedings. In enginering disputes this is paralleled — perhaps compounded — by technical details in both claims and counterclaims which are likely to necessitate expert evidence. The real basis for a construction claim is usually surrounded by substantial peripheral details, which a claimant can rarely afford to omit in the hope that his main claim will be wholly successful.
All these factors contribute to the length and the cost of proceedings, and the discovery process, in particular, can be extremely time-consuming and expensive.
Arbitration is, in itself, a form of alternative dispute resolution, once seen as a way of resolving some of these problems. Most construction contracts nowadays contain an arbitration clause. However, arbitration tends to be conducted on the same lines as court proceedings and, with arbitrators of quality difficult to find and to get together, arbitration rarely brings an early resolution of the dispute.
Moreover, the expense of arbitration is frequently as high as litigation and, unlike a court action, the parties to an arbitration have to pay for their own judges and courtroom, all of which adds to the cost.
Approximately 90% of actions are settled before a final award. However, settlements are often achieved very late in the proceedings, often at the door of the court. A claimant faced with such a settlement after more than a year of preparation for trial might recall the remark of the Irishman in the depths of the countryside who, when asked the way by a lost tourist, remarked “If I were you, I wouldn’t have started from here!” ADR does offer another starting point and an opportunity to cut through the procedural manoeuvring and achieve a commercial solution. An early settlement for less than the full value of the claim can be worth more than the full amount after a delay of two or three years and, if a good commercial relationship is maintained, this makes settlement all the more worthwhile an exercise.
ADR is also able to cope with multi-party disputes. We recently had a case which was very similar to a case study on video produced by the American Arbitration Association as an example of mediation in practice. A developer employed a contractor to construct a building which was prelet. The tenant, after fitting out the building, complained that the air-conditioning system was inadequate. The tenant blamed the developer/landlord, the landlord blamed his architect and contractor. The contractor blamed the A/C subcontractor and the architect, and the architect and A/C subcontractor said that the partitioning erected by the tenant was a main cause of the problem. Where the cost of correcting the fault is, say, £100,000, legal fees would be disproportionately high if the matter went to trial, with the various parties involved. A case such as this is an ideal candidate for ADR.
An article in a recent issue of Independent Consulting Engineer discussed a proposal that, in a major project, all the parties — who would not necessarily have any other direct contractual relationship — should sign an agreement at the commencement of the project, establishing a procedure for resolving all project disputes. The Channel tunnel project is understood to have a five-man committee to whom all disputes between Eurotunnel and the contractor TML are referred in the first instance. These are examples of ADR in action in the engineering industry.
In the United States, one of the main promoters of ADR is the Center for Public Resources, a nonprofit-making organisation whose members include a large number of the “Fortune Five Hundred” companies. One in-house counsel with a major US contracting company told one of the authors recently that many millions of dollars are being saved each year by his company through the use of ADR techniques. He has worked in England and predicted that ADR would soon be “sweeping across Europe like a tidal wave”.
In the past two years Australia has followed the US, and the Australian Commercial Disputes Centre (ACDC) has seen 139 out of 140 disputes settled using ADR techniques. Half these claims were construction related. A survey by the American Bar Association noted an 85% success rate for mini-trials in the US.
It is time for lawyers and their clients to consider alternatives to our adversarial approach to dispute resolution. Both need to get away from the attitude that anything other than preparation for a full-scale trial is a sign of weakness: in fact, a conciliatory approach is more often a sign of common sense. But the psychological barrier needs to be overcome. Members of the CPR pledge themselves to agreeing to explore alternatives before embarking on litigation, and wording in contracts requiring some form of mediation is another way of encouraging this approach. The parties in dispute or their lawyers, especially those who are interested in ADR, may put forward one of the alternative procedures.
It should also be borne in mind that ADR techniques may be used to achieve a settlement after proceedings have been commenced, as well as to avoid their commencement.
