Gavin Coull and Nicola Reid consider whether alternative dispute resolution has entered the mainstream
Taking a dispute to court is not a decision made lightly. To got to court can be expensive and time consuming with uncertain prospects of success, even for the apparently 'watertight' case. However, some disputes cannot be resolved without some kind of structured process, and the move towards the mainstream of 'alternative' methods of dispute resolution reflects this. The most recent figures from the Centre for Effective Dispute Resolution (CEDR) show that mediation growth is at an all time high. The current trend can be traced back to the introduction in 1999 of the Civil Procedure Rules which enshrined active case management and the encouragement to settle disputes without a full trial. The judiciary has actively encouraged alternative dispute resolution (ADR) - to the extent where it might be argued to be almost compulsory.
What is ADR?
'Alternative dispute resolution' refers to all methods of settling disputes other than litigation and arbitration. Some would extend the definition to include arbitration, but this can hardly be described as alternative given the prevalence of arbitration clauses in policy wordings. All forms of ADR are private and confidential, and can take place before or alongside traditional litigation. All statements made in any dispute resolution process are without prejudice to parties' legal rights and obligations, enabling the parties to explore all options for settlement without fear of any concessions being used against them later.
There are many reasons why parties might want to avoid litigation. Cost is a major factor; nor is it risk free. The parties may also wish to preserve professional relationships - this might be achievable outside the confrontational atmosphere of the courtroom. The private nature of ADR may also attract those who wish to avoid publicity or do not want to set a precedent.
Recent developments have added another factor. The court may well order the parties to go away and try to settle the dispute by other means under threat of cost penalties if they do not. Most recently, in Shiryama Shokusan Co Ltd v Danovo Ltd 1 Justice Blackburn ordered the parties to go to mediation despite the opposition of one of the parties. One might wonder whether a case where one party attends a mediation under threat of penalty gets off on the right footing - successful mediation by definition requires an element of willingness on both sides to settle the matter. However, this does illustrate the length the courts will go to in order to persuade parties to at least try ADR. Potential costs implications for refusal will be a major consideration for most litigants.
It was thought until recently that any dispute that turned purely on the legal meaning of a contract was by definition not capable of mediation.
However, in Royal Bank of Canada Trust Corp v Secretary of State for Defence2, the judge penalised the Ministry of Defence for not taking up the offer of mediation of a dispute centring on the interpretation of a lease. The Ministry's claim that the issue was not capable of mediation - the clause in question either meant X or Y - was rejected. It remains to be seen whether other legal interpretation issues will be dealt with in a similar way.
However, not all cases will be suitable for ADR. Scott v Copenhagen Re3 is a good example of this - a test case with all parties bearing their own costs in order to get a judicial commentary on a common market wording.
This achieved the aim of creating certainty in the market and freeing up a claims bottleneck. Such an outcome would not have been achieved if the parties had been ordered to mediate in private.
Another factor in relation to international disputes is the parties' experience of and trust in ADR processes. If the adoption of ADR in the mainstream of dispute resolution is relatively new in England, it is almost unheard of in many countries, particularly in Europe and the Far East.
All forms of ADR require an element of buy-in from participants to have a chance of success. Such cultural barriers may require a good deal of persuasion. In addition, many international contracts provide for resolution of disputes in the courts of England and Wales precisely to ensure certainty against the backdrop of hundreds of years of jurisprudence. ADR methods will not necessarily lead to a resolution based on strict legal principles and thus not provide the certainty desired by the parties.
The earlier the adoption of ADR, the greater the saving in costs and the less time available for professional relationships to reach the point of no return. However, the reality is that most parties do not consider settling until they have gone a fair way down the line in the litigation process. In particular, many will wait to see what evidence comes to light in the disclosure of documents before assessing the desirability of using ADR. By then, positions may be more entrenched and considerable costs run up by both sides, which may make the successful outcome of any dispute resolution process less likely.
Types of ADR
'Early neutral evaluation' (ENE) is non-binding appraisal by a neutral party who will have a view on a party's chances of success if the matter were to go to trial. This method does not give the parties an answer to the issue but may assist them in coming to a realistic view of the strengths and weaknesses of the case and therefore encourage a negotiated settlement.
Even if the ENE is unsuccessful in facilitating a settlement, it may enable the parties to resolve a particular issue or fact in dispute, letting any later trial focus on the principal issues between them.
'Expert determination' involves the parties presenting their cases to a neutral expert as before. However, the decision is binding on the parties.
There will be no appeal from the expert's decision apart from cases of manifest error which the courts will be reluctant to find except in the most clear circumstances. This method has the advantage of speed and certainty, and may be particularly suited to 'black and white' issues that are less amenable to a negotiated settlement. For example, in one case handled by Reynolds Porter Chamberlain, an issue of recoverability of losses under a particular policy was referred to a specialist QC for a binding decision.
The parties had a genuine dispute but wished to settle it as amicably as possible and this method fulfilled that aim. One further reason why this method may be attractive is that it avoids creating a precedent on a particular policy wording whilst enabling a swift resolution.
'Mediation' is by far the most commonly used method of ADR and the one with the most developed procedures and methodology. Mediation is voluntary (subject to the court's intervention) and will often be governed by the rules of one of several bodies, such as CEDR, set up to administer mediations.
The mediator - who will often have experience in the subject matter of the dispute - will, by means of hearing representations, having private discussions and holding joint meetings, try to bring the parties close enough to settle the dispute.
The advantages of mediation are clear. It is often quick, the theory being that the longer a mediation takes, the less likely it is that the parties will move close enough to effect a settlement. Preparation is less formal than for a court hearing and often, therefore, less costly.
The mediator and the parties can focus on factors other than strict legal principles, allowing commercial factors to play a part. Finally, there is the comfort that the procedure, and more importantly what is said at the mediation, remains confidential, so the parties should feel able to make concessions without fear of those coming back to haunt them should the mediation ultimately prove unsuccessful.
However, not all cases are amenable to mediation, for example, because the parties want to create a precedent or where one of the parties is reluctant to attend. Arguably, where one of the parties is forced to attend, the chances of coming to a settlement may be less likely. In addition, mediations, if ordered by the court, will take place some considerable time after litigation is commenced and after considerable costs have been run up by both parties. In those circumstances, positions may well be more entrenched and a settlement less likely. However, given that parties will now need to explain to the court why they are unwilling to attend mediation and/or explain why the mediation failed, this may persuade even the most reluctant parties to take the mediation seriously.
In the light of the courts' active encouragement for ADR backed up by very real financial penalties for those who refuse, it is debatable whether forms of dispute resolution other than litigation can now truly be described as 'alternative'. It is clear that all parties to litigation will now have to show extremely good reason why they will not consider settlement at some stage. The CEDR prefers the term 'effective dispute resolution' which may be a more appropriate description. For the right cases, ADR can be a cost-effective and commercially attractive way of resolving disputes.
Litigants and their advisors now need actively to consider the possibility of early resolution of the matter and the most appropriate method to adopt.
The aim is to end up with a win/win situation on all sides - a much better 'alternative' to the prospect of a lengthy and an extremely expensive court battle.
1 5/12/03 unreported
2 (2003) CILL 2011
3 (2003) 2 All ER (Comm) 190
Gavin Coull is a partner and Nicola Reid a solicitor with City law firm Reynolds Porter Chamberlain.