Disputes are a part of life. The business world is no exception. ADR (Alternative Dispute Resolution) offers practical and cost-effective approaches to conflict resolution such as mediation and arbitration. It obviates the need for costly and time-consuming litigation through the Courts.
ADR is a voluntary process, requiring the agreement of all involved to submit themselves to the process.
In addition, several of its forms are non-binding, so if participants do not reach an agreement, they can walk away without any commitment made. The main exceptions are arbitration and adjudication.
The process maintains confidentiality and participants cannot use what they say in subsequent processes, including litigation. It has broad applicability and professionals involved in maritime, commercial, and business law contexts often use it.
Comparison of ADR and Litigation as Dispute Resolution Methods
Of the various forms of alternative dispute resolution discussed here, mediation is usually the most cost-effective and quick. It offers a relatively economical way of assisting parties to reach an agreement. The process is non-binding until converted to a legally binding contract. It involves some minimal formality by way of a structure. Several mediation organisations exist with panels of mediators, sets of rules and sometimes facilities to accommodate hearings.
Although litigation through the English courts is an excellent method of mainstream dispute resolution, it can suffer from disadvantages, including delays through overcrowding of some courts, formality and high costs. Moreover, its process and decisions are public and can result in the end of business relationships. On the other hand, the Commercial Division of the High Court of Justice, London is internationally recognised for the expertise of its judges and the quality of its advocates in resolving complex, high-value commercial disputes. Also, the court system and judges, are free of cost to the parties, except for court filing fees.
Types of ADR in Maritime, Commercial, and Business Law
The term alternative dispute resolution embraces a range of techniques for resolving disputes:
- discussion and negotiation
- early neutral evaluation
These methods can assist in resolving conflicts arising from complex legal agreements, misunderstandings between parties and other issues in business.
Discussion and Negotiation
Day to day, parties in dispute begin with informal discussions which may lead to the negotiation of a settlement. This can be the most cost-effective method of moving on to the next piece of business. But if not properly tied up, it can lead to the same or a similar dispute resurfacing in due course.
Such is the desirability of resolution by negotiation to avoid litigation or arbitration that a recent decision of the English High Court has given guidance on the enforceability of clauses requiring parties to negotiate.
Conciliation: Guided Negotiation for Dispute Resolution
Conciliation is an ADR method employing the services of a neutral third party, the Conciliator. The Conciliator may suggest possible solutions and so assist the parties to reach a settlement. But the parties have the final say. Conciliation is similar to mediation.
Mediation is a widely used ADR technique. The mediator facilitates communication between the disputing parties, taking the heat out of unrestricted face-to-face contact and helping them reach a mutually acceptable resolution.
The parties agree on a mediator. After an initial presentation at which the mediator sets out the ground rules, the parties each make opening statements of their positions. They then adjourn to separate rooms and the mediator visits each in turn to see where there is common ground. He may not repeat to the other party what one party says, without that party’s express permission. If things are going well, the mediator may invite the parties to meet and express their updated positions. In other cases, the parties stay separate and the mediator shuffles between them until they reach a consensus or it becomes apparent no agreement will be possible.
This method is highly flexible and moreover is non-binding and confidential. It is an excellent way to resolve a dispute while at the same time allowing the parties to preserve their relationship, from which future business may flourish. Sometimes Mediation may be multi-party and involve more than one mediator. But in the vast majority of cases, participants jointly appoint one mediator only.
Alternative Dispute Resolution: Other Examples
Adjudication and Early Neutral Evaluation in ADR
Adjudication is a swift dispute resolution process in which an independent third party, the adjudicator, makes a binding decision. While it is binding, participants can challenge it in court or through arbitration since it is usually interim.
Early neutral evaluation is a non-binding opinion offered by a neutral third party on the merits of the disputing parties’ cases. It can help them decide how to proceed with their dispute, whether through settlement, further ADR, or litigation. Overall, it provides them with guidance on the strength of their cases before committing to a particular resolution method.
Arbitration: A Private and Binding Alternative to Court Proceedings
Arbitration is a contract-based form of dispute resolution. A party’s right to refer a dispute to arbitration depends on the existence of an agreement (the “arbitration agreement”) between the disputing parties. Commercial contracts often include arbitration clauses. Alternatively, once a dispute has arisen, in the absence of an agreement to arbitrate, the parties may make a separate agreement to refer it to arbitration.
In entering into an arbitration agreement, the parties agree to refer their dispute to a neutral tribunal to decide their rights and obligations. Unlike mediation or conciliation, an arbitration tribunal makes a decision, called the Award. The Award is binding on the parties. The process and award are confidential to them.
The Arbitration Act 1996
Arbitrations held in England are subject to the Arbitration Act 1996 (the “Act”). The Act may apply to arbitrations held outside England. The Act contains mandatory and non-mandatory provisions. Non-mandatory provisions include permitting the parties to choose which of the many rules of procedure shall apply to the arbitration, such as the rules of the London Maritime Arbitration Association, the London Court of International Arbitration or the International Court of Arbitration.
If the arbitration clause does not specify procedure or the parties fail to agree on it, the Act provides rules that apply in the absence of such agreement. Other non-mandatory rules allow the parties to choose the applicable law, which does not have to be the law of England. The mandatory provisions apply notwithstanding any agreements to the contrary and include stay of legal proceedings, power to extend agreed time limits, power to remove an arbitrator, general duty of the tribunal, general duty of the parties, securing the attendance of witnesses, enforcement, and challenging the Award.
Note in particular (1) that the power of the courts to stay legal proceedings (section 9 of the Act) has given rise to a considerable number of applications to the courts for a stay.
Section 9(4): on an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.
And (2) that impartiality is of the greatest importance, so much so that Section 24(1) of the Act provides:
“A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on any of the following grounds:
(a) that circumstances exist that give rise to justifiable doubts as to his impartiality;”
The Arbitration Process
This process generally consists of the following steps:
- The arbitration agreement: This determines key elements of the process. It includes the number of arbitrators, their selection, the location and the legal seat of the arbitration. It also specifies whether it will follow the rules of a particular arbitration institution or is ad hoc. The governing law in a contract may be expressly stated, failing which it has to be determined.
- See the example of the UK Supreme Court decision on determining the Proper Law of an arbitration agreement.
- Starting an arbitration: Typically, a claimant sends a document called a “request for arbitration” or a “notice to arbitrate” to its opponent. The other party will have the opportunity to respond briefly within a set period of time and selects an arbitrator where appropriate.
- Constitution of the tribunal: It must be formally constituted. Commonly, each party selects one arbitrator, and the two so selected choose a third who has equal status but acts as chair. Or the third arbitrator may be specified in the arbitration agreement to be umpire, the difference being that he takes no active part in the arbitration unless and until the other two disagree. Sometimes the arbitration agreement provides that there shall be a single arbitrator.
- Identification of issues: The issues for determination must be identified, which can include issues of fact, law, and quantum.
- Determination of process and timetable: The parties and the tribunal will decide the process and timetable, designing them to fit the requirements of the particular dispute.
- Conduct of the arbitration: The arbitration will proceed according to the adopted procedure, which usually involves written submissions, witness statements, expert reports, and document production.
- The arbitration hearing: Arbitrations often involve one or more hearings before the tribunal, where the parties’ lawyers present arguments and question witnesses and experts. More straightforward disputes and those not requiring witness evidence may be decided on documents alone.
- The Award: The tribunal will produce its Award, or decision, which may be with reasons or without reasons.
- Challenging/appealing the award: A tribunal’s findings of fact can rarely be challenged. The grounds of appeal are stated in the Act, namely, the tribunal lacked substantive jurisdiction (section 67) or there was a serious irregularity affecting the tribunal, the proceedings or the award (section 68). Or that the Award was in breach of natural justice, or in conflict with public policy. In such cases, a party ask for the award to be set aside or sent back to the tribunal for reconsideration.
- Enforcement: Is dealt with in the following section.
Enforcing Arbitration Awards Across Borders
One of the attractions of arbitration is that it is often easier to enforce an award in another country than it is to enforce a court judgment without a rehearing. Enforcement regimes vary, and it is crucial to consider the prospects of enforcement when deciding whether and how to arbitrate a dispute. See New York Convention1 below.
The realities of enforcement vary depending on factors such as the jurisdiction in which enforcement is likely to be sought, the status of the party against whom enforcement is sought, and whether it is possible to take steps to ensure the other side does not get rid of its assets to frustrate enforcement. It is crucial to consider the prospects of enforcement at the outset of any dispute, especially if cash in the bank is vital.
ADR methods offer several benefits including:
- reduced costs
- sometimes faster resolution times
- its non-binding nature unless an agreement is reached (and a binding settlement agreement is entered into)
- preservation of business relationships
By understanding the various ADR techniques and their applications, participants can choose the best method to resolve their disputes effectively and efficiently. Alternative dispute resolution is a popular choice for parties seeking an accessible and amicable resolution to their conflicts.
1 The New York Convention 10 June 1958, covers the recognition and enforcement of foreign arbitral awards. Almost 90% of the cases grant enforcement of an arbitral award, as shown by commercial arbitration data. The two basic actions contemplated by the New York Convention are the recognition and enforcement of foreign judgments and the referral by a court to arbitration.
The first action is the recognition and enforcement of foreign arbitral awards, i.e., arbitral awards made in the territory of another (Contracting) State. The second action contemplated by the New York Convention is the referral by a court to arbitration. Article II(3) provides that a court of a Contracting State, when seized of a matter in respect of which the parties have made an arbitration agreement, must, at the request of one of them, refer them to arbitration (unless the arbitration agreement is invalid).