What is Alternative Dispute Resolution?
When you have a contractual or commercial dispute, it is not granted that you must go to court to have your grievance addressed. Parties usually have a choice to opt for one of the methods of an Alternative Dispute Resolution (“ADR”) to resolve their disputes and differences.
ADR has now become an important and necessary consideration as an alternative to litigation. Civil Procedure Rules (“CPR”) defines ADR as a ‘collective description of methods of resolving disputes otherwise than through the normal trial process’. The court has a duty as part of its case management to encourage the use of ADR.
Types of ADR
Round table discussion
This should always be the starting point of every disputes to reduce litigation costs as an attempt to settle the matter as amicably as possible. Parties could have a formal discussion to state their position and you may be able to evaluate the strength and weaknesses of your case. Your practitioner should always make sure that it is done on a without prejudice basis to allow a more open discussion without repercussions on the litigation process.
This is a very common method of settling disputes out of court; an independent third party mediator will be appointed to hold the mediation in private. Before the mediation, all parties involved will be requested to sign a confidential agreement. In the mediation, parties are then free to negotiate without being bound by any legal argument and evidential rules (but to genuinely settle the matter, please always put forward a reasonable proposal!) on a without prejudice basis.
Any outcome of negotiation is non-binding until parties sign a settlement agreement. It is therefore very crucial to have your legal representative to be presence throughout the process to draft and review the settlement agreement in your best interests.
It is the author’s view that parties should always try to mediate especially if the value of the claim is not more than £150,000 for the obvious costs consideration.
Arbitration is a type of ADR conducted in private by an independent third party, the arbitrator. The decision made by the arbitrator is usually binding on the parties and enforceable. Arbitration plays an important role in many industries and you will often find it in many commercial contracts as the dispute resolution clause.
The Arbitration Act 1996 governs the arbitration practice in England & Wales.
Arbitration is usually expensive, as is litigation, but it preserves the confidentiality of the disputes as opposed to public court hearing.
One of the first things a practitioner will check when a dispute arises is if the contract contains an agreement to resolve disputes by arbitration. If there is such clause, parties will generally be bound to go through an arbitration process.
A UK Supreme Court recent decision in Enka Insaat Ve Sanayi AS v OOO Insurance Co Chubb clarified the principles which govern the determination of the law applicable to the arbitration agreement. A useful summary could be found in paragraph 170 of the judgment. The crux of the decision is that where the parties have chosen a system of law to govern the main contract, that choice will generally apply to the arbitration agreement which forms part of the contract; and where they have not, the applicable law will generally be the law of the seat of the arbitration, which is usually the place chosen for the arbitration in the arbitration agreement.
This is similar to mediation but the conciliator is usually more proactive and may propose his or hers own solutions. This is more commonly used in employment disputes.
The Executive Tribunal
This method of ADR is commonly used in resolving commercial disputes, parties involved usually have a more structural tier of management. Senior representatives of the parties who have not been directly involved in the dispute will form a panel sit together with a neutral adviser. After parties present their case, the panel from both sides will try to negotiate a commercially viable settlement. The independent adviser will provide a non-binding advisory opinion as and when needed.
Judicial or Expert Determination
Often, parties could decide to jointly instruct a senior retired judge who will make a written appraisal after both parties submitted their written submissions. Your legal representative will seek your instructions as to the extent of instructions and whether the appraisal will be binding. This is crucial as once it is binding, it could only be challenged on limited grounds.
It is proven to be a very pragmatic approach as it could be used to determine on preliminary issue such as determination of liability, parties could then negotiate on the quantum of the damages as other part of the claim.
Early Neutral Evaluation
As the name suggests, an independent legal practitioner could be jointly appointed to consider the issues and advises on the likely outcome of the matter on an early stage. The advice is not binding but it enables parties to re-evaluate their position with the likely outcome in mind.
This is a form of adjudicative dispute resolution and frequently used in constructions and engineering disputes. A party will begin the process by serving the other party a notice of intention and nominates an adjudicator. There are strict time limits to follow. The decision is binding unless and until it is appealed to the High Court.
Parties may not always reach a settlement through ADR, but it is often useful to enter into some form of negotiation to evaluate the other side’s strength and weaknesses and to re-consider your position. If ADR fails, your legal representative should then be able to pitch a strong Part 36 offer to the other side which will attract costs consequences with conditions.
Although ADR remains voluntary, you may well face costs sanction and penalty if you have unreasonably refused to enter into any form of ADR.
There are circumstances where an ADR is not a suitable avenue to settle your disputes, it could be that your case and evidence is strong enough to warrant a summary judgment; an emergency injunction ought to be sought from the court; or it is a matter of public interest. It is always prudent to seek immediate legal advice should you foresee any possible legal disputes.
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