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COMMERCIAL DISPUTE RESOLUTION ADR AND MEDIATION

STAGE 1 INTRODUCTION Hello and welcome to this i-Tutorial on ADR and mediation. Since the introduction of the Civil Procedure Rules in April nineteen ninety nine, parties have been encouraged by the courts to try to resolve their differences without the need for a trial. Parties now have the choice of a range of alternative dispute resolution methods. These methods are not mutually exclusive so parties can use more than one of the methods available to try and settle their differences. And, in practice, ADR can be attempted before or after legal proceedings have been issued. In this i-tutorial we will first take a look at the different types of ADR before looking at the mediation process in more detail. After studying this i-Tutorial you should be able to:

Distinguish between determinative and non-determinative procedures, Recognise the key features and uses of each ADR method, Understand the procedure for mediation and the factors involved in choosing a mediator, and, finally Explain the costs associated with ADR, and the costs implications of refusing to try it.

STAGE 2 ADVANTAGES AND DISADVANTAGES OF ADR First, we will look at the advantages of using ADR to resolve a dispute rather than pursuing litigation. One attraction is that ADR can be quicker and cheaper than taking a case to trial. For example, litigation costs such as producing witness statements, and paying Counsel and experts can be avoided. And ADR can be tried even before proceedings have been started. ADR also allows the outcome to be commercial and can preserve business relationships. Judges at trial do not have this ability- someone wins and someone loses. ADR results in a settlement agreement, basically a contract, which can be far more creative than the Win/Lose outcome available in the courtroom. ADR is confidential which can be very important to a party, especially if sensitive matters are involved, or if the party is a business that does not want its reputation damaged by bad publicity. ADR can be very flexible. Parties can usually choose the method, the process and the outcome. They can also walk away if they want to. Another reason why ADR can be attractive to a party is if they want to avoid a binding precedent being set at trial. A judgment could result in opening the flood gates for multiple
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claims against a party. ADR can produce a confidential settlement which can prevent this happening. But there are also a few down sides to trying ADR. The settlement agreement doesnt have the same status for enforcement purposes as a court judgment. ADR is separate from the litigation process. Although the extent of disclosure can in theory be agreed between the parties, there is no obligation to full disclosure so the parties may not have seen all of the other sides relevant documents. This can result in nervousness about agreeing to a settlement in the absence of full knowledge of the other sides case. ADR is not suitable for certain types of case. Sometimes there is simply no trust between the parties, for example where there has been a fraud involved. Also, if a party needs an injunction, ADR cannot provide this remedy. And where there is no real dispute, say where it is merely a debt collection matter, the appropriate course of action would be an application under Part twenty four for summary judgment, not ADR. A client may also need a ruling on a point of law again, ADR cannot provide them with a decision with the same status as a court order or judgment. If unsuccessful, ADR can add time and cost to the process of resolving a dispute.

STAGE 3 DETERMINATIVE FORMS OF ADR There are a number of alternative dispute resolution methods available. Most are voluntary but, in some circumstances, a statute may apply to give a party a right to refer a dispute to say a statutory adjudication. Or the parties may be bound under an agreement to try a particular method such as arbitration. In general terms there are two categories of ADR determinative, that is those which result in a binding decision, and non-determinative - evaluative processes which result in a voluntary settlement agreement. Determinative forms of ADR are commonly understood to mean processes where the outcome does not remain within the control of the parties. When a determinative form of ADR is used, the parties have agreed to have a third partys binding decision being imposed on them. Were not going to cover Arbitration in detail here, but, briefly, it involves parties agreeing to be bound to refer certain types of dispute to arbitration. Roll your mouse over the screen to see the various points. Arbitration involves appointing an arbitral tribunal which sits in a judicial capacity. The process can be similar to litigation This tribunal will make an award which is binding on the parties as if it was a court judgment. Arbitration has the advantage of being conducted in private rather than in open court. This can be a critical reason for parties choosing arbitration over litigation.
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Arbitration can be quicker and therefore cheaper than litigation if a cost effective procedure is adopted by the tribunal and the parties. But arbitration can also become more, or as expensive as litigation if the tribunal and the parties do not take advantage of its flexibility when it comes to procedure. Also, there is the added cost in arbitration of paying for arbitrators to act, the costs of the venue, stenographer and other costs of the tribunal which are borne by the state in court actions. Expert determination is a process whereby the parties agree that an expert will make a binding decision. Parties have to agree on who the expert will be. They should ensure that they choose the right type of expert for the particular type of dispute. This process has the advantage of being quick once the parties have agreed on the expert. However, parties should be advised that before agreeing to this procedure, it is very difficult to challenge the experts decision, so they need to be prepared to accept the result. Expert determination is most appropriate in cases where, say, a valuation is required or a decision is needed on a specific technical matter. It would not be suitable where there were lots of factual issues in dispute.

So-called Med-arb involves the parties agreeing to a two-stage process. Initially the parties will conduct a mediation in what ever format has been agreed. We will look at mediation in more detail later in this i-tutorial. If the mediation fails to result in settlement, an arbitration will follow. Although it is possible for the mediator to become the arbitrator, parties often appoint a new third party to act as arbitrator because in a mediation parties reveal information confidentially to a mediator that they would not want their arbitrator to know. This tends, of course, to increase the costs involved in med-arb because parties end up paying for both a mediator and an arbitrator. From a timing point of view, once arbitration is embarked upon, a decision could be some time away. This could be unsuitable to the parties and should be considered at the outset. But the advantage of med-arb is that it gives the parties the flexibility and control of a mediation and if that fails, the reassuring finality of arbitration. In final offer arbitration, parties agree to appoint a neutral third party. Each party then submits their settlement offer to the third party. This neutral third party then chooses one of the settlement offers and the parties will be bound by this. The third party cannot devise any other solution. The thinking behind this process - which may seem rather a dramatic way to end a dispute is that the third party will go for the most reasonable settlement offer. This encourages

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both parties to be as reasonable as possible. If a party makes an unreasonable offer, they reduce their chances of having their offer chosen and increase the other partys. Statutory adjudication was introduced under the Housing Grants, Construction and Regeneration Act 1996. Its aim was to allow parties to refer a dispute to adjudication if it fell within the requirements of the Act. Adjudication is a mechanism for resolving disputes, most typically arising from the performance of construction contracts. It was designed by Parliament to provide a speedy and cost effective means of resolving disputes in the construction industry. The main advantage of this process is that it is quick. Parties can have a binding decision within around 35 days. This is much quicker than say arbitration which is also used a lot in construction disputes. Time is often of the essence in construction projects so this procedure is very effective.

STAGE 4 NON-DETERMINATIVE FORMS OF ADR Non-determinative forms of ADR give the parties control of the outcome. A decision is not imposed on the parties if the process comes to a successful conclusion. It could result in a settlement agreement, which is voluntarily entered into, a non-binding evaluation, or preliminary view given by a third party. Lets now turn to look at the different forms of non-determinative ADR. Roll your mouse across the screen to see the various points. Negotiation is a commonly used procedure. Like many forms of ADR, it is conducted on a without prejudice basis, so what is said at the negotiation cannot be used in court. Negotiation is entered into voluntarily and can be cheap and quick because the parties do not need to pay a neutral third party. The negotiation itself is confidential, and the parties can agree that any resulting terms of settlement is also confidential, which can be a great attraction for the parties Once parties have reached agreement and signed the settlement agreement, they are contractually bound to comply with its terms or otherwise be in breach of contract. Mediation is basically an assisted negotiation - a negotiation between the parties, facilitated by a neutral third party. Mediation is conducted on a without prejudice basis, so matters revealed or discussed in the mediation cannot be referred to in the litigation. The mediators role is to help the parties achieve a settlement. Their role should not be judgmental they will explore matters during the confidential discussions and look for factors that may make parties more reasonable and realistic about their demands. The mediator cannot impose a settlement on the parties. Conciliation is a more pro-active version of mediation, with the third party actively encouraging the parties to settle the dispute by making suggestions regarding the parties settlement options. A mini-trial comprises of a tribunal, usually of three people, a chairman, who is a neutral third party, sits with a senior representative from each party.

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Usually, these representatives are individuals who havent been closely connected with the dispute. The tribunal hears about each sides case and then begins discussions between themselves in an attempt to reach a fair compromise. Judicial appraisal involves a former judge or senior barrister giving a preliminary view on the legal position in a dispute having heard representations from both parties. The parties can agree that they will be bound by the preliminary view. This could assist in bringing the dispute to a speedy close thereby saving costs. Similarly to this is expert appraisal or early neutral evaluation -known as ENE for short. The dispute is referred to an expert, usually a lawyer with litigation experience, perhaps a former judge. The expert gives their view on what the likely outcome would be at trial Unlike mediation, the evaluative techniques focus on the legal issues and the merits of the parties cases. The evaluation is not binding but can have an impact on the future of the case especially because one partys case has been stated to be the weaker. This method can help matters progress to settlement. In court actions, judges in the Commercial and Technology and Construction Court also offer ENE, giving a preliminary view of the issues and meritis of the case. This judge will not be involved in the trial of the matter if no settlement is reached. STAGE 5 - ACTIVITY 1 TYPES OF ADR Please carry out the next activity relating to the key features of various types of ADR. The activity requires a good knowledge of what types of ADR methods would be best suited to which types of situations. Please follow the on screen instructions. When you have finished click done for feedback. PAUSE AND STOP How did you get on? The mini-trial - or structured settlement - involves a senior representative from each side and an independent chairman. These three sit on the tribunal to negotiate the settlement. An expert determination would be effective here as there appears to be one clear issue to be decided. The expert can deal with this question quickly once they have the appropriate information. But the parties should be aware that the experts decision is binding and very difficult to challenge. Judicial appraisal is a service offered by CEDR, where a former judge or senior barrister gives his preliminary view after hearing submissions from the parties. The parties can choose in advance whether to treat the preliminary view as binding upon them. In an Early neutral evaluation a judge gives a preliminary view on the merits of the case and then the parties can go on the try to settle the dispute based on this.
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The parties will use an independent third party to conduct a mediation. If no settlement is reached, an arbitration will follow. The mediator could be the arbitrator. But best practice is to have a new third party who has not been privy to the information divulged to the mediator during the private sessions in the mediation.

STAGE 6 COSTS AND ADR In this part, we examine costs aspects of ADR, and you may find the resources section of this i-Tutorial useful. First well look at the costs a party can expect to incur if they embark on an ADR process. These will, of course, be in addition to any litigation costs they my already be incurring. We will then look at the role of Part 44 and when conduct in relation to ADR can result in costs sanctions, if the dispute proceeds to trial. One of the costs that parties will incur is the fees of the neutral third party. These vary widely and will depend on the level of experience and background of the practitioner, but can come to several hundreds of pounds per hour. These are paid either directly to the third party or, where an organisation is being instructed (such as CEDR or ADR Group), to the organisation itself. Parties will also have to pay to hire a venue if the mediation is not held at one of the parties or solicitors offices. Obviously, the solicitors involved will also have to spend time preparing for the mediation, including preparing bundles and submissions, so their fees will mount up. If parties want to adopt an ADR process through organisations such as CEDR or ADR Group, they may be required to pay an initial instruction fee to cover administration costs. Under the CPR, the court is required to actively encourage ADR through its case management powers and parties are required not to unreasonably refuse to try ADR. Under CPR Part 44, the court has a wide jurisdiction on costs. If a dispute goes to trial, one of the factors it can take into account before making the costs order is each partys behaviour in relation to the ADR. If a party has unreasonably refused to try ADR, the court can reverse the usual order as to costs, so that the party who wins at trial does not recover his costs from the losing party. The Court of Appeal has given useful guidance in the case of Halsey v Milton Keynes on when it might be reasonable for a party to refuse to try ADR and not be at risk on costs if the matter went to trial.

STAGE 7 - ACTIVITY 2- COSTS AND ADR

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Please complete the following activity on costs and ADR after reading an extract from the Halsey case, which can be found in the resources section of this i-tutorial. For the purpose of this activity please focus on paragraphs 9,13,18,21 and 22 of the Halsey judgement. Follow the on screen instructions and click Done when you have finished. PAUSE AND STOP The statement in question 1 is True. The court said that a reasonable ground for refusing mediation could be that the costs of mediation would be disproportionately high. This is particularly likely to be the case where the claim is low value. Statement 2 is False. The court has a duty to actively manage cases and this involves encouraging the use of ADR, as is recognised in CPR Part one point four one and two. However, the court cannot compel parties to try ADR This statement is True. The court is only likely to depart from the usual order as to costs following trial, if the unsuccessful party has satisfied the court that the successful party acted unreasonably in refusing to agree to ADR The correct choice is False. The fact that a party reasonably believes that he has a strong case is certainly relevant to the issue of reasonableness in refusing ADR. If this were not the case there would be scope for a claimant to use the threat of costs sanctions to force a settlement from a defendant even where the claim was without merit. This statement is False. The timing of the proposal to try mediation is a relevant factor to be taken into account when assessing the reasonableness of any refusal. If mediation is suggested later in the day, its acceptance is likely to delay trial. A refusal on this basis may well be deemed reasonable.

STAGE 8 SETTING UP THE MEDIATION Now lets have a look at how the mediation process is set up. Once the parties have agreed to mediation, they need to negotiate a mediation agreement. This records matters such as when the mediation will take place, who the mediator will be, confidentiality and fees. At the same time, the parties need to select a mediator. They can try to do this themselves - which can result in further argument and delay - or they can appoint an ADR organisation such as CEDR or ADR Group to appoint a mediator on their behalf. Parties also need to make practical arrangements about where the mediation will take place. They will have to decide who attends the mediation. The solicitors will be present. Sometimes a party may also want their barrister present although this will of course entail extra costs. Prior to the mediation taking place, parties should try to agree a bundle of relevant documents to be referred to during the mediation. Alternatively, the parties can send their
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own bundle to the mediator for use in the mediation A party can also send further documents to the mediator for use on a confidential basis only. It is also usual for each party to submit and exchange case summaries prior to the mediation, setting out the case as they see it. Parties may also draft detailed written submissions for the mediator to read prior to the mediation. This is particularly helpful in larger complicated disputes.

STAGE 9 ACTIVITY 3 SELECTING A MEDIATOR Now attempt the following activity. Drag and drop the factors into order of importance when choosing a mediator, with the first factor being the most important. When you have finished click Done to review your answers. PAUSE AND STOP This is to some extent a subjective area, with the order of importance depending on the facts of the case. However, you can see a suggested order on the screen now. In practice this may differ from case to case. In some cases, for example, technical knowledge or availability of mediators may rank more highly than any other factor. You may have chosen a different order yourself. The most important thing to recognise is why a particular factor is relevant to the selection process in a given case. This is a very important quality for a mediator because mediation focuses not just on legal rights and issues but also on commercial matters. The mediators role involves helping the parties to explore commercial interests and then options for settlement. The number of mediations conducted is important too. The reality is that the more mediations a person has done, the more skilled theyre likely to be. Parties have high expectations of their mediator because they must add something to the process so its more than just a negotiation between the parties. A mediators success rate is also high in the ranking. Parties go into mediation wanting a result, and if a mediator has a good success rate, this will be very encouraging. Their success rate reflects their ability to help parties clarify the issues and to recognise the settlement options available to them A mediators fees will also be important. The parties need to consider the size of the case and balance this against the likely costs of using a particular mediator. Expert knowledge of the subject matter of the dispute can also be useful. This might assist in gaining a quicker understanding of the issues and what the commercial realities are for each party when trying to facilitate a settlement. Clearly, availability is a relevant factor. This could dictate whether that mediator can be used at all, or how long parties might have to wait.

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Legal training or a legal background is not a prerequisite for a mediator. Mediation is not about adjudicating legal rights or assessing merits. Its about helping the parties find a commercial or reasonable settlement which meets their interests. The mediator does not necessarily have to have an academic background, any more than legal training. Academic qualifications do not always equate to commercial acumen, people skills and a practical approach. And a final point on the selection process: Many firms will keep a record of the mediators theyve used together with a note of their manner and how they conducted the mediation. It is always worth checking any such database and seeking internal views on the suitability of mediators for a particular dispute as this can often be a helpful guiding factor when choosing a mediator. STAGE 10 THE MEDIATION Lets focus now on what actually happens on the day. Mediation is a flexible procedure so theres no fixed format, but there are some standard practices whichll be adopted in most mediations. The mediator will usually open by explaining what is going to happen in the mediation. Theyll also emphasise the confidential nature of the process. The mediation begins with the parties opening statements, which may be made by the parties themselves or by their solicitor. These will normally last for ten to twenty minutes. They provide an opportunity for the party not only to set out their overall position, but also to express how they really feel, to air grievances or even to apologise. Following the openings, parties retire to their own rooms for a private session with the mediator. In these sessions, each party can discuss their position, concerns, needs and wants with the mediator. Having met at least once with each party privately, the mediator could decide that it would be beneficial to the process for the parties to get together again to have face to face discussions. If so, a joint session can be held. During the private sessions, parties usually reveal confidential information to the mediator. The mediator is not permitted to reveal this information to the other side. However, the mediator can ask for permission to reveal something to the other side if they feel itll assist in reaching settlement. If the parties do reach settlement, the mediator should ensure that the terms which have been agreed are recorded in writing, and, if at all possible, signed) at the mediation. There are two other less favourable outcomes. One is that no settlement is reached there and then. This does not mean that all is lost, and all the time, and expense invested has been wasted. Often, parties are able to settle the dispute shortly after the mediation, because the process has made them more realistic about the risks and merits of their case. The other more demoralising possibility is that one or both of the parties walk away from the mediation. This is disappointing but sometimes unavoidable, especially if theres a break
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down in trust between the parties or even in the mediator. Mediation is a voluntary process so a party cannot be compelled to take part. However, even if success cannot be guaranteed, the costs consequences of failure tend to encourage a positive attitude.

STAGE 11 ACTIVITY 4 THE MEDIATION PROCESS To check your understanding of the mediation process and the role of the mediator please attempt the following activity. When you have finished click Done to review your answers. PAUSE AND STOP How did you do? Answer A is No. The mediator is not advisor to any of the parties and can only make suggestions. It is not the mediators role to tell the parties how they should resolve the dispute. Answer B is Yes. This is to protect the parties, manage their expectations and give them confidence in the process. This in turn is more likely to lead to a settlement. Answer C should be No. The mediators role is non-judgmental. They can explore matters in a way which causes a party to realise that his demands are unreasonable but the mediator must remain impartial throughout the process. Answer D should also be No. The mediator can divulge information but only if the party gives permission. And answer E should be Yes. Its wise to record the agreement properly at the time settlement is reached so that any misunderstandings about what has actually been agreed can be resolved immediately whilst terms of settlement are fresh in the parties minds.

STAGE 12 - CONCLUSION You have now finished this i-tutorial on ADR and mediation. After studying this i-tutorial you should be able to:

Distinguish between determinative and non- determinative procedures, Recognise the key features and uses of each ADR method, Understand the procedure for mediation and the factors involved in choosing a mediator, and, finally Explain the costs associated with ADR, and the costs implications of refusing to try it.

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