When a business is faced with a commercial dispute, what are its choices to manage and deal with that dispute in the most effective and efficient manner and how does it weigh up the options and make the right decision?
Good question!
Your level of awareness of the options available to you, and what each option has to offer you, will obviously influence your decision.
So let’s examine them. What is the menu of choice and how do you decide what to select?
First the MENU –
Negotiation with the help of an expert in negotiation;
Commercial Dispute Management using the services of an Expert in Commercial Dispute Management;
Commercial Dispute Mediation using the services of an Expert in Commercial Disputes Mediation;
Neutral Expert Appraisal/Determination – to provide an appraisal report and/or Determinatiuon on some technical issue in the dispute (either binding or non-binding);
Conciliation Services;
Arbitration;
Hybrid processes eg. Mediation/Arbitration or Arbitration/Mediation or Med-Arb-Med or Arb-Med- Arb etc.
Arbitration Services;
Neutral Pre-Action Evaluation by a judge who will not hear the case if dispute proceeds to litigation;
Courts and Tribunals by commencing Litigation.
As you can see there are many options and choices open to you.
Next step how do you evaluate and weigh up the different options? This is where it can get quite complex for the novices and uninitiated. This is where things can go wrong if you go to the wrong person to get that initial advice and assistance to consider the options and make a selection from the menu. Making the wrong or poor choice can have enormous consequences for you, and in some cases may spell the difference between staying in business and going out of business.
I will cover each of the Menu Items with you to help you better able to make a selection.
The first key level of choice and decision making will depend very much on neither party in the dispute having yet made a decision to litigate the dispute by filing some formal claim (called a pleading) in a court or tribunal that has jurisdiction to hear and determine that dispute.
When a commercial dispute breaks out, and neither party has yet commenced litigation, it leaves open the full panoply of what are called Pre-Action dispute management/dispute resolution choices and options. This will allow the parties the choice, once properly advised, to make litigation the very last option of choice rather than the first.
To set the scene for this discussion I am setting out some helpful statements made recently by the Law Reform Commission of Irelend when conducting its own inquiry into the appropriate use and integration of various forms of ADR (alternative dispute resolution) methods/strategies/techniques into the civil justice system.
ADR can be applied both Pre Action/Litigation and at any point Post Action/Filing a Claim in Court/Tribunal prior to a Court hearing and deciding the dispute by handing down a formal judgment.
But the most important threshold issue for the business owner is whether or not there is a need to make use of the court system at all to properly deal with their dispute. This is where there is a lot of disagreement amongst lawyers and legal commentators. There are those who advocate that it is best to litigate first and then start making use of ADR methods and strategies while the dispute is being case managed by a judge within the court system; and those who are strong proponents of Pre-Action ADR who believe if the dispute can be properly managed by a person or persons with the right skill set and if the parties and their legal advisers truly commit to the Pre-Action ADR steps and processes that the majority of commercial disputes can be successfully resolved without resort to litigation.
Consider these statements made by the Irish Law Reform Commission members in the Introduction to their Report –
EXTRACTS FROM IRISH LAW REFORM COMMISSION
For mediation as a process to take hold in this country there is a need to heighten public consciousness as well as that of legal practitioners and other professions of its usefulness, its value and its availability.
Article 47 of the Charter of Fundamental Rights of the European Union.2 As the Commission noted in its Consultation Paper: In promoting access to justice, a modern civil justice system should offer a variety of approaches and options to dispute resolution. Citizens should be empowered to find a satisfactory solution to their problem which includes the option of a court-based litigation but as part of a wider menu of choices.
The Commission also noted that justice may sometimes require a decision from a judge who has heard and considered evidence and legal arguments from both sides after an adversarial hearing. This is why the courts will always remain central and indispensible to our civil justice system.4 In other cases, of course, justice might mean an apology and change of administrative process in response to a particular problem. It is clear that in that sense there are circumstances in which ADR can provide resolutions and individualised justice for parties which a court cannot. Indeed, the court-based process cannot be expected to provide an optimal solution to all conflicts in society.5 Nonetheless, the courts continue to be an important location to resolve disputes.
The ability to defend and vindicate private rights is a cornerstone of a civilised society. It is central both to the promotion of the welfare of citizens as well as to the economic development of the State.9 While the courts will always retain a central place in the civil justice system, it is increasingly recognised throughout the world that, in many instances, there may be alternative and perhaps more appropriate methods of resolving civil disputes in a manner which may be more cost and time efficient for parties. Merely because a dispute is defined as justiciable does not necessarily mean that the courts are the only option to seek redress.10 The Commission concurs with the view that ?we should want much more than an effective court system. We should want an integrated civil justice system wherein the courts are a forum of last resort, supported by other, closely related techniques for ensuring the law is open to all.
ADRs offer a solution to the problem of access to justice faced by citizens in many countries due to three factors: the volume of disputes brought before courts is increasing, the proceedings are becoming more lengthy and the costs incurred by such proceedings are increasing.
The cost of access to justice for citizens is an important issue to consider. The Competition
Authority in its 2005 Study of Competition in Legal Services noted that ?Access to justice requires not only that the legal advice given is sound but also that it is provided in a cost effective and client responsive. If litigants of modest means cannot afford to seek their remedies in the traditional court system, they will be forced to find other means to obtain relief. Some may simply give up out of frustration. Should this come to pass, the civil justice system as we know it will become irrelevant for the majority of the population. Our courts and the legal profession must adapt to the changing needs of the society that we serve.
Furthermore, the Commission considers that access to justice should not only guarantee access to the courts system, but also to adequate dispute resolution processes and forums to resolve disputes in a manner which best meets the goals of the parties involved in securing access to individualised justice.
The South African Law Reform Commission has suggested that to suggest that ADR can provide increased access to justice for citizens is perhaps ambitious . It suggests that parties who, with the assistance of a mediator, are able to resolve their dispute may not regard themselves as having received justice but may simply consider that they have attained the more modest goal of settling their dispute.
The Commission considers, however, that Access to justice should include resilience: reinforcing and enhancing the capacity of people to resolve disputes themselves. Indeed, ?Access to justice is not only about accessing institutions but also about having the means to improve everyday justice; the justice quality of people’s social, civic and economic relations. This means giving people choice and providing the appropriate forum for each dispute. Therefore, the Commission concludes that ADR must be integrated into the civil justice system, as it is an important mechanism in providing greater access to individualised justice for citizens in appropriate cases.
While the Commission acknowledges that ADR processes, such as mediation and conciliation, have an important role to play in providing greater access to justice, ADR is not a panacea for all disputes, it has its limitations and it is not always appropriate.
The European Commission has also stated: Access to justice is an obligation which is met by the Member States through the provision of swift and inexpensive legal proceedings.
As noted in the Consultation Paper, the Commission accepts, of course, that the additional financial costs involved in an individual case that goes through an unsuccessful mediation and must then be resolved in litigation has to be balanced against the possible savings where a complex case is successfully mediated.
Opponents to ADR options claim it is soft justice, nothing more than an additional layer of costs in the litigation stream and a process fundamentally at odds with the role of the court as decision maker.
The Commission considers it important to reiterate that the potential benefits of mediation and conciliation, including the cost and time effectiveness of the processes, must be balanced against the reality that mediation and conciliation can also be seen as an additional layer on civil litigation where it does not lead to a settlement and that every step along the way drives up the costs of litigation.24 Furthermore, the Commission considers that there are a number of cases which do not lend themselves well to ADR processes. One such category, for instance, would include those disputes involving allegations of illegality or impropriety. ?Cases based on allegations of fraudulent conduct or illegal behaviour are not conducive to mediation because the polarized positions that characterize these disputes inhibit discussion. Moreover, they often place the mediator in an impossible ethical position. ADR may not be appropriate in some cases where power imbalances may exist which put the parties on an unequal footing, allowing one party to place undue pressure on the other. The result may be that one party may impose their solution on the other side. In other cases there may be uncertainties in the law which need to be clarified, either because there is a lot at stake in a particular case, or because its outcome could affect a number of other cases.26 Sometimes legal precedents need to be relied on, or to be established for future cases. There are cases in which public interest dictates that a public hearing should take place and a public decision be made. Furthermore, any case in which a party is motivated to engage in an ADR process, but only for improper tactical reasons, is not one appropriate for resolution through ADR.
The corollary to the general rule that some types of cases ought not to be resolved through ADR processes is that parties to specific types of disputes should nearly always be encouraged to consider mediation or conciliation. The Commission considers that disputes which are most amenable to resolution through mediation and conciliation include: appropriate family law disputes; appropriate employment law disputes; property disputes and, in particular, boundary disputes; probate disputes and, in particular, section 117 applications under the Succession Act 1965; appropriate medical negligence claims; and commercial and consumer disputes.
While it is difficult to set out general categories of cases which are appropriate for resolution through mediation or conciliation, it can be suggested that features of appropriate cases include: where the parties wish to restore or maintain their relationship with the other party (parents, business partners, siblings); claims where the monetary and non-monetary costs of litigation are disproportionately high in comparison to the issues in dispute;27 claims where one or both parties are seeking remedies which are not available through the traditional court system (such remedies may include: an apology, an explanation; flexibility in relation to financial repayments; changes in administrative procedures); and where the parties wish to resolve the dispute in a confidential and private manner. The Commission’s clear view is that not all cases are suitable for resolution by ADR, just as the court based adversarial process is not suitable for all cases. The decision to use ADR should be made on the basis of a range of factors including how best to serve the specific interests of the parties and how best to ensure that justice is accessible, efficient, and effective for the parties involved.
See Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002. In this case the English Court of Appeal gave a very strong endorsement to the use of mediation at an early stage in a case, particularly where litigation costs were more likely to be disproportionate to the amount in dispute. In Egan, the amount in dispute was only £6,000 but the parties between them had spent in the region of £100,000 on the litigation, including the appeal. Ward LJ stated that he regarded the parties as completely cuckoo to have engaged in such expensive litigation with so little at stake.
THE COMMISSION’S CONCLUSION –
The Commission agrees with the view of the European Commission that: ??ADRs are an integral part of the policies aimed at improving access to justice. In effect, they complement judicial procedures, insofar as the methods used in the context of ADRs are often better suited to the nature of the disputes involved. ADR can help the parties to enter into dialogue where this was not possible before, and to come to their own assessment of the value of going to court.?28
The Commission reiterates that while ADR processes, such as mediation and conciliation,must form an integral part of a modern civil justice system in providing greater access to justice, these processes should only be used in appropriate cases. Furthermore, the role of the legal profession should not be overlooked in relation to assessing the appropriateness of ADR. 29 Many disputants may not be aware of the full spectrum of dispute resolution processes which are available to them and, when assessing a client case, solicitors should also assess whether ADR is appropriate because:
An effective justice system must be accessible in all its parts. Without this, the system risks losing its relevance to, and the respect of, the community it serves. Accessibility is about more than ease of access to sandstone buildings or getting legal advice. It involves an appreciation and understanding of the needs of those who require the assistance of the legal system.
Okay I have laid the groundwork for the blog posts that will follow on from here.
Stay tuned.
Please feel free to engage in discussion with me by posting a comment or offering your own article to be published on this blog.
Christopher J. Whitelaw
Barrister, Mediator and Arbitrator
Principal, Commercial Disputes Management Centre
Sydney, NSW, Australia.
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