Can Arbitration be combined with other forms of dispute resolution?

In comparison to arbitration, ‘alternative dispute resolution’ is a recent phenomenon. John H.B. Roney suggests ‘ADR’ is an American invention which was developed in response to the contentious nature of litigation. Others would argue that it is a Japanese trait that the Americans have seized upon and are now selling as a panacea to court room conflict. Roney defines A.D.R. as “a form of structured negotiation into which there is introduced a neutral third party”(5) and Cowan Erwin, writing in the National Consumer Council Review defines A.D.R. as “any means of providing a resolution of a dispute between two or more parties which does not involve traditional adversarial procedures”.(6) Both definitions would therefore suggest that arbitration would be included with in the general framework of A.D.R.

Alternative Dispute Resolution would appear at first glance to be a response to litigation. Litigation can be both time-consuming and expensive, from a client’s point of view. It is not uncommon for the cost involved in going to court to exceed the award made by the court which can make the whole experience very costly for one or other of the party’s involved in the dispute. By going to court the parties sacrifice their right to privacy and very often confidentiality. Their dispute becomes public domain and as such they may run the risk of adverse publicity which might prove detrimental at some future date. The parties can also select the individual responsible for resolving the dispute. Perhaps of more importance to the rise of ADR in preference to seeking a legal remedy through the courts lies in the fact that the solutions offered by ‘alternative dispute resolution’ procedures are more likely to be based on fairness and equity rather than the rule of law. The case of Adam v. Cape Industries plc [1990] Ch 4, [1991] 1 All ER 929 (Court of Appeal) will serve to highlight what one writer (Stephen Griffin) describes as an inconsistency in the application of the rule of law but more importantly for our purposes what the lay individual might consider an unjust judgement. Cape was an English company with wholly owned subsidiaries in a number of countries including NAAC  (a marketing subsidiary) in America which supplied American users of asbestos through its links with various companies with in the Cape group. In the state of Texas in American, several hundred plaintiffs were awarded damages for personal injury due to their exposure to asbestos. The prosecution argued that Cape and its relevant subsidiaries should be considered as a single economic unit, that the subsidiaries were a façade behind which Cape operated and that an agency relationship existed between Cape and NAAC. The Court of Appeal held that the award could not be enforced against the parent company, Cape. It was perfectly acceptable for a company to arrange the affairs of the group in such a way that the business carried out in another country was the business of its subsidiary and not of the parent company. While this case revolved around the Salomon ruling of 1879 which held that a company has a separate identity (even within a group of companies) from that of its incorporators, to the lay individual the Court of Appeal’s judgement might be seen as unfair in that the parent company should be held accountable for the actions of its subsidiaries. A.D.R., rather than offering a solution based on the rule and application of the law offers the parties a solution based on fairness and equity.

From this cursory examination it is possible to detect a number of similarities, confidentiality, the selection of the individual to hear the dispute and the ability of the parties to choose equity and fairness over the rule of law. Indeed, it would only be a short step to suggest that arbitration is another form of dispute resolution. These similarities raise an important question: why the need for ADR?

There is a strong argument to suggest that while ‘alternative dispute resolution’ was created as a means of resolving disputes before they reached court it was the business community’s enthusiasm for such an alternative that has been the driving force behind its acceptance in this country. Since the 1980’s both academics and the business community have been searching for a less contentious, less costly and more co-operative method of handling disputes. This search was given direction by the writings of two men, William Fisher and Peter Ury who, in 1982 published ‘Getting to Yes’. This book offered an alternative to conflict. In it they suggested the parties to the dispute seek to identify the underlying interests behind the positions taken. By doing this the parties can seek to create solutions to their problems that are satisfactory to both parties. ‘Getting to Yes’, is widely regarded as the genesis of a new approach to dispute resolution. It was readily seized upon by fellow academics and the business community who recognised its potential for resolving disputes in a timely manner without the need to go to court and without jeopardising the business relationship. Since that time we have witnessed a plethora of books on the subject of dispute resolution and the rise of organisations such a the Centre for Effective Dispute Resolution (CEDR) and the International Dispute Resolution Centre which offer a range of mediation and conciliation services.

The advantages of resolving disputes at the origin or close to the origin of the dispute were recognised in the Latham Report (July 1994) entitled ‘Constructing The Team’ which addressed procurement and contractual arrangements in the U.K. construction industry. Latham, contends that the construction industry has become extremely adversarial which is driving down efficiency and to combat this he has called for a multi-tiered approach to dispute resolution, which includes ADR and arbitration. Latham argues that early identification and resolution of a dispute would not only reduce litigation costs but also increase the chances of the parties developing a co-operative (rather than competitive) attitude towards each other which would serve to drive up productivity. His recommendations were taken up and incorporated into the New Engineering Contract (1993) before the final report was published. It is interesting to note that he does not disregard arbitration in favour of ADR but sees the latter as complimenting the former.

The ability to resolve disputes at the origin or close to the origin of the dispute as possible without recourse to the courts would appear to be one of the major driving forces behind its rapid incorporation in the legal and particularly the commercial fields.

As stated earlier the term ‘alternative dispute resolution’ encompasses a variety of models. It would therefore seem appropriate to examine a number of these models and then compare them to arbitration as a method of dispute resolution. However, before we consider these models it would be appropriate to explain why in my opinion ‘negotiation’ should not be considered as part of the ADR process (despite Lord Woolf’s opinion that it is).  When a dispute arises the parties will invariable try to resolve that dispute by themselves. The parties will only seek ADR, arbitration or litigation on the collapse of the negotiations. Therefore in my opinion negotiation between the parties is an automatic first step and it is only upon its collapse that the parties will look for alternative means to resolve the problem.

Conciliation and mediation are perhaps the two most popular forms of ‘alternative dispute resolution’. While both are very similar in format there are a number of subtle but important differences. Both require the services of a third party, however in matters of conciliation it is the services of a lay person that are required whereas mediation requires the services of an expert. Conciliation is usually concerned with such matters as marriage guidance, neighbourhood disputes and customer complaints. The only skills required of the conciliator is that they are a good communicator able to question and listen effectively to the party’s points of view and to do so in an impartial manner. Their role is that of an honest broker and that means coming to the dispute with an open mind, free of any preconceived ideas or opinions. They will have no knowledge of the dispute prior to the conciliation process and as such they will begin the conciliation with a blank sheet of paper. They will begin the process by hearing separately each party’s version of events. At this point they are merely gathering information. Once they have completed this exercise they will review the information and look for areas of agreement and areas of contention. The size of the problem will only then become clear. At the next meeting the conciliator will go through each party’s version of events with the other party. They will begin by highlighting areas of agreement in an attempt to build rapport and will then introduce the disputed facts. On completion of this task the conciliator will embark on something akin to shuttle diplomacy, moving between the parties in an attempt to extract movement from one or usually both parties. It is only when the conciliator is satisfied that there has been sufficient movement from the parties to allow the dispute to be resolved that they will bring the parties together. At this stage of the conciliation the conciliator will begin by highlighting the progress already made towards resolving the dispute and emphasise the low number of outstanding issues to be resolved for a satisfactory agreement to be reached.

Mediation on the other hand requires the services of an expert and is employed to resolve more complex problems in comparison to conciliation such as the interpretation of contracts, insurance claims, and legal disputes. Unlike the conciliator, they will not only have expert knowledge in relation to the subject matter of the dispute but they will have prepared a file detailing the circumstances of the dispute and the issues under dispute. This they will have done by talking to the parties separately. While the mediator is an agreed expert they must maintain their impartiality throughout the mediation process. The venue for the mediation will usually comprise of three rooms (which in most cases is similar to that of conciliation). One of these rooms will be allocated to the each of the parties to the dispute and the third will be used for the open session which brings the parties together. In some mediation cases the parties will be represented by a lawyer who presents their respective client’s case in open session at the beginning of the mediation. The mediator can approach either of the parties at their own discretion but what is divulged will be kept confidential. This stage of the mediation is similar to that of conciliation in that the mediator will undertake a form of shuttle diplomacy moving between the parties, highlighting areas of agreement and emphasising the low number of outstanding issues in an attempt to bring them even closer to a satisfactory resolution of the problem. If the parties are unable to reach agreement, and only at their request will the mediator produce his/her own non-binding recommendation.

In May 1994 a review committee led by Professor Alan Wilson recommended a single procedure for complaints handling which the government (with minor variations) recommended for adoption by the NHS as of 1st April 1996. The procedure has three levels:

1. Local Resolution – includes conciliation.
2. Independent Review – Mediation and Arbitration
3. Ombudsman

In April 1995 the NHS launched a mediation pilot scheme in response to criticism being levelled at the NHS in relation to the way they handled and managed medical negligence complaints.  The subsequent report ‘Mediating Medical Negligence Claims – An option for the future’ by Linda Mulcahy suggests that the financial cost associated with mediation (compared with litigation) is high. The report states “… mediation would seem to cost more because it brings case preparation forward and involves the medical profession more directly”(9)

There are a variety of other models including; mediation/arbitration and the executive tribunal. In mediation/arbitration the individual chosen as the adjudicator of the dispute will begin by mediating the case before them and only if this fails will they then proceed to arbitrate the case. In the case of the executive tribunal, representatives of the parties (usually lawyers) will make a presentation before a panel composed of executives from both sides, plus a neutral adviser. The panel will be fully aware of the facts of the case before them and after the presentations they will meet and attempt to arrive at a negotiated settlement. The role of the adviser is to provide advice on legal matters but perhaps more importantly their role is to help promote agreement.

As to ‘alternative dispute resolution’ and whether a clause stipulating that the parties should attempt to resolve the dispute through conciliation, mediation or some other alternative is enforceable, is still somewhat unresolved.  In the case of Paul Smith Ltd v H & S International Holdings Inc [1991] 2 Lloyd’s Rep. 127 Steyn J held that a clause requiring a dispute be submitted to conciliation was unenforceable. In Halifax Financial Services Ltd v Intuitive Systems Ltd [1999] C.I.L.L. 1467 a clause provided for dispute resolution procedures to be implemented and only if these proved ineffective would the parties enter into an arbitration agreement was not upheld by the courts. It was felt that unlike an arbitration clause, where the court would have declined to intervene, the dispute resolution clause was not a condition precedent to initiating litigation and the agreement was not binding on the parties as it did not stipulate a particular method of dispute resolution. However, Hooper Baillie Associated v Natcon Group Pty [1993] A.C. 334 the Supreme Court of New South Wales stayed arbitral proceeding until the parties had submitted to contracted for conciliation.  In Scotland there is no authority on this matter though in England the courts are taking a more liberal view. In England the 1999 Civil Procedure Rules (Woolf Reforms) empowered judges to refer cases that came before them to negotiation, ‘alternative dispute resolution’ or both in an effort to avoid litigation. Part 1.4 (2) states: “Active case management includes: (e) encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate ….”(7) Currently, there are two Practice Direction-Protocols, which encourage the parties to seek an alternative to litigation, personal injury and medical disputes but more protocols are on the horizon. The rules also allow for the court to facilitate such procedures. Thus, the Woolf reforms actively encourage individuals to seek a remedy to their dispute by alternative means as opposed to going to court. In Cowl and Others v Plymouth City Council (reported in the Times newspaper January 8 2002) the Court of Appeal made clear their support for ‘alternative dispute resolution’. They even suggested that the court might hold inter-party hearings at which the parties would be asked why they had not opted for some form of ADR. Lord Woolf, The Lord Chief Justice stated “The courts should not permit, except for good reason, proceedings for judicial review to proceed if a significant part of the issues between the parties could be resolved outside the litigation process”.(8) In February in Dunnett v Railtrack the Court of Appeal refused to order costs in favour of the successful litigant because of their refusal to consider the court’s suggestion that they seek mediation. The claimant’s three horses had been killed when they strayed onto the line after the gate to her paddock (which had been replaced by Railtrack) was not padlocked. While the court dismissed the claimant’s appeal for damages against Railtrack as a consequence of Railtracks refusal to mediate they felt it inappropriate to make an order of costs against the unsuccessful claimant. In the opinion of the court, a skilled mediator could have achieved results far beyond the courts abilities. It was a clear sign that lawyers who dismissed the opportunity to mediate would suffer the consequences. In French company law conciliation and mediation can be sought by either of the parties to the litigation or by the judge at any time during the litigation process.

From our discussion of arbitration and ‘alternative dispute resolution’ it is possible to identify a number of similarities as has already been mentioned. However, the degree of similarity becomes more apparent when we compare their respective codes (Appendix A). While the wording and in some areas the meaning attached to these heading differ between these two codes it is apparent that CEDR (which was established in 1990) have chosen to mimic a typical domestic arbitration code and to a degree arbitral procedures.

Arbitration has a number of distinct advantages over the litigation process including, cost, speed, flexibility, privacy and the choice of the tribunal. However, these advantages can appear to be disadvantages when compared with ‘alternative dispute resolution’. For example, the cost of ADR can be significantly cheaper when compared to arbitration. This is due in part to the fact that in arbitration witnesses are called, the arbiter might require the services of a legal adviser and the volume of submissions means the process can take weeks if not months and in some of the more complex cases years. It is generally accepted that the ADR process is cheaper. Philip Haughton  suggests that a typical mediation will take about six weeks to prepare and one day to conclude. CEDR in their literature would support this latter claim. Karl Mackie, Chief Executive of CEDR states “Most mediations last no more than one day and in over three quarters of cases the parties do reach settlement”(10) However, mediation can be as complex and as costly as the parties want it to be as the Mulcahy report into mediating medical negligence claims verifies. Generally, this then suggests another advantage of ADR over arbitration in that the time taken to reach agreement is shorter. ADR requires only that the parties and/or their representatives attend and it is then up to the skills of the conciliator, mediator or other neutral third party to encourage and enable the parties to reach agreement. Arbitration on the other hand not only requires the attendance of the parties and (if necessary) their legal representatives but also the attendance of witnesses. This is further compounded by the fact that invariably these disputes require the submission of a variety of documents to support the party’s respective claims. Digesting the documentation and organising the attendance of the parties and witnesses does invariably means arbitration will take longer to conclude. Although the arbitral procedures cannot compel a party to disclose information or compel the attendance of witnesses in reality this is not a significant problem. The parties by agreeing to arbitration will in themselves be eager to ensure documents are in the arbiter’s possession as quickly as possible and that, witnesses to their case actually attend when they are expected to attend. One could therefore argue that the arbitral process is more rigorous. A competent arbiter (who is usually an expert in that particular field with legal knowledge or the assistance of a legal adviser) will be able to probe the respective parties positions to determine the true facts pertaining to the case and as such make an award based on those facts. Where equity and fairness are the guiding principles they are more likely to arrive at a more satisfactory agreement than is usually the case in a mediated solution where compromise is the acceptable norm.

The major advantage of arbitration over ADR lies in the fact that an arbitrated agreement is binding. This one, but very, significant fact is a crucial feature that distinguishing arbitration from ADR. Scrupulous parties can use the ADR process to elicit information from the other party, to determine the strengths and weakness of their argument and then use that information to argue their case before an arbiter or a court of law. Indeed, the CEDR rules acknowledge the primacy of arbitration over ‘alternative dispute resolution’ when they state “The Adjudicator’s decision shall be binding unless or until the dispute is finally determined by agreement, court proceedings or by reference to arbitration in accordance with the contract”(11)

‘Alternative Dispute Resolution’ has a role to play in resolving disputes but its role is separate from that of arbitration. The Woolf reforms have giving legitimacy to ‘alternative dispute resolution’ procedures, however the courts have not as yet accepted that a mediated solution cannot then be referred to them for review.  Although ADR is considered binding upon the parties they are still at liberty to take the dispute to arbitration (if permitted) or to litigation. This is therefore an important differentiation between ADR and arbitration. The parties subject to an agreement to arbitrate are limited in their use of litigation to such an extent that even an error in the law will not allow a party to seek a legal remedy. Indeed, the courts will sist proceedings where an agreement to arbitrate is found to exist. Rather than ‘Alternative Dispute Resolution’ usurping arbitral proceedings its inclusion in the process of dispute resolution actually enhances it. ADR gives effect to a tiered approach to dispute resolution. At the lower levels is ADR which facilitates disputes being resolved as close to the origin of the problem as possible. This can prove not only cost effective and quick but will be conducted in a co-operative as opposed to an adversarial environment. By virtue of the process, cases coming before for example, mediation will not be too complex. Arbitration is the next tier, followed by litigation. Arbitration, despite being costly and time consuming in comparison to ADR has additional benefits that a potential party might want to avail themselves off. The fact that they can choose the law governing the arbitration, the arbiter, the rules relating to the process and arbitrate in the confidence that the arbitration is conducted in an open forum (what the arbiter hears or receives from one party must be made available to the other party) while allowing the presentation of documents and the attendance of witnesses will encourage those whose cases are of a more complex nature to adopt arbitration as opposed to ADR. Thus, the nature of the dispute will determine which tier of the dispute resolution process will be chosen (though in England Lord Woolf’s reforms are having an impact on individual choice). While arbitration and ‘alternative dispute resolution’ can be described as different forms of dispute resolution they are separate and identifiable tiers with in this generic category and as such cannot and should not be combined or merged.

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Appendix A.

The table below uses the Scottish Arbitration Code 1999 and the Centre for Effective Dispute Resolution (CEDR) Code of Conduct, Rules for Adjudication and Model Mediation Procedure and Agreement were used. For simplicity, the table applies the Scottish Arbitration Code 1999 headings.

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References & Quotations

1. Roland Watson                        Times Newspaper        22 Dec 2000                                 P.6

2. Fraser Davidson                        Arbitration                                                        P.118

3. Fraser Davidson                        Arbitration                                                        P.136

4. Fraser Davidson                        Arbitration                                                        P.134

5. John H.B. Roney                        Alternative Dispute Resolution: A Change in Perception        P.75

6. Unknown                                Conveyancer and Property Lawyer 1993                        P.321

7. John H.B. Roney                        Alternative Dispute Resolution: A Change in Perception        P.77

8. Unknown                                Times Newspaper        8 Jan 2002                                P.10

9. Mulcahy Report                        Mediating Medical Negligence                                P.99

10. Karl Mackie                        Developing Mediation in an Ombudsman Context                p.1

11. Centre for Effective Dispute Resolution                 Rules for Adjudication                        sect 19

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Bibliography

1. F. Davidson                                Arbitration                Scottish Universities Law Institute Ltd        2000

2. Andrew Floyer Acland                Resolving Disputes Without Going to Court        Century Business Book 1995

3. Roger Fisher & Peter Ury                Getting to Yes                                        Hutchinson 1989

4. Deborah Tannen                        The Argument Culture                                Virago Press 1998

5. Margaret Brazier                        Medicine, Patients and The Law                        Penguin Books 1992

6. Robert Hughes                        Culture of Complaint                                Harvill Press 1999

7. John T. Dunlop & Arnold M. Zack        Mediation and Arbitration of Employment Disputes        Josey Bass 1997

8. Harvard Business Review                Negotiation and Conflict Resolution                Harvard Business Review 2000

9. Bob Debell                                Conciliation and Mediation in the NHS                Radcliffe Medical Press 1997

ARTICLES

1. John H.B. Roney                ‘Alternative Dispute Resolution: A Change in Perception’ International Company and Commercial Law review          10 (11), 329 – 332  1999

2. A.M.D. Willis                ‘Dispute Resolution in Financial Markets’                Journal of International Banking Law        8(10), 397 – 401   1993

3. Philip Naughton                ‘Alternative Forms of Dispute Resolution’                Construction Law Journal        6(3), 195 – 206

4. Paul J. Omar                ‘Alternative Dispute Resolution in French Company Law        International Company and Commercial Law Review        10(2), 75 – 77

5. Tony Blacker                ‘Contract’                                                Building Magazine  28 – 30  1996

6. Unknown                        ‘Is there Another Way? Alternative Dispute Resolution        Conveyancer and Property Lawyer        Sept/Oct  321 – 326

7. Neil Blows                        ‘Alternative Dispute Resolution’                        Journal of International Banking Law        6(7), 253 – 256

8. John H. Munro                ‘Monetary Policies, Guild-Labour Strife, and Compulsory Arbitration during the Decline of the Late-Medieval Flemish Cloth Industry, 1390 – 1435                        University of Toronto, Department of Economics   Munro number 98-05

Government Reports & Commercial Documents

1. Sir Michael Latham                ‘Construction the Team’                                HMSO                1994

2. Linda Mulcahy                ‘Mediating Medical Negligence Claims                        Dept of Health        1999

3. Centre for Effective Dispute Resolution        Rules and Regulations                        CEDR  2001

4. Comptroller and Auditor General        ‘Handling clinical negligence claims in England’  The Stationery Office April 2001

Acts, Codes and Terms of Contract

1. Arbitration Act 1996

2. Scottish Arbitration Code 1999

3. Standard Form of Building Contract (JCT 80)                                        Joint Contracts Tribunal  1980

4. The New Engineering Contract                                                        The Institute of Civil Engineers    1993