21 minute read
Is it better to litigate or deviate to alternatives?
Are negotiation, mediation and arbitration feasible alternatives to litigation? This report by AMAAS director Jerome Matthews provides a definitive guide for decision makers
The answer to the question above is, of course, “Yes in a heartbeat”.
Advertisement
Alternative Dispute Resolution (ADR) clauses, as the options are known, should be professionally drafted and inserted at the time of negotiating contracts or drafting terms of trade, not left until a problem arises.
The benefits include speed of resolution, flexibility, substantial costsaving and the satisfaction gained from resolving your own problems rather than having an expensive litigated decision foisted upon you by a judicial tribunal.
The lawyers may nod sympathetically at the predicament but inwardly be rubbing their hands together with glee at the prospect of the injection of fees.
It is frequently stated, not only in jest, that the only winners in litigation are the lawyers; a centuries old
perception as the painting depicts.
When a business dispute arises, more often than not, the first thing which disputants do is to give their lawyers a call. This is understandable, particularly as it may be as a response to a lawyer’s letter sent by the “aggrieved” party.
The problem with this is that it’s the first step on the slippery slope to escalating legal fees. Drafting a Letter of Demand can cost $750 + GST and drafting a response likely to be a similar sum dependent upon the time involved. Fees may vary if one shops around, but from there spending on legal fees may escalate.
Of course, a good lawyer is worth his or her weight in gold, well-worthy of their fees and may ensure that you win your case – and who doesn’t want to win?
There’s the knub; litigation is always a win-lose, not a win-win situation. One
Litigation
Anyone who has ever been involved in building their own business or practised in some way in commercial law will be familiar with the feelings which arise when a dispute raises its ugly head.
The feelings may not be the same in all
parties, indeed they may be vastly different with the businessperson on whichever side of the dispute having a sense of foreboding as to what costs and subsequent losses may be caused by the dispute.
All legal information published in this table is general information. It is not legal advice or a substitute for legal advice. It does not address specific circumstances of any particular individual or entity. No warranty, guarantee or undertaking is made about the accuracy or completeness of the information. This content was originally published by CourtKeys.com in 2017
party wins, the other loses; the loser frequently having to pay a proportion of the winners legal fees and other costs.
That is a proportion, not all, of the winner’s costs. The winner still has to pay a reasonable proportion of his/her own expenses, usually around one third, notwithstanding they have won. (see table)
Even if, as frequently happens, the litigation is settled at the door of the court, often the best which parties can come away with is bearing their own legal costs, which may not be insubstantial.
Solicitor’s time has to be paid for in preparation, correspondence with their own client and the opponent’s lawyers; conferences with clients and perhaps Counsel; pre-trial hearings; adjournments; costs of trial; damages hearings; perhaps hearings on costs.
It is always difficult to give an exact estimation of what civil litigation legal fees will be but the table is an estimate for various types of cases of what would be charged in 2017 in New Zealand.
Since publication this estimate will have changed and it is referred to only by way of an example of the costs of civil litigation in New Zealand during that period. Costs in Australia
would be similar but not identical.
As seen in the table, a contested, straightforward High Court Action in New Zealand, lasting two days would have cost each party, in 2017, $35,018 with the successful litigant recovering $25.078 of that sum. This, of course means, that the unsuccessful litigant would be paying in the order of $60,096. ($35,018+25,078); not a small sum.
As the length of the trial increases with the matters becoming less straightforward so do the costs similarly increase.
It is a similar picture for District Court Civil litigation with short, straightforward trials not being financially viable although the Disputes Tribunal is available for claims under $15,000. Longer, more
complicated District Court actions are, again, expensive, notwithstanding the likelihood of a twothirds reimbursement to the successful litigant.
Also, in a civil trial the parties have no choice as to the person deciding the outcome, the judge. He is an appointee of The State. The judge does not generally assist the litigants to work through the matters in dispute, effectively leaving the litigants to paddle their own canoes with the assistance of their lawyers.
Further, the disputants obtain no individual satisfaction in achieving the outcome as it is imposed upon them by the trial judge.
The matters for determination in litigation are set out in what are known as the pleadings. These are generally a factually correct statement of the matters at large and litigants are able to give their versions when and if they come to give evidence.
The rules of court can be inflexible with errors often punished by way of a costs order against the erring party. Generally, court proceedings do not allow for the litigants to give their versions as they see it.
Lastly, is the element of time. Formal court litigation has to go through the rigid process which is set out in the rules. Notwithstanding expedition of proceedings, it can still take up a lot
of time -- sometimes going years rather than months.
There may also be a number of appeals which will also draw out the proceedings. (One of the longest trials of which I am aware took place in The Philippines with the whole process lasting some 15 years if my memory serves me correctly. This is unusual).
Alternative Dispute Resolution
This report will give an insight into several, but not all, possible branches of Alternative Dispute Resolution or ADR
Generally, ADR is the procedure for settling disputes without litigation -- such as negotiation, mediation, medarb, arbmed, arbitration, adjudication and conciliation.
There are others but here I shall concentrate on the first five with medarb and arbmed fitting together with both mediation and arbitration.
ADR procedures are usually less costly and more expeditious. They are increasingly being utilised in disputes that would otherwise result in litigation, including highprofile labour disputes, divorce actions, commercial disputes and personal
injury claims.
Many of these are court ordered which means that they come into play as part of the court litigation process. What happens in such instances is that the litigation process will have been commenced, with the court becoming seized of the dispute.
Court fees will have been paid and lawyers engaged at their usual costs. The result of this is that the disputants are, arguably, getting the worst of both worlds with the litigation process and the ADR process running in tandem.
One area, but by no means the only one, where courts order ADR is to require parties in matrimonial proceedings, including in relation to children of the union, to attend mediation.
Being court-ordered this is not always taken by the
parties with the gravitas which it deserves. In the writer’s opinion for ADR to fulfil its potential it largely needs to be entered into voluntarily and not as a requirement imposed by a court. If you wish to avoid potentially expensive and time-consuming litigation, then you should include an alternative dispute resolution clause in your terms of trade or in a formal contract.
Such a clause, properly drawn, will either prevent court litigation completely or prevent it until certain preliminary procedures have been complied with. Such clauses can be complicated and should not be drafted by those not skilled in the law or ADR consultants.
One of the primary reasons parties may prefer ADR proceedings is that, unlike adversarial litigation, ADR procedures are often collaborative and allow the parties to understand each other's positions. ADR also allows the parties to come up with more creative solutions that a court may not be legally allowed to impose. This is not generally achieved by having ADR imposed upon the parties.
Further, after two years of dealing with the covid pandemic both practitioners and participants in the various forms of ADR have become adept at conducting and appearing
in proceedings conducted electronically by way of Zoom, Microsoft Teams or other platforms. It has opened-up the international field of practitioners to all disputants.
Negotiation
A negotiation is a strategic discussion that resolves a matter or matters in contention in a way that both parties find acceptable. In a negotiation, each party tries to persuade the other to agree with his or her point of view. By negotiating all involved parties try to avoid arguing but agree to reach some form of compromise.
On a very basic level negotiation is a facility we all use every day of our lives to navigate our way through our daily chores. Whether it’s to conclude a multi-million-dollar deal or get the children to do their homework; when we allow someone to pass through a door before us or we give way to another vehicle at a road junction or roundabout we are enabling life to continue through a system of negotiation. We are moving our positions forward or preventing disputes from arising.
What is often overlooked is that, should a dispute arise, then the simplest and
most effective way to try and resolve it is through negotiation between the parties, either alone or aided by their lawyer or ADR consultant.
This may seem trite but it is often said that the best time to confront a potential business dispute is before it arises. If it is wished to exclude the interference of the court system in the resolution of disputes then the resolution clause should be drawn to give this effect.
Such being the case either the terms of trade or a contract should be drawn with this in mind and containing such a dispute resolution clause.
A term in the disputes resolution section should contain a requirement that in the event of a
dispute it should be attempted to be resolved by negotiation between the parties conducted in good faith. There is a lot of law surrounding this area so expert assistance should be sought in the drafting.
Notwithstanding negotiation is the first stage of the ADR journey it serves a number of important areas. It can and does result in the early resolution of disputes between the parties. Even if that is not achieved it may narrow the areas of dispute and concentrate the minds of the disputants. Finally it may assist the disputants in determining how to approach a future mediation which is very often the next step in the ADR proceeding.
It should also be kept in mind that effective negotiation is not only used in the resolution of disputes but also in agreeing business contracts. In such a situation a party cannot do too much preparation and it must be remembered that the first offer made or received is just that – the first offer and it is most unlikely to be the best offer. Each party is trying to obtain the best deal available for itself.
In the event of a failure in the negotiation parties may move on to Mediation.
Mediation
Mediation is a structured negotiation process in which an independent person, known as a mediator, assists the parties to identify and assess options and negotiate an agreement to resolve their dispute. Mediation is an alternative to a judge imposing a decision on the parties through the means of a trial.
All cases, regardless of their complexity or number of parties, are eligible to be referred to mediation either by the courts or by the parties themselves. The types of matters commonly mediated include commercial and corporations law, intellectual property, industrial law, consumer law, human rights, admiralty, tax and costs.
Some factors about a dispute may indicate that it is particularly suited to mediation, such as:
• A willingness to participate in mediation • The possibility that a judge's decision will not end the dispute • The need for parties to find a way to preserve their relationship • The existence of non-monetary factors and • The potential for a negotiated outcome that better suits the needs and interests of the parties than a judge's decision.
Why mediate?
Mediation offers many benefits over a trial by a judge, including: • Time: ordinarily a dispute can be re-
solved more quickly through mediation than through a trial. • Cost: if a dispute can be resolved through mediation, the costs of preparing and running a trial can be avoided. Additionally, after a trial the unsuccessful party may be ordered to pay the legal costs of the successful party; this will not happen in a mediation so a disputant knows from an early stage what the costs are likely to be. • Flexibility: mediation offers parties more control over the outcome. A mediation process which is customised to your needs can be arranged with the mediator. • Stress: mediation is
less formal and less intimidating than appearing in court. • Confidentiality: mediation is private. Should the dispute ultimately go to court litigation the judge is not informed of the contents of the mediation and It is also usually unable to be used against a party if the case goes to trial. Make sure to discuss mediation confidentiality with your lawyer. • Satisfaction: because the parties decide and agree on the outcome of their dispute they are more likely to be satisfied with the result and to comply with what has been agreed. • Finality: once signed, settlement agreements can usually only be modified with
the agreement of all parties.
Who attends mediation?
The parties are in ultimate control of any decision to resolve their dispute. It is essential that people attend the mediation with sufficient knowledge of the relevant matters in dispute and the authority to make decisions about how it might settle after the mediation.
If attending on behalf of an organisation the attendee should be an authorised officer who is able to make a decision about how the dispute might be settled and to enter into an agreement on behalf of the organisation.
If you are not legally represented you may ask to bring someone for support if you wish.
Who will be the mediator?
Parties may agree to use any accredited mediator or one may be appointed.
What happens at mediation?
Before commencing mediation, the mediator will consider the best process for mediating your dispute, taking into account suggestions from all parties where possible.
The mediation will commence with an explanation of the process, followed by a discussion about the background of the matter and issues in dispute.
The mediation itself is flexible and can be tailored to the circumstances. Mediators may assist negotiations by asking questions, encouraging open discussion, offering different perspectives and expressing issues
in alternative ways.
Parties may be encouraged to identify and test the consequences of potential solutions. It is common for the mediator to meet with the parties jointly and separately and further mediation sessions can be scheduled if necessary.
What are the possible outcomes of mediation?
The case may be settled in full, in part or parties may not be able to reach agreement.
If agreement is reached about all or part of the dispute, the details of that agreement will usually be recorded and signed by all parties before the end of mediation.
In a court-ordered mediation if the dispute is settled in full the mediator will notify the judge that the matter has settled.
The mediator will not provide the judge with any details of the mediation discussions or the terms of any agreement the parties
reached without the permission of the parties, save in particular cases.
Once the agreement is finalised the parties will usually formally notify the Court that the case is not going to proceed and the case will be closed.
If the matter is not fully settled there may be discussion about what needs to be done and the parties may either return for further mediation with the same or a different mediator or the parties may prepare for trial.
Many matters which do not resolve either fully or in part at the mediation process do so shortly thereafter either at a recommenced mediation of or by the parties picking up the negotiation themselves.
Sometimes the judge will order that if the matter does not resolve at mediation, then the Judicial Registrar may conduct a case management conference ('CMC'). A CMC is a hearing at which the parties and the Judicial Registrar discuss how the matter can be most efficiently prepared for final hearing, amongst other things.
Orders may be made by the Judicial Registrar at a CMC (but not at mediation). Unlike mediation, CMCs are conducted on an open basis, as if the parties were in Court. The mediation will be formally terminated before any CMC begins.
How much does mediation cost?
Depending upon the complexity of the mediation and the expertise of the mediator daily fees could be in the region of $2,000 - $6,000 per day for a commercial mediation. The New Zealand Disputes Resolution
Centre fees may be found here.
Arb-Med/MedArb or Arbitration proper
If yours is one of the relatively low number of disputes which fails to resolve either by negotiation or mediation, providing the dispute resolution clause is properly and carefully drawn, the disputants may still move forward towards resolution through either ArbMed/MedArb or Arbitration proper
In arbitration, a neutral, professionally trained arbitrator serves as a judge who is responsible for resolving the dispute. Similar to a lawsuit, the arbitrator listens to arguments and evidence, then renders a
binding decision.
ArbMed/MedArb has been defined as a “hybrid dispute resolution process that combines the benefits of arbitration and mediation, including speed, procedural flexibility, confidentiality, choice of decision maker, ease of access to the tribunal, continuity, finality, and enforceability of the outcome.”
How Does Med-Arb Work?
In a med-arb process, parties first reach agreement on the terms of the process itself. Typically—and unlike in most mediations—they must agree in writing that the outcome of the process will be binding.
Next, they attempt to negotiate a resolution to their dispute with the help of a mediator. As in a traditional mediation, the mediator may suggest conferencing with each party individually to discuss possible proposals in addition to bringing the disputants together to air their views and brain-
storm solutions.
In med-arb, if the mediation ends in an impasse, or if some matters remain unresolved, the process isn’t over.
At this point, parties can move on to arbitration. The mediator can assume the role of arbitrator (if he or she is qualified to do so) and render a binding decision quickly based on his/her judgments, either on the case as a whole or on the unresolved matters. Alternatively, an arbitrator can take over the case after consulting with the mediator.
The Benefits of MedArb
Typically, the med-arb process ends with a successfully negotiated agreement, and the arbitration stage is not necessary.
The threat of having a third party render a decision in binding arbitration often motivates disputants to reach an agreement.
For this reason, med-arb can be a wise choice when parties are facing intense pressure to reach a resolution by a deadline, as in a time limited dispute. It can also be beneficial when disputants need to work effectively with one another in the future.
Finally, med-arb can also be cost-effective: when disputants hire one person to serve as mediator and arbitrator, they eliminate the need to start the arbitration from square one if media-
Potential deficiencies of Med-Arb
There are caveats to factor in when you’re considering med-arb. When disputants are aware that their mediator could ultimately make a binding decision about the case, they may feel inhibited about sharing confidential information with him or her about their interests.
If the mediation moves to arbitration, it could be difficult for the mediator-turned-arbitrator to “forget” that confidential information and focus exclusively on jointly shared information. Disputants might avoid this possibility by having different individuals serve as mediator and arbitrator, though this solution requires additional time and cost.
What About ArbMed?
The concern about the revelation of confidential information in med-arb is eliminated in arb-med, a little-known alternative dispute resolution process. In arb-med—which, as it sounds, functions somewhat in the reverse of medarb—a trained, neutral third
party hears disputants’ evidence and testimony in an arbitration; writes an award but keeps it from the parties; attempts to mediate the parties’ dispute; and unseals and issues her previously determined binding award if the parties fail to reach agreement, writes Richard Fullerton in an article in the Dispute Resolution Journal.
Although this process removes the concern about
misuse of confidential information, it does not remove the pressure on parties to reach agreement in mediation, notes Fullerton. It also raises a new problem: the arbitrator/mediator cannot change the previous award based on new insights gained during the mediation. As a result, they may pressure the parties to reach an agreement to avoid revealing an award with which they now disagree.
Arbitration
When all other avenues have been unsuccessfully explored a well drafted dispute resolution clause can guide you to arbitration which should be your final destination in your dispute.
Arbitration is a process where parties to a dispute choose an independent third party (known as an arbitrator) to resolve a dispute. It is a voluntary process – both parties need to agree to it either through a term in their contract, a dispute resolution clause or by way of an ad hoc agreement.
The arbitrator may be appointed or chosen by the parties but needs to be independent of both parties.
Decisions of the arbitrator(s) are legally binding but and if desired, you can be legally represented in an arbitration.
Arbitration is arguably the closest thing to determination of a dispute by litigation in the ADR arena. The dispute may be determined by a hearing with parties represented by professional advocates and the matter decided by an arbitrator(s), the decision-making tribunal, of one or more participants,or decided upon consideration of the papers and written submissions alone which makes for a swift, inexpensive resolution of the dispute.
Arbitration can offer a number of benefits:
and can be tailored to suit the needs of participants. • Costs can be and often are lower than court proceedings. • Outcomes can generally be achieved faster than for court proceedings. • Decisions are legally binding and final, providing certainty for all participants. • Decisions are confidential, unless the parties agree otherwise. • The dispute may go to a hearing or it may be determined on the papers and an award handed down after consideration of the documentation and submissions.
Costs of arbitration will vary according to the complexity of the matter; willingness of parties to have the matter settled and any legal representation and advice that is needed.
Overall costs are generally lower than for court proceedings, as they can be contained by negotiating such things as time frames for submissions, size of submissions, which aspects of the matter will be included or excluded, how many meetings are to be held and whether meetings will be in person or online and whether the matter is decided at a hearing or on the documents.
Photos: The Law-suit, 1885 - Wix Media - Rodeo Project Management, Cytonn Photography, Romain V, Scott Graham (Unsplash) - Pixabay (Pexels)
Content Partner Jerome Matthews was called to The Bar at Lincoln’s Inn, London in 1980 followed by The Bar of The Supreme Court of Hong Kong in 1983 and The Supreme Court of New South Wales, Australia in 1986. In 1992 he successfully completed a Post Graduate Diploma in International Commercial Arbitration and Alternative Dispute Resolution. The course encompassed international trade negotiations, International Mediations and International Commercial Arbitration. www.amaassolutions.com j.matthews@amaassolutions.com
