NEWS / Affiliate / Evidence that Alternative Dispute Resolution is preferred

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03 SEP 2019

EVIDENCE THAT ALTERNATIVE DISPUTE RESOLUTION IS PREFERRED

Professional indemnity insurance experience remains that there is no shortage of entrenched disputes within the construction section, and with a barrage of preliminary notice letters in relation to potential cladding issues sent by one particular contractor across a number of different projects in recent weeks serving as just one example.

But if there is no shortage of disputes which are not subject to a “quick fix”, there does seem to be evidence that the approach to these may have fundamentally changed.

The past two decades have seen a number of moves attempting to discourage litigious behaviour, with the Woolf Reforms, and Project Partnering agreements representing just two milestone steps to encourage a paradigm shift.

A recent report by the Centre for Effective Dispute Resolution (“CEDR”) and International Institute for Conflict Prevention and Resolution (“CPR”) seems to indicate that such moves are not only gaining ground, but that users are preferring the new methods to the old.

The report was based on 2 studies conducted by the 2 bodies. It comprised experiences of only 90 respondents, so the sample could be larger. As such the report described itself as providing insight rather than necessarily being representative. The CPR study involved respondents from large corporate firms, with many having revenue in excess of $15bn. The CEDR study involved professional mediators from both UK and US.  Again, a wider base – for example including UAE or more European experience – would have increased the benefit of the studies.

Nevertheless some very interesting observations came out of the report.

The CPR respondents reported regular and wide ranging dispute experience. Over the past 5 years, 88% had been involved in litigation, 82% in arbitration, 82% in mediation and 86% in direct negotiation. There was an average of 10 arbitrations and 21 mediations per respondent over that 5 year period. Within that, approximately half of the arbitrations and a fifth of the mediations involved cross border disputes. As such, it is clear that there are a wide range of dispute resolution mechanisms being used, and there is no overwhelming tendency toward one over another. Proponents of ADR can be happy that it has gained such ground vs litigation and arbitration.

When asked to express a preference however, direct negotiation was the clear winner with 60% of the respondents choosing it whether a domestic or cross border dispute. By contrast, litigation scored only 8% for domestic problems and 2% for cross border problems.

There was a marked preference for arbitration over mediation and especially where a cross border dispute was involved.

16% preferred arbitration for a domestic problem, and 27% for a cross border dispute.

Mediation ranked 12% for a domestic issue and 6% for a cross border problem.

The respondents were asked what they considered the top 5 benefits and top 5 disadvantages of arbitration and mediation were in the context of a cross border dispute, and the answers are illuminating.

Benefits of Arbitration

Disadvantages of Mediation

Disadvantages of Arbitration

Benefits of Mediation

Enforceability of Awards

Difficulty convincing counterparty to use mediation

Cost

Ability of parties to shape a resolution tailored to their needs

Confidentiality

Perception that it is a waste of time and money

Lack of predictability of fees

Avoidance of courts

Selection of Arbitrators

Perception of appearing as weak to other party

Lack of speed

Confidentiality

Neutrality

Absence of contractual mediation clause

Too much discovery

Neutral perspective on the issues

Finality

Difficulty indentifying  qualified mediator

Lack of effective sanctions during the process

Flexibility

Confidentiality was a benefit of both when compared to litigation. A major advantage of mediation was its flexibility, but there was a lack of confidence in it when applied to a cross border dispute. There was more confidence in the enforceability of an arbiter’s decision, but also more concerns over costs and delays.

It is worth noting that August 2019 saw the signing of the Singapore Convention, which is a move made by the United Nations Commission on International Trade Law, and where the signatories commit to recognising mediation and enforcing its decisions. The success of the New York convention in promoting arbitration has been noted, and it is hoped that the Singapore Convention will perform a similar service for mediation.

Mediation and arbitration are not mutually exclusive, and the studies identified some 30% of domestic and 20% of cross border arbitrations being settled by mediation prior to a decision being given. When asked the reasons why the matter settled “early”, the overwhelming response was to preserve business relationships. The report highlighted that these opportunities for early settlement were not just at the beginning of the arbitration but might also arise after the parties had exchanged pleadings.

The report also cast an interesting light on the background of mediators. In both the US and UK, a significant proportion of mediators have a legal background – 83% in the US and 49% in the UK. This might be seen as going to how parties wish to use mediation. If it is an opportunity to test a case, a more legal perspective on the part of a mediator might be seen as beneficial. If it is seen as a commercial opportunity to resolve the issue and “cut a deal”, emphasis on legal analysis might be seen as sidetracking the process. The results would seem to indicate a preference for a legal perspective in the mediator, but whether this is the parties’ preference or their lawyers’ preference is not clear.  

Regardless of this the report did show a high success rate for those issues which were mediated – the UK reported 89% settled, and with 74% settled on the day itself.

Sadly, ADR is open to abuse, so negatives have accompanied the positives. Anyone on the receiving end of opportunistic and high pressure adjudication tactics will no doubt be in heartfelt agreement with that observation, but the positives underline that ADR would seem to be here to stay.

The report can be found here

James  Burgoyne

James Burgoyne

Director - Claims & Technical

Jim joined Brunel in 2009 and heads up the Technical and Claims Department. As well as representing Brunel on the ACE PII panel, he writes occasional pieces for us on insurance, risk and associated topics.

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