An ADR Primer
July 1, 2010
An ADR Primer
“Alternative Dispute Resolution” used to mean either negotiated settlement or (in North America) arbitration. Now the term embraces a variety of processes, each with unique objectives and many with subtle distinctions.
Generically, the resolution of disputes through appeal to a neutral third party vested (by law or agreement) with authority to bind the disputants to the terms of an award. Common adjudicative processes are trial and arbitration.
In the United Kingdom, “Adjudication” refers to a dispute resolution process in construction contracts as set forth in the Housing Grants, Construction and Regeneration Act 1996, and the regulations promulgated thereunder (1998 No. 649).
Alternative Dispute Resolution (“ADR”)
An approach to conflict resolution designed to circumvent public litigation, or other adjudicative processes. In North America, ADR has taken one of two forms: arbitration or mediation. However, the modern approach to ADR encompasses an array of hybrid systems, combining elements of arbitration and mediation. In other regions, “ADR” often is used synonymously with mediation.
A voluntary adjudicative method of dispute resolution in which an independent, impartial and neutral third party (an arbitrator or arbitral panel) considers arguments and evidence from disputing parties, then renders a decision or award. Arbitration may be binding or non-binding, with levels of procedural formality varying according to the parties’ contractual agreement. Almost without exception, arbitration is a creature of contract and both the powers of the arbitrator and the conduct of the arbitration process are determined by the parties at the time of their agreement. In the absence of an agreement to the contrary, arbitral awards cannot be judicially appealed except on very limited statutory grounds.
A hybrid process (see below) by which an arbitrator is asked to serve as mediator to assist the parties in resolving the dispute at hand, prior to issuance of the award. In order to ensure the integrity of the arbitration process, while at the same time giving full rein to the mediator’s skills, the practice is usually observed at the end of the arbitration hearing, and after the award has been drafted, but prior to its issuance. The parties are thus assured that, in the event that the arbitrator’s efforts to mediate a resolution are unsuccessful, the ultimate award has not been tainted by any knowledge the arbitrator may have gained on an ex parte basis during the mediation.
In this arbitral process, each party submits a proposed monetary award to the arbitrator. At the conclusion of the hearing, the arbitrator is required to select one of the proposed awards, without modification. This approach, sometimes called “Last Offer Arbitration” or LOA, severely limits on the arbitrator's discretion. A common consequence of Baseball Arbitration is to give the parties an incentive to conduct their negotiations diligently and to submit to the arbitrator a reasonable proposal, in the hope that it will be adopted.
In a related variation, "Night Baseball Arbitration,” the parties agree privately to conform the arbitrator’s award to the last offer that is closest to it. Thus, the arbitrator is unaware of the parties’ intention and renders an award based on the merits, without restriction, which the parties then privately convert to an agreement.
In this variant of arbitration, the parties agree privately (without informing the arbitrator) that the arbitrator's final award will be adjusted to a bounded range that the parties have agreed upon. It is used to manage the risk of an unanticipated and unwelcome outcome.
Thus, if the respondent is willing to pay $60,000 and the claimant is willing to accept $100,000, their Bounded Arbitration agreement would provide that (1) if the arbitrator awards an amount below $60,000, the award will be conformed to $60,000; (2) if the award exceeds $100,000, the award will be reduced to $100,000; and (3) if the award is within the range, the parties are bound by the figure in the award.
Collaborative Law is an advance agreement, often referred to as a “Four-Way Agreement” or “Participation Agreement,” entered into by the parties and the lawyers in their individual capacities, which requires the lawyers to terminate their representations in the event the process is unsuccessful and the matter must proceed to litigation.
The Collaborative Law model of practice is generally regarded as constituting a fundamental shift in the lawyer’s role from an advocate in an adversarial system to an advocate in a collaborate environment where the commitment is to the settlement of a dispute outside the traditional litigation model. Collaborative law involves the advance agreement entered into by the clients and the lawyers. Collaborative Law involves the advance agreement entered into by the clients and the lawyers. Importantly, the lawyers execute this Four-Way Agreement as independent parties. The Four-Way Agreement limits the lawyers’ participation to the negotiation and facilitation of a settlement without the threat of litigation. If the parties decide to use the court system, they must hire lawyers other than the lawyers who participated in the Collaborative Law process. The lawyers agree to discontinue representing their client if the parties choose to litigate the dispute which creates a practical incentive to resolve the dispute without the need for litigation. While Collaborative Law has not been universally defined, “[v]irtually all collaborative law leaders and practitioners believe that the disqualification agreement is the irreducible minimum condition for calling a practice collaborative law.”
The Collaborative Law process is based upon a problem-solving model rather than an adversarial model. In order to resolve the dispute, the Four-Way Agreement requires that parties freely and timely exchange information and commit to joint problem solving. The typical Four-Way Agreement contractually obligates the parties to timely and fully disclose all relevant materials. Some Four-Way Agreements even require counsel to withdraw if he or she determines that the client is participating in bad faith. As a product of this agreement, the lawyer’s continued participation serves as an implicit certification of the client’s good faith.
The process itself usually involves a series of meetings with all of the parties and their lawyers in attendance. These meetings, or “four ways, “ as they are frequently called, are designed to foster a team approach to creative problem solving that encompasses elements such as open and honest communication, cooperation, good faith, and willingness to listen. In this respect, the Collaborative Law process focuses on the future relationship of the parties. By taking the adversarial piece out of resolving a dispute, it is thought the Collaborative Law process allows the parties to settle the dispute in a manner that leaves them with a new productive relationship.
Cooperative Law is a process which incorporates many of the hallmarks of Collaborative Law but does not require the lawyer to enter into a contract with the opposing party providing for the lawyer’s disqualification. Cooperative Law, which is a much smaller movement than the Collaborative Law movement, uses the same principles as Collaborative Law, except that Cooperative Law does not involve a disqualification agreement. Cooperative Law therefore includes a written agreement to make full, voluntary disclosure of all financial information, avoid formal discovery procedures, utilize joint rather than unilateral appraisals, and use interest-based negotiation.
A quick “screening” process in which the parties each inform a neutral third party their confidential settlement positions, and the third party informs them whether they are within settlement range.
Alternative dispute resolution administered by, or otherwise institutionally affiliated with, a court. Some courts require or urge disputants to participate in various ADR processes at various points in the litigation, including judicial settlement conference, mediation, early neutral evaluation, and summary jury trial. Some courts offer such services; others maintain a list of approved providers of such services who are not, themselves, formally affiliated with the court administration.
Dispute Resolution Board
A party-appointed panel chaired by a trained neutral, which generally is formed at the start of a construction project and meets regularly (usually at the site) to follow work progress and to provide guidance to the parties. Once the DRB is in place, is informed about the project, and follows its progress, it is able to guide the parties to a mutual resolution of differences before they become disputes. In the event that the DRB is called upon to hear a ripened dispute, it can make either recommendations, awards that are binding for a period of time, awards that are binding but appealable, or final and binding decisions, depending on the agreement of the parties involved in the project. DRBs have been successfully used in complex construction projects.
Dispute Management Systems Design
A method for managing streams of conflicts. The term refers to managerial systems established in corporations or similar entities, that experience disputes and conflicts within the organization (such as employment or executive compensation disputes) or between the organization and its external business relationships (such as with governments, consumers, regulatory agencies, competitors, and vendors). Many Dispute Management Systems involve the use of an Ombudsman (see below).
The goal of Dispute Management Systems Design is to establish a reliable and uniform policy by which efficient, fair and commercially rational methods are devised to identify, assess and manage corporate risk from disputes.
Early Neutral Evaluation
Often used in Court-Annexed ADR (see above), Early Neutral Evaluation provides disputants with a frank professional evaluation of their claims and defenses by a professional, objective observer – often a Magistrate Judge.. It is used when the parties disagree significantly about the value of their cases and are locked in positional bargaining. ENE benefits the parties by adding to the negotiation certain assessments whose neutrality may lend them authority and utility, without changing their positions or interests.
This term refers to any ADR process that incorporates elements from different processes into a unified proceeding. An example is “Arb/Med” (see above).
An attribute of an effective Neutral. Impartiality refers to the subjective attitude of a Neutral, who should not favor one disputant over another.
An attribute of an effective Neutral. Independence refers to the absence of any objective link (personal or business relationship) between a Neutral and any of the disputants.
An adversarial proceeding in public court to determine and enforce legally cognizable rights and defenses. Litigation results in a judgment that awards a remedy in conformance with statutory or common law. With few exceptions, judgments resulting from litigation are appealable on a variety of legally cognizable grounds.
Mediation is facilitated negotiation, whose object is the consensual resolution of a dispute on terms that the parties themselves agree upon. It is a form of alternative dispute resolution in which a neutral party (a mediator) selected by the parties seeks to determine the interests of the parties, discover which of these interests may be shared, and alert them to a resolution that may further those interests.
At times the mediator draws the parties towards a mutually satisfactory way to “split the pie”; at other times the mediator assists the parties to invent ways to “make the pie bigger” before splitting it. Communications during mediation may be ex parte and are always strictly confidential and, to the extent provided by law, inadmissible as settlement negotiations.
If competent to do so, and if requested by both parties, the mediator may eventually (1) offer an opinion on the parties’ likelihood of success in an adjudicated proceeding, and/or (2) offer a proposed “best resolution” that the mediator considers is the fairest, most commercially rational outcome to the dispute. However, the mediator has no authority to impose an outcome on the parties and controls only the process of the mediation itself, not its result.
A hybrid process pursuant to which, by agreement, the parties engage in mediation with the intention of submitting all unresolved issues to final and binding arbitration. Most commentators caution that, to ensure the integrity of the arbitration process, Med/Arb agreements should provide that the arbitrator shall not be the same person who served as mediator in the matter.
A hybrid process by which the parties present their legal and factual contentions to a panel of representatives selected by each party, or to a neutral third party, or both. The presentations are strictly limited and, at the end of the presentations, the party representatives and/or neutral meet and confer. The utility of the process is to provide senior party representatives with an opportunity to balance the strength of their client’s claims against the contentions of their adversary, with an eye to resolving the matter on commercial rather than legal terms.
Increasingly, sophisticated commercial contracts feature Multi-Step Clauses, that provide for multiple layers of dispute management. Multi-Step Clauses encourage business managers to engage in commercially rational processes prior to, or in addition to, legal resort. For example, a clause may call for parties to engage in good-faith notice and negotiation as a condition precedent to initiating arbitration or litigation. Some clauses require the participation of indemnitors at an early stage. Some negotiation “steps” are further divided, to contemplate the involvement of senior managers in the event that junior managers could not resolve the problem (thus rewarding junior managerial negotiation skills and often removing from the negotiation process the individual whose conduct is at issue). Mediation is frequently called for, either prior to initiation of a formal claim or at a designated point in the prosecution of such a claim. Some multi-step clauses also set forth a schedule for the exchange of certain information, so that mediation can take place early in the process in an informed manner. In the event of failure to resolve the dispute in these methods, the clauses call for arbitration or litigation, usually also addressing the parties’ selection of venue, choice of law, waiver of jury, and other issues.
Ideally, a Multi-Step Clause identifies the benefit that the parties seek to derive from the deal that the contract documents, and devises a means for the parties to protect that intended benefit to the maximum degree possible.
A method of exchanging interests and proposals through direct communication. Many ADR practitioners distinguish “Positional” and “Interest-based” negotiation. The former is driven by the assessment of desired outcomes and the iterative exchange of those outcomes towards a compromise. The latter is informed by the parties’ ultimate commercial objectives and the exchange of proposals for obtaining those objectives in the context of the other parties’ interests.
A third-party (arbitrator or mediator) who interposes in a dispute with the extent of authority granted by the parties (except in the case of a judge, whose authority is granted by law). Internationally promulgated ethical standards require that Neutrals shall exhibit Independence, Impartiality and Neutrality (see individual terms).
An attribute of an effective Neutral. Neutrality refers to the Neutral’s having no personal or institutional interest in the outcome of a dispute.
A third-party who deals with conflicts on a confidential basis and gives disputants information on how to resolve the problem at issue. In the United States, institutional Ombudsman offices are created by some corporations to provide resources for employees, “whistle-blowers,” consumers and others. In Europe, the Ombudsman’s role has traditionally involved the management of complaints by the public against public administrative agencies.
Settlement Counsel is a party representative who is marginally involved, or sometimes strictly uninvolved, in the prosecution of claims or defenses in the course of a adjudicative process, but instead is responsible for the resolution of the dispute at the earliest possible time on the best possible terms. Some law firms offer clients the option to engage both “trial counsel” and “settlement counsel” in an effort to create conditions that hasten optimal resolution of a dispute.