ALTERNATIVE DISPUTE RESOLUTION (ADR)

Alternative Dispute Resolution (ADR) is a term that refers to different methods of resolving business-related disputes outside traditional legal and administrative forums. These methodologies, which include various types of arbitration and mediation, have surged in popularity in recent years because companies and courts became extremely frustrated over the expense, time, and emotional toll involved in resolving disputes through the usual avenues of litigation. The opposing sides in litigation are attacked and demeaned at every opportunity during the course of a lawsuit,” pointed out Wayne Hoagland in Nation’s Restaurant News. The system is very expensive, disruptive and protracted, and by its very nature it tends to drive the parties further apart, weakening their relationships, often irreparably. ADR programs emerged as an alternative, litigation-free method of resolving business disputes.

Although certain ADR techniques are well established and frequently used — for example, mediation and arbitration — alternative dispute resolution has no fixed definition. The term alternative dispute resolution includes a wide range of processes, many with little in common except that each is an alternative to full-blown litigation. Litigants, lawyers, and judges are constantly adapting existing ADR processes, or devising new ones, to meet the unique needs of their legal disputes. The definition of alternative dispute resolution is constantly expanding to include new techniques. It should be noted that ADR techniques have not been created to undercut the traditional court system. Certainly, ADR options can be used in cases where litigation is not the most appropriate route. However, they can also be used in conjunction with litigation when the parties want to explore other options but also want to remain free to return to the traditional court process at any point.

FORMS OF ADR

The primary forms of ADR are arbitration, mediation, mediation-arbitration, mini-trial, early neutral evaluation, and summary jury trial among others. These are discussed in turn.

• ARBITRATION

Arbitration closely resembles traditional litigation in that a neutral third party hears the disputants’ arguments and imposes a final and binding decision that is enforceable by the courts. The difference is that in arbitration, the disputants generally agreed to the procedure before the dispute arose; the disputants mutually decide who will hear their case; and the proceedings are typically less formal than in a court of law. One extremely important difference is that, unlike court decisions, arbitration offers almost no effective appeal process. Thus, when an arbitration decision is issued, the case is ended.

Aristotle once wrote “It is equity to pardon human failings, to look to the law-giver and not the law – to wish to settle a matter by words rather than by deeds; and lastly, to prefer arbitration to judgment, for the arbitration sees what is equitable but the judge sees only the law, and for this, arbitrator was first appointed in order that equity might flourish” (Elias, T.O.: The nature of African Customary Law, p. 272). In nutshell, arbitration could be defined as follows:

• “Arbitration, which in Latin means judgment, is the settlement of a dispute by an impartial person whose decision in the form of an award, have been agreed to be accepted in advance by the disputing parties” (Oyegbile, 2000).
• “Arbitration is the hearing and determination of a dispute by an impartial referee selected and agreed upon by the parties concerned”. (Collins English Dictionary)
• “Arbitration is a process of dispute resolution in which a neutral third party (arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. Where arbitration is voluntary, the disputing parties select the arbitrator who has the power to render a binding decision”. (Black Law Dictionary).

Types of arbitration

There are different types of arbitration namely:

• Civil Arbitration: These are disputes differences arising from social or civil relations such as accusations of libel or trespass and the settlement of accident claims.
• Commercial Arbitration: This type of arbitration is initiated to assist in interpreting business contracts or violations of established trade practices. They are established as a means of settling disputes arising in commercial transactions. Advantage gained from this type of arbitration include cost saving; their private nature which hide away from public glare; and the possibility of using experts in resolving such disputes.
• Industrial Arbitration: This is the type of arbitration of disputes between organized labour and employers. Such disputes arise mostly as a result of disagreement as to the interpretation of contract of employment and conditions for employment. In some countries, it is always advisable that workers should first resort to industrial arbitration tribunal before engaging in factory shut down, strikes and boycotts.

Sources of arbitration

There are three main sources of arbitration, namely:

1. Statutory Arbitration: These are arbitration that derives their existence and authority from statute. For example in Nigeria, there is Trade Act No. 7 of 1976, which enjoins workers and employers themselves to resolve disputes between them through it. Statutory Arbitration is of two kinds, mainly:
   • Compulsory or obligation arbitration: This involves parties to submit future disputes to arbitration. Examples of such include the treaty between the United States and Tripoli in 1891 and the Universal Postal Union Treaty of 1874.
   • Volitory or epitoral arbitration: There is no imposition of obligation to submit disputes to arbitration. The parties reserve the right either or not to go to arbitrate under an existing statutory arbitration law or tribunal.

1. By order of court: With the consent of the parties to a case, the court has right or jurisdiction to direct a case for determination by an arbitrator or arbitration tribunal.
2. Voluntary arbitration: This came about through the volition or willingness of the disputants (on their own) to authorize a third party of the choice to intervene in helping them resolve their differences. Voluntary arbitration can take different forms such as:

• By oral agreement: Specially, it is not in writing, rather it came about by the oral or verbal agreement of the parties in agreeing to submit their existing or future dispute to an arbitrator or to an arbitrate tribunal.
• An agreement in writing: This must be in writing. for example, the Nigerian Arbitration and Conciliation Act of 1990 stipulates that in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of communication which provide a record of the arbitration agreement.

Classification of arbitration

Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, where the parties agree to hold all disputes to arbitration, without knowing, specifically, what disputes will ever occur) and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Other forms of arbitration are:

• Expedited arbitration is a process intended to speed up (and save money on) the arbitration process with an informal hearing. Under this process, decisions are generally rendered within five days. It was first used in 1971 in settling disputes in the steel industry.
• Interest arbitration is the use of an arbitrator or arbitrator board to render a binding decision in resolving a dispute over new contract terms.
• Final offer selection arbitration is an interest arbitration process in which the arbitrator or arbitrator board selects either the union or management proposal to the solution. There can be no compromised decisions. This process is also termed either-or arbitration.
• Tripartite arbitration is a process wherein a three-member panel of arbitrators is used to reach a decision. Both labour and management select an arbitrator and the third is selected by the other two arbitrators or the parties to the dispute as a neutral participant.
• Judicial arbitration is, usually, not arbitration at all, but merely a court process which refers to itself as arbitration, such as small claims arbitration before the County Courts in the United Kingdom.
• High-low arbitration, or bracketed arbitration, is an arbitration wherein the parties to the dispute agree in advance the limits within which the arbitral tribunal must render its award. It is only generally useful where liability is not in dispute, and the only issue between the parties is the amount of compensation. If the award is lower than the agreed minimum, then the defendant only need pay the lower limit; if the award is higher than the agreed maximum, the claimant will receive the upper limit. If the award falls within the agreed range, then the parties are bound by the actual award amount. Practice varies as to whether the figures may or may not be revealed to the tribunal, or whether the tribunal is even advised of the parties’ agreement.
• Non-binding arbitration is a process which is conducted as if it were a conventional arbitration, except that the award issued by the tribunal is not binding on the parties, and they retain their rights to bring a claim before the courts or other arbitration tribunal; the award is in the form of an independent assessment of the merits of the case, designated to facilitate an out-of-court settlement.
• Pendulum arbitration refers to a determination in industrial disputes where an arbitrator has to resolve a claim between a trade union and management by making a determination of which of the two sides has the more reasonable position. The arbitrator must choose only between the two options, and cannot split the difference or select an alternative position. It was initiated in Chile in 1979. This form of arbitration is also known as baseball arbitration. It takes its name from a practice, which arose in relation to salary arbitration in Major League Baseball.
• Night baseball arbitration is a variation of baseball arbitration where the figures are not revealed to the arbitration tribunal. The arbitrator will determinate the quantum of the claim in the usual way, and the parties agree to accept and be bound by the figure, which is closest to the tribunal’s award.

Implied provisions in written arbitration agreement

• Reference to a single arbitrator.
• If reference is to two (2) arbitrators, the arbitrators shall appoint an umpire immediately after they have themselves been appointed.
• If the arbitrations give notice that they cannot agree, the umpire enter on the reference.
• Parties shall submit to be examined on oath and shall produce all relevant documents.
• Witness may be examined on oath.
• Award to be final and binding on both parties.
• Incidence of cost to be settled by arbitration.
• Arbitrator or umpire may refer specific matter to court unless the agreement says otherwise.
• The arbitration can apply any legal precedence
• The arbitrator or umpire may make an interim award pending the determination of the case.

Selection of an Arbitrator

As WiseGEEK (2011), puts it, an arbitrator is someone chosen to judge and decide a disputed issue.

• Clauses may also dictate who will serve as the arbitrator or whether someone will be appointed by a professional arbitration organisation. The selected arbitrators must be fair and impartial, and they cannot have a personal interest in the outcome of the case.
• A court officer often is someone who makes decisions and has an impact on the outcome of a case. This includes judges, arbitrators, mediators and magistrates. In a jury-based system, the jury as a collective unit is considered an officer of the court.

Concerning the Arbitration Panel, WiseGEEK (op cit) stated as follows:

• The particular rules of the designated forum will usually determine whether the arbitration panel will be comprised of three or five members. Many forums will select one of the appointed arbitrators to serve as chairman.
• In cases where the disputed amount is very high, the arbitrating committee may decide to pass judgment onto the court. If there is no reason to pass the dispute on, the arbitrating panel will make a decision based on the evidence which is legally binding.

After the arbitrator is selected, both sides are given the opportunity to present their perspectives on the issue(s) in dispute. These presentations include testimony and evidence that are provided in much the same way as a court proceeding, although formal rules of evidence do not apply. Upon completion of the arbitration hearing, the arbitrator reviews the evidence, testimony, and the collective bargaining agreement, considers principles of arbitration, and makes a decision. The arbitrator’s decision is generally rendered within 60days. Hayford (2000) noted that “binding arbitration minimises pre-hearing machinations with regard to discovery, motion practice, and the other preliminary skirmishes that extend the time, expense, and consternation of court litigation. In exchange, the parties to a contractual binding arbitration provision agree to accept the risk of being stuck with an unacceptable decision“.

Advantages and disadvantages of arbitration

Advantages

• Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:
• when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot “choose the judge” in litigation)
• arbitration is often faster than litigation in court
• arbitration can be cheaper and more flexible for businesses
• arbitral proceedings and an arbitral award are generally non-public, and can be made confidential
• in most legal systems, there are very limited avenues for appeal of an arbitral award, which can be either an advantage (in that the dispute is over and done with, period), or a disadvantage (see below).

Disadvantages

• Arbitration may become highly complex.
• Arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party.
• Arbitration agreements are sometimes contained in ancillary agreements or in small print in other agreements, and consumers and employees sometimes may not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job.
• If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case.
• In some arbitration agreements, the parties are required to pay for the arbitrator, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes.
• In some arbitration agreements and systems, the recovery of attorneys’ fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court.
• If the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee.
• There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned.
• Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays.
• In some legal systems, arbitral awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect.
• Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore.
• Unions may only make a weak effort to defend one member or a small group of members in arbitration due to increasing legal fees, without explaining to the members the adverse consequences of an unfavourable ruling.
• Rule of applicable law is not necessarily binding on the arbitrators, although they cannot disregard the law.
• Discovery may be more limited in arbitration or entirely non-existent.
• The potential to generate billings by attorneys may be less than pursuing the dispute through trial.
• Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to “confirm” an award.
• Although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.

In conclusion, stakeholders in the built environment (professionals and owners of real estate) can do a great deal to protect themselves from a wide variety of litigation through the wise use of arbitration clauses and procedures. They can be included in all kinds of contracts relating to real estate, including leases, sales contracts, financing documents, joint venture agreements, easement agreements, etc, in order to avoid unintended and disastrous results.

• MEDIATION

Mediation — also known as conciliation — is the fastest growing ADR method. Unlike litigation, mediation provides a forum in which parties can resolve their own disputes with the help of a neutral third party. According to Marsh (2000), mediation is relevant in the following areas:

• Mediation is a part of the juvenile criminal justice system. For non-violent offenders, victim-offender, mediation is a process where community volunteers, under the supervision of the criminal justice system caseworkers, help both sides humanise and rehabilitate each other.
• Mediation is a part of family counselling for people getting divorced. Mediation is a way for families who are splitting into parts to learn to deal with the changes in roles, duties and opportunities and to face those changes with emotional balance. To many, mediation is a special form of family counselling handled by licensed family counsellors and therapists.
• Mediation is a part of the civil court system where parties to law suits are aided in settlement negotiations aimed at helping them find their own best interest.
• Mediation is a part of community action and conflict resolution – a place where volunteers resolve conflicts and problems that otherwise would end up in small claims court.
• Mediation is a labour conflict resolution tool aimed at finding a better way. Drawing from a wide pool of talent and skills, labour mediation seeks to end conflict and improve feelings in the workplace.
• Institutional mediation is conflict avoidance, a form of human resources management that aims to resolve conflict and improve communication between those served and the institution and between the different members of the institution.
• In large hospitals, churches and other diverse organisations, mediation is a method of ensuring communication and that problems are resolved rather than ignored, cured rather than allowed to fester.
• Mediation is what diplomats do to prevent countries from going to war, or help countries at war find peace.

Principles of mediation

According to Marsh (2000), the success of mediation is anchored on the following five factors:

1. An impartial third party facilitator: The mediator is the person who makes the entire process work and as long as there is a neutral facilitator, the parties can trust that they have some safety and are not being abused by an interested party. Thus the first thing that makes a process one of mediation is a third party who facilitates – aids the parties in a neutral fashion to find the parties own best interests.
2. A third party who protects the integrity of the proceedings: Usually this means that the facilitator or mediator protect the confidentiality of the proceedings. Thus, not only does the mediator not take sides against any party to the mediation, the mediator does not usurp the parties’ rights to disclose, or not disclose information. The mediator preserves the integrity of the proceedings in all ways. Generally, this means many things — such as there are no records kept by the mediator. When there is no record, it becomes much harder to breach confidentiality, or to try to use the mediator to prove or force a particular point not finalised in the parties’ agreement. Confidentiality also means that the facilitator is not subject to subpoena, and thus cannot be made a witness. Without notes or the facilitator, the only method to breach confidentiality is the testimony of an interested party who is usually bound by law (and thus subject to being quashed) not to disclose more than is agreed.
3. Good faith from the participants: Good faith includes not only entering into the ADR method with the intent to work towards a resolution; it also includes not using the process for outside purposes. Thus there are rules that provide for no service of process during ADR, and for similar bars to the abuse of the mediation process by attorneys and non-attorneys alike. What makes all of the proceedings mediation is that the parties are in the process to seek solutions rather than for an ulterior purpose (e.g. to abuse the other party by use of the process). Both the behaviour and integrity of the neutral mediator are important in creating, and preserving good faith.

1. The presence of the parties: Those with full authority to act for the parties must attend so that the parties can work towards resolution. If the decision makers do not attend the process becomes something other than mediation. All parties necessary to resolve the problems should interact with the mediator. In a family dispute, if a party always checks with his parents before acting, the parents should attend (and may need a referral to additional counselling). In a labour matter, if a company president always checks with the majority shareholder, the majority shareholder should attend. It is the parties who are being resolved as much as it is the problem that is being settled.
2. An appropriate site or venue: Generally this means a neutral site that is conducive to the process. It must mean a place where neutrality, confidentiality and inclusiveness may be obtained. The place is sometimes as important as the persons and is a part of the process often overlooked.

• MEDIATION-ARBITRATION

As its name suggests, mediation-arbitration, or med-arb, combines mediation and arbitration. First, a mediator tries to bring the parties closer together and help them reach their own agreement. If the parties cannot compromise, they then proceed to arbitration — before that same third party or before a different arbitrator — for a final and binding decision.

However, in contrast to arbitration, mediation is a process whereby the parties involved utilised an outside party to help them reach a mutually agreeable settlement. Rather than dictate a solution to the dispute between labour and management, the mediator—who maintains scrupulous neutrality throughout—suggests various proposals to help the two parties reach a mutually agreeable solution. In mediation, the various needs of the conflicting sides of an issue are identified, and ideas and concepts are exchanged until a viable solution is proposed by either of the parties or the mediator. Rarely does the mediator exert pressure on either party to accept a solution. Instead, the mediator’s role is to encourage clear communication and compromise in order to resolve the dispute. The terms “arbitration” and “mediation” are sometimes used interchangeably, but this mixing of terminology is careless and inaccurate. While the mediator suggests possible solutions to the disputing parties, the arbitrator makes a final decision on the labour dispute which is binding on the parties.

Mediation can be a tremendously effective tool in resolving disputes without destroying business relationships. It allows parties to work toward a resolution out of the public eye (the courts) without spending large sums on legal expenses. Its precepts also ensure that a company will not become trapped in a settlement that it finds unacceptable (unlike an arbitration decision that goes against the company). Hayford (2000) opined that “mediation only works when the parties employing it are willing to go all out in the attempt to achieve settlement,” and he warned that “the mediator must be selected carefully, with an eye toward the critical attributes of neutrality, subject matter and process expertise, and previous track record”. Finally, he noted that with mediation, there is a “lack of finality inherent in a voluntary, conciliation-based procedure”.

• MINITRIAL

The minitrial is finding its greatest use in resolving large-scale disputes involving complex questions of mixed law and fact, such as product liability, massive construction, and antitrust cases. In a minitrial, each party presents its case as in a regular trial, but with the notable difference that the case is “tried” to the parties themselves, and the presentations are dramatically abbreviated.

In a minitrial, lawyers and experts present a condensed version of the case to top management of both parties. Often, a neutral adviser— sometimes an expert in the subject area — sits with management and conducts the hearing. After these presentations, top management representatives — by now more aware of the strengths and weaknesses of each side — try to negotiate a resolution of the problem. If they are unable to do so, they often ask for the neutral adviser’s best guess as to the probable outcome of the case. They then resume negotiations.

The key to the success of this approach is the presence of both sides’ top officials and the exchange of information that takes place during the minitrial. Too often, pre-litigation work has insulated top management from the true strengths and weaknesses of their cases. Minitrial presentations allow them to see the dispute as it would appear to an outsider and set the stage for a cooperative settlement.

• EARLY NEUTRAL EVALUATION

An early neutral evaluation (ENE) is used when one or both parties to a dispute seek the advice of an experienced individual, usually an attorney, concerning the strength of their cases. An objective evaluation by a knowledgeable outsider can sometimes move parties away from unrealistic positions, or at least provide them with more insight into their cases’ strengths and weaknesses. The success of this technique depends upon the parties’ faith in the fairness and objectivity of the third-party neutral, and their willingness to compromise.

• SUMMARY JURY TRIAL

Summary jury trials have been used primarily in the law courts, where they provide parties with the opportunity to ‘try’ their cases in an abbreviated fashion before a group of jurors, who then deliberate and render an advisory opinion. Like an early neutral evaluation, an advisory opinion from a summary jury trial can help the parties assess the strengths and weaknesses of their cases and sometimes can facilitate the settlement of the dispute. Another advantage of the summary jury trial, as well as the minitrial, is that it can be scheduled much sooner than a trial. When early evaluations help the parties settle their cases, the parties typically avoid much of the delay, expense, and anxiety that occur in litigation.

• OMBUDS

An ombudsman (a form of investigator) is a high-ranking company manager or executive whose reputation throughout the company enables him/her to facilitate internal dispute resolution between the company and employees. Hayford (2000) points to several benefits of ombud-based ADR: “It provides a confidential, typically low-key approach to dispute resolution that keeps conflicts ‘in the family.’.…Properly effected, the ombuds mechanism can do much to enhance the perception that the company is concerned and eager to address the problems of its employees by providing them with an accessible, nonthreatening avenue for seeking redress when they believe they have been wronged”. The primary drawback of ADR by the ombud process, however, is that many companies—whether large or small—do not have an individual equipped with the reputation, skills, or training to take on such a task.

• NEUTRAL EVALUATION

In neutral evaluations, a neutral individual with a background in ADR listens to each party give its version of events. After their perspectives have been considered, the neutral evaluator offers his/her opinion on the disagreement. This opinion is not binding in any way, but if the neutral party is respected and trusted by both sides, it can help the parties reassess their negotiating positions with an eye toward finding common ground.

• Case evaluation: a non-binding process in which parties present the facts and the issues to a neutral case evaluator who advises the parties on the strengths and weaknesses of their respective positions, and assesses how the dispute is likely to be decided by a jury or other adjudicator.
• Early neutral evaluation: a process that takes place soon after a case has been filed in court. The case is referred to an expert who is asked to provide a balanced and neutral evaluation of the dispute. The evaluation of the expert can assist the parties in assessing their case and may influence them towards a settlement.
• Family group conference: a meeting between members of a family and members of their extended related group. At this meeting (or often a series of meetings) the family becomes involved in learning skills for interaction and in making a plan to stop the abuse or other ill-treatment between its members.
• Neutral fact-finding: a process where a neutral third party, selected either by the disputing parties or by the court, investigates an issue and reports or testifies in court. The neutral fact-finding process is particularly useful for resolving complex scientific and factual disputes.

Benefits of Alternative Dispute Resolution (ADR)

ADR has been both increasingly used alongside, and integrated formally, into legal systems internationally in order to capitalise on the typical advantages of ADR over litigation:

• Suitability for multi-party disputes
• Flexibility of procedure – the process is determined and controlled by the parties the dispute
• Lower costs
• Less complexity (‘less is more’)
• Parties choice of neutral third party (and therefore expertise in area of dispute) to direct negotiations/adjudicate
• Likelihood and speed of settlements
• Practical solutions tailored to parties’ interests and needs (not rights and wants, as they may perceive them)
• Durability of agreements
• Confidentiality
• The preservation of relationships; and
• The preservation of parties’ reputations.

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