By Jamie Johnson
Litigation can often be extremely costly and time consuming for a company. Due to this, they would prefer to deal with a pending dispute outside of court. This article will outline three alternative dispute resolution (ADR) mechanisms that companies could use alongside their associated advantages and disadvantages. These are: mediation, arbitration and mediation-arbitration.
In mediation, parties use a neutral third party (a mediator) to identify the issues in their dispute and find out how to resolve them. The mediator does not make a ruling on the merits of the case but instead tries to facilitate agreement amongst the disputing parties. The decision that the mediator makes does not bind the parties.
There are three advantages to this form of ADR: it is private, it preserves relationships and it is cheap.
Firstly, it is a private form of dispute resolution. Often, a company’s reputation may worsen significantly if it has a litigation case. Any potential faults it has could come out in the public trial. Mediation, by contrast, avoids this problem by being private.
Secondly, mediation preserves relationships because settlements are consensual. A dispute runs the risk that the relationship between two parties will be irrecoverably damaged. By providing some sort of consent in the settlement, both parties can be happy with the outcome.
Thirdly, it is cheap in comparison to more formal processes. Processes such as arbitration or litigation are often more expensive to set up.
There are three disadvantages to this form of ADR: the gathering of evidence is less likely, the parties may be unable to agree and there is no certainty over the timeline.
Mediation makes the gathering of evidence less likely because mediators cannot compel the production of evidence for their case. Thus, if the relationship between the two parties is abysmal, the mediator may never find the truth of the matter.
The parties may also be unable to agree on a settlement at all if their relationship has broken down completely. They could, for example, contest the appointment of a mediator so that the case goes nowhere.
There is also no certainty of the timeline of a mediation case. This is important if a party needs the case to be sorted within a specified timescale.
Arbitration involves typically a contractual agreement to arbitrate. An independent arbitrator makes a final decision on the dispute. In arbitration, unlike in mediation, the arbitrator cannot meet anyone in private. Arbitration differs from mediation because it is a binding process, whereas mediation is not.
There are three advantages to arbitration: the arbitrator can be an expert, it is better for international disputes and the arbitrator’s decision is binding.
The parties can choose an arbitrator with expertise in the specific dispute at hand. This means that, unlike for a litigation case, the arbitrator will have the required legal understanding to make a decision that is best for both parties.
Arbitration is also best for international disputes because the parties can refer the dispute to a neutral forum. There is no requirement to have the dispute in a specific national court. This means that neither party has to worry about the dispute being dealt with in a jurisdiction that is unfavourable to them.
An arbitrator can make a binding decision that is hard to be challenged. This means that the case has a definite ending, as opposed to mediation, where the decision might be disputed further.
There are three disadvantages to arbitration: it may be more expensive, it would be difficult to get a summary judgment and it may take longer than a court case.
When tribunal costs and administrative fees are taken into account, arbitration may be more expensive than dealing with a dispute in the courts.
A summary judgment is helpful to make a quicker ruling in the cases where one side does not have a defence with any merits. Generally speaking, an arbitration tribunal will be less willing to provide a summary judgment. To obtain one, court action would be preferable.
Arbitration can take longer than a court case because of the flexibility of the process. Plus, arbitrators may struggle to bring people to the tribunal because they do not have strong powers of coercion. This time could be costly to a business.
In mediation-arbitration, if mediation does not work, then the parties agree that the mediator becomes an arbitrator. This means that they can issue a final and binding ruling on the dispute. In some cases, the person who was the mediator may change.
There are three advantages of mediation-arbitration: there is flexibility while having a binding outcome, the parties will co-operate more at the mediation stage and it is still relatively quick.
This approach is flexible during the mediation stage, as the process is relatively flexible. However, there is still the benefit of having an eventual outcome that is binding on the two parties.
The parties are also likely to co-operate more during the mediation stage because they know that there will be an arbitration stage after. It would not make sense for a party to prolong things if they knew that there would be a binding decision later.
Finally, although it may look as though having two processes would take a long time, it is normally quicker than a litigation procedure.
There are three disadvantages of mediation-arbitration: there may not be an honest discussion during mediation, the credibility of the arbitrator could be in doubt and there would be an incentive for advocacy during mediation.
There may not be an honest discussion during mediation because the parties know that the mediator they are disclosing confidential information to will become the arbitrator. This is important because the early stages of a mediation case involve the private disclosure of information.
The credibility of an arbitrator could also be in doubt because they know confidential information about the parties from the mediation stage. This could make a party feel as though the ruling is not fair and so they could dispute it.
There would be an incentive for advocacy during the mediation stage because of the prospect of arbitration after the case. Advocacy is where a party tries to influence the decision. This could mean that the situation is not solved amicably.
In an arbitration between Shell Energy Europe Limited and Meta Energia SpA in 2020, Meta participated in arbitration until the last stage. 10 days before it, Meta dismissed all their lawyers. The arbitrators decided whether to continue with the case and decided to do so. A court held that this was legitimate.
In 2019, an arbitration between Standard Life Aberdeen and Lloyds Banking Group was settled. This began because Lloyds wanted to take out £109bn in assets that were being overseen by Standard Life Aberdeen. Lloyds paid £140m to Standard Life Aberdeen as part of the settlement.
There is currently an ongoing arbitration case between the Yukos shareholders and Russia. This has arisen from the former Yukos shareholders demanding recompense for the Russian courts effectively bankrupting the company by pushing for criminal proceedings against it.