DLA Piper litigation and regulatory partner Richard Norman on methods of dispute resolution and their pros and cons
Is mediation the natural alternative to litigation?
Mediation is becoming an increasingly popular means of resolving disputes across all jurisdictions. However, a wide range of techniques can enable parties to reach a negotiated settlement without the need to resort to formal court proceedings.
Each form of alternative dispute resolution (ADR) has its own merits and there is no ‘one size fits all’ approach when deciding on the most appropriate mode of dispute resolution. However, the courts are increasingly keen for parties to pursue mediation. In some jurisdictions, courts can even impose costs penalties where a party refuses to engage in a genuine attempt at ADR, even where that party is ultimately successful. As such, in my view, mediation is the actual alternative to litigation.
International arbitration v litigation: which is the better approach?
The better approach will vary in each case. The differences between arbitration and litigation are set out below:
| Litigation | International arbitration | |
|---|---|---|
| Cost | The parties are not required to pay the judge etc. However, significant up-front costs can make litigation more expensive | The flexible structure means arbitration can be more cost-efficient |
| Speed | The Jackson Reforms in the UK have made the court process notably more efficient in respect of case management | To some extent, the parties control the speed |
| Attitude of the parties | Where one party is intent on frustrating and delaying proceedings, the severe penalties available to some courts in respect of a party’s non-compliance may be beneficial | Where both parties are committed to achieving a swift resolution to a dispute, arbitration may be a quicker and cheaper alternative to litigation |
| Confidentiality | Generally, public (except in exceptional circumstances) | Confidentiality of proceedings and the outcome can be agreed |
| Flexibility | Rigid court process | Greater scope for flexibility |
| Number of parties | All relevant parties can be joined and related actions consolidated | No compulsory right of rejoinder or consolidation |
| Neutrality | There is sometimes a perceived advantage of having a dispute heard in one contracting party’s home court | Provides a neutral forum for disputes to be referred to |
| Rules | The relevant court rules of the jurisdiction | Decided on by the parties |
| Arbitrator / judge | Little say over the judge appointed and may not have the necessary technical expertise | The arbitrator is appointed by the parties, and can be chosen for their technical expertise |
| Evidence | Wide-ranging if relevant to the dispute | Limited to that ordered by the arbitrator |
| Finality/right of appeal | Can be appealed relatively easily on a number of different levels | Limited grounds of appeal |
| Enforceability | No real equivalent, can be much more difficult to enforce awards out of the jurisdiction. | Typically easier to enforce through the New York Convention |
Where the dispute has an international element, international arbitration will likely be the natural choice owing to the relative ease with which awards can be enforced between different jurisdictions when compared to litigation. The expertise that arbitrators can contribute through their knowledge of a particular sector or specialism can be invaluable in complex and/or niche disputes.
The severely restricted right to appeal in arbitral proceedings can be seen as both a help and a hindrance, depending on the circumstances. The finality of an arbitrator’s decision undoubtedly enables parties to reach finality faster. However, simultaneously, a real danger arises that the removal of a right of appeal (in all but the rarest of cases) removes the scrutiny and accountability to which judges in the court system are subject.
The advantages and disadvantages of international arbitration and litigation should always be considered; the best approach will depend on the circumstances in each individual case.
Is mediation the best way to resolve a dispute?
It depends. Mediation presents a number of perceived benefits over litigation. Cost, flexibility and confidentiality are among the most commonly cited. Improved dialogue and maintaining/preserving the contractual relationship can also be a key benefit of mediation.
Of course, in some situations mediation will not be appropriate. Circumstances in which one or more of the parties refuses to acknowledge that there is a problem and/or refuses to engage in meaningful discussions will be one such instance. Confidentiality may not always be a benefit where a party wants to send a clear message to other potential related claimants. In addition, mediation (and other forms of ADR) will not be appropriate in urgent situations, for example, where an injunction is required against the other party.
Should parties have a dispute resolution process in their contracts?
Absolutely. Dispute resolution clauses:
- focus the parties’ minds at the outset;
- are negotiated while the contracting parties are still (usually) on good terms, and so will generally provide a fair, level-headed and equitable means of resolving a dispute (with an escalation process);
- remove ambiguity (if drafted correctly), and can be specifically drafted to take into account all the circumstances of the case. For example, the process, type of arbitration, choice of seat, choice of governing law, choice of language, confidentiality, number of arbitrators and qualifications the arbitrator must hold are among the provisions that can be provided for in the dispute resolution clause.
Different jurisdictions will take different approaches. Looking at this commercially, it makes sense for litigation/arbitration to be a matter of last resort.
Can it ever be reasonable not to participate in mediation?
In certain circumstances yes. From an English law perspective, the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 helpfully set out a non-exhaustive list of the factors the courts are likely to take into account when deciding whether a party had reasonably refused to engage in mediation (or indeed other forms of ADR). These included: (1) the nature of the dispute; (2) the merits of the case; (3) the extent to which other settlement methods had been attempted; (4) the costs of ADR and whether these were proportionate; and (5) whether the form of ADR proposed had any reasonable prospect of success.
It is clear from this judgment that whether it is reasonable to refuse to participate in mediation will depend on all the circumstances of the case. It is generally not good practice to simply ignore an opponent’s request to participate in mediation; any refusal should be clear in its reasoning.
A recent Court of Appeal case (PGF II SA v OMES Company Ltd [2013] EWCA CIV 1288) succinctly summarised the position as “calling for constructive engagement in ADR rather than flat rejection, or silence” and firmly endorsed the advice given in the relevant section of the ADR Handbook (Lord Justice Briggs, at paras 30 and 34). It therefore appears that, so long as the grounds for refusal are in fact reasonable, and can be justified, a party can refuse to engage in engage in mediation without facing costs sanctions. The inherent risk however remains that whether or not a party’s refusal to mediate can be regarded as “reasonable” is ultimately likely to fall to be determined by the Court. As such, there is no certainty in this regard and the cynic in me tells me its best to mediate!
What top tips can you offer?
- There is ‘no one size fits all’ approach.
- It is better to agree a clearly defined dispute resolution process when the contract is negotiated.
- An escalation process including settlement discussions and mediation can aid resolution of disputes and avoid costs/risk/the uncertainty that litigation/arbitration can entail.
- The selection of the appropriate dispute resolution process, your litigation strategy and your choice of lawyer are critical.
- Litigation can be a painful process. Understanding the facts of the dispute, having a clear direction of travel with an agreed strategy in mind has to be the ‘gold standard’.
- There is no better feeling than winning at trial. Since there is no worse feeling than losing, a strategy designed to achieve a commercial settlement as soon as possible is, in my experience, the best one to adopt.
Richard Norman is a litigation & regulatory partner at DLA Piper UK LLP
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