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Alternative Dispute Resolution Clauses - Are they necessary?
There is increasing pressure from the courts and government agencies to encourage people to keep disputes out of the courts and to resolve them through mediation or another form of Alternative Dispute Resolution (ADR). This has led to parties to contracts agreeing that, if they have a dispute in relation to their obligations under the contract, they will try to resolve that dispute through mediation.
The terms of mediation clauses are very varied. A simple mediation clause usually says that the parties "will attempt to settle any dispute by mediation". That gives the parties flexibility as to how and when they will mediate and the courts will enforce the mediation clause if one party ignores the clause and starts legal proceedings.
Mediation clauses often impose the rules to be followed, for example the Centre for Effective Dispute Resolution (CEDR) Model Mediation Procedure. This provides a method of appointing the mediator and how, when and where the mediation will take place.
A very simple mediation clause may not even set out how the mediation is to be initiated, or when the mediation will take place. Whereas other mediation clauses include a procedure for the service of notice and state that the mediation must take place within a number of days after that notice.
Some clauses prohibit arbitration or court proceedings being begun before mediation has taken place and been terminated, or one party has refused to participate; others envisage the dispute being litigated at any stage.
ADR clauses sometimes include a provision that a meeting of senior representatives, with the authority to settle the dispute, should take place before the parties attempt to resolve it through mediation. Those representatives are usually to "meet in good faith to resolve the dispute".
Advocates of ADR clauses argue that they give the parties an opportunity to negotiate and mediate when it might not otherwise have occurred to them to do this.
This argument assumes that mediation is always be the best way to resolve a dispute and that the draftsman of the contact has a crystal ball and can set out the best procedure for resolving the dispute without having any idea of the nature of the dispute.
People are best placed to decide on the most appropriate way to resolve the dispute once the dispute has arisen - that is better than being locked into what may be an inappropriate procedure agreed when they entered into the contract. Some disputes, especially those that involve a technical issue, are better resolved by an expert.
A common problem is that the timescales in ADR clauses are too short to allow for all the factual and technical expert evidence needed to resolve the dispute to be gathered and presented.
A mediator does not provide a binding decision or resolution; the mediator simply facilitates the negotiations by helping each party to appreciate the other's position and the potential consequences of not settling the dispute. Even after a mediation, the parties may find that they have to go to court to resolve the dispute once and for all.
In any case, the parties may be quite capable of negotiating a settlement themselves (with or without the hindrance or help of their lawyers). In those cases, having to go to mediation may be a waste of time and money. (Parties invariably engage lawyers to help prepare their statement of case for the mediation and to attend the mediation.)
Although mediation will be far cheaper than going to court, it can be much more expensive than a simple negotiation and, where it does not resolve the dispute and the parties go to court in the end any way, it is just an additional expense and waste of time.
In some cases mediation may even be used to delay proceedings, and/or as a threat to stop a party from enforcing its rights through the courts. This is often the case where the party defending a claim is financially much stronger than the other party, and it wants to put an additional hurdle in the way of the other party winning its case.
Under the English Court Civil Procedure Rules, Pre-action Protocols require the parties to consider ADR before resorting to litigation, and the courts can impose cost sanctions on a party that refuses to mediate.
Although the inclusion of an ADR clause in a contract is consistent with the courts' approach, a mediation clause is unnecessary when the rules require the parties to consider ADR before litigating.
Conclusion
ADR clauses are often treated as "boiler plate" and little thought is given to them, but mediation will not always be appropriate and, if it is, the procedures set out in the clause may not be appropriate.
A well-drafted ADR clause may help if all parties are willing to cooperate in resolving the dispute, but it will not help if one party is unwilling to mediate.
Even if there is no mediation clause, the parties, if willing, will be able to mediate and are encouraged to do so by the court rules.
Not having a mediation clause removes the possibility of mediation being used as a delaying tactic and running up unnecessary expense.
Contact Details
If you would like further advice about any of the issues considered above please contact Paul Northwood on 01869 331753, or email him at paul.northwood@northwoodreid.com .
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This article is not intended to be, and should not be taken as being, legal advice. The law often changes and it varies from jurisdiction to jurisdiction; the information in this article is generic in nature and specific legal advice should be taken before acting on any of it.
© Northwood Reid 2008. The use, copying and dissemination of this article are subject to our