Alternative dispute resolution refers to any method for solving disputes other than by litigation. It is a constrictive dispute resolution method to the extent that a decision by such a method cannot be overruled by a public court of law. A public court of law cannot also give awards different from the ones issues by the method. The two most common used methods of alternative dispute resolution are arbitration and mediation. These methods mainly include evaluation of a case that is done on neutral basis, negotiations, conciliation, mediation and finally arbitration. Alternative dispute resolution methods are becoming preferable due to the need to move away from crowded courtrooms, increasing litigation costs, and the delays experienced in courts before judgment is delivered. These reasons have compelled many people across the states to favor alternative arbitration programs. Some of these programs are voluntary while others are mandatory.
One of the most informal processes used is mediation. In this form of informal litigation, mediators pair the opposing sides and try to control the process. Mediators are trained personnel who are trained to work out settlements and tries to influence accept or reject decisions. This process is also favored since the parties agree amongst themselves and come up with a resolution unlike a court where a judge is influenced by many factors.
Arbitration on the other hand is a basic model of trial that has limited detection and the rules of evidence are simplified. An arbitral panel regulates the process and makes the final decision. Both sides under dispute appoint the arbitrary panel members. The two sides may decide to appoint one person to serve as an arbitrator or they may appoint two people to represent each side and then the two people select a third person to the arbitrator. Arbitration hearings are quite longer than mediation hearings. A typical hearing can take from two days to a week. During that period, the panel convenes a few hours a day to deliberate on matters discussed earlier. After all facts have been delivered based on the arbitration standards, the panel delivers its verdict in a written decision or through an arbitral award. Opinions in this case are not treated as public records.
Arbitration is mostly used in place of industrial courts to solve matters in industries such as construction and securities regulation.3 The process is gaining popularity and more people are adopting it to solve their disputes. Arbitration agreements are enforceable under federal and state laws. The agreements and awards derive their powers from Title 9 of the U.S. Code. The code bases on Congress plenary power that oversees interstate commerce. Title 9 on itself is more superior to state law. A substantial number of states, approximately forty-one in the United States have adopted the Uniform Arbitration Act. The original version was formed in 1956, while the revised version was done in year 2000.
Amendments to Alternative Dispute Resolution Process
Every year, many transactions take place in the construction scene. Intermittently, some disagreements arise in the course of this transactions hence the need for arbitration since litigation may cost both parties significantly. This is in addition to the privacy, fairness and promptness of the process.4 When a dispute occurs, the opposing sides may submit their grievances for arbitration. The arbitrators are supposed to be impartial and any conflicts of interest are unethical. According to the American Arbitration Association, the arbitration process has four major rules: the regular track procedures, the procedures for the resolution of disputes through document submission, and the procedures for large complex construction disputes. These rules provide guidelines whenever there is a dispute particularly in the construction sector.
The best way to avoid intervention by the courts as much as possible is to employ institutional arbitration, which provides a framework that can establish an arbitral tribunal and activate the process despite any disagreements or problems that arise. Thus, the institution can appoint arbitrators, make decisions on disqualification, see to the smooth operation of the procedure and the meeting of deadlines, set arbitrator compensation (which is a very tricky undertaking when the parties deal directly with the arbitrator without going through an institution) and set parameters for the award, as required and in accordance with pre-established conditions.
Initially, the United States Code governed alternative dispute resolution processes. It was amended in 1998 to provide for some features due to the advent of time. The amendments allowed all districts to adopt the provisions of the Act under Section 2071 (a). The amendment also gave powers to neutral evaluation, ministerial, mediation, and arbitration as means of solving civil cases. This was provided under Section 654 to 658 (Clare, 2003). The Act provides for a new statutory payment regime, which introduces a right to interim or periodic payments and a final payment and requires an adequate mechanism in a contract for determining what will become due and when. Default provisions are provided for, which automatically apply in the event that no adequate mechanism is provided in the contract and requires the payee to give a ‘payment claim notice’ to the payer of what is to be paid and how it is calculated not later than five days after the payment date.
The payer may not reserve funds unless it has given a rejoinder (akin to a pay-less notification) to the payment request notice, stating the amount it intends to delay from the sum due and the reasons for doing so not later than 21 days after the repayment claim date as stipulated in the contract or the Schedule. Receivers may suspend enforcement when the sum due is not paid by the closing date for payment. Consequently, there is a prohibition on contractual terms that make payment subject upon the payer being reimbursed from a separate source (‘pay when paid clauses’). Persons to whom the Act touches will need to be cognizant of the truth that if the agreement does not provide for a sufficient mechanism for payment when the statutory default payment provisions will apply.
One goal of a ‘pay when paid’ clause usually used in the construction business was to exempt the contractor from liability to compensate the subcontractor until the employer had settled it. The outcome of this kind a contractual condition was to enable the contractor to pass the danger of default by the employer to its subcontractors further down the construction chain. The application of these clauses is now forbidden by section 3(5) of the Act. The only exception to this ban is in case that there is a related bankruptcy event in a construction contract. In cases where the employer is solvent, a ‘pay when paid’ clause in a contract between contractor and subcontractor will not permit the contractor to withhold payment from the subcontractor. While the legal validity of such terms may be questionable in practice, engineers and architects acting for employers have been required to observe them.
Suspension for Non-Payment
Persons not receiving payment in full now have a new statutory right to suspend work under the Act, provided proper notice and particulars are given. The provisions appear to entitle a payee to suspend performance of any or all of its contractual obligations related to the work. There are hopes that the right to suspend will be limited to the actual construction obligations or also, for example, extend to suspension of the right to insure the works or suspension of works in related areas connected with the payment in dispute. Partial payment will not suffice to render suspension unjustified. It will be important to make sure that any seven-day advance notice is clear and served in accordance with the Act’s requirements.
Works can be suspended, but only up until such time as where the payment dispute is referred to adjudication or where full payment has been made of the amount due. Much weight will have to be given to the fact that contracts may also need redrafting to allow payees to suspend in accordance with their entitlement under the Act. The Act expressly states that the period of suspension is to be disregarded for the purposes of contractual time limits. To ensure that the contract provisions and time for completion are not thwarted by the operation of the Act, a review of current contractual conditions is strongly advised.
For the first time, the Act has introduced a statutory settlement procedure for the settling of payment disputes. Both parties will be permitted to discuss a payment dispute under the agreement to a mediator, whose judgment is required within 28 days (which period may be extended by a further 14 days by agreement between the parties).14 This is not the case in the UK, alternative dispute resolution under this Act will only apply to a payment dispute. The Act does not exactly describe what institutes a payment dispute and it is well known that it is stated in the Act to be “any dispute relating to payment”. It will be motivating to see how this will function in practice and if guidance is given in the Code of Practice concerning payment disputes once the Code is published.
The Act specifies that the arbitrator’s award is obligatory until reversed by another formal process. The opposing parties are required to conform with the decision of the arbitrator, even if they plan to go to court or arbitration proceedings. This will aid in avoiding any deferral to payment. Certainly, the Act provides for a further right to suspend in situations where one party fails to honor (within seven days) any sum due pursuant to the decision of the adjudicator. The opposing parties in such legal proceedings by this means may remove any implied confidentiality or ‘without prejudice’ can depend upon the judgment of the intermediary protection as would say relate to the intermediation process. Definitely, this will have an impact on a verdict by a party on whether to refer the issue on to arbitration or to the courts, if it is likely that a court or arbitrator would be unwilling to obstruct the arbitrator’s judgment unless justified in the circumstances.
In fact, the Act specifically agrees the arbitrator to use his or her “ingenuity in determining the facts and the law”, if he or she so wishes. An arbitrator’s judgment will be requisite even if it is wrong and the Act explicitly provides that an arbitrator may not reconsider or re-open any characteristic of the decision. It is therefore significant to defend parties that settle on all important terms and conditions in your contracts clearly and in advance in order to reduce the potential for any payment dispute arising at the outset.
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The advantages and disadvantages of using alternative dispute resolution
The problems associated with court proceedings in civil cases are well documented. Lord Woolf, in his report, Access to Justice (1996), was highly critical of the then civil justice system.
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The problems associated with court proceedings in civil cases are well documented. Lord Woolf, in his report Access to Justice (1996), was highly critical of the civil justice system operating at the time. He took the view that civil court proceedings could be unequal, slow, expensive, uncertain and complicated.
To prosecute or defend proceedings in the civil courts can be very costly. There is the matter of court fees as well as solicitor’s fees and, in some cases, barrister’s fees. There can be a considerable amount of preparation work as the system focuses on the trial, and this may include the preparation of witness statements, expert evidence and reports and drafting complex claims and particulars of the claim.
Once legal proceedings have commenced the parties themselves are no longer in complete control of the action as others become involved. This can cause a delay. These delays can come from such matters as the need for detailed instructions from the client, communications between legal representatives and the availability of counsel to advise and draft legal documentation. Court staff and officials also need to action and process the appropriate paperwork.
The court proceedings are very formal. They involve precise written claims, supporting legal arguments. The same can be said for defences. There are pre-trial hearings and applications for directions with strict time limits. This makes it difficult for an unqualified person to follow and understand.
The system is adversarial in nature. This means that the parties are each represented by legal representatives whose sole interest is to advance their client’s case. It is about winning and not losing so there is very little incentive to co-operate.
Another problem of court proceedings is that they can be very complex. Both the High Court and County Court have their own sets of rules that have to be followed, otherwise the parties risk applications to strike out their case for non-compliance. The rules relating to costs allowed are difficult for lay people to understand. The timetables are applied strictly by judges. This can be illustrated by the case of Vinos v Marks and Spencer PLC (2000) where a claim was struck out by the court due to the late service of the claim (9 days).
Finally, it could be argued that the courts are not always fair in the way it treats litigants. To pursue a case to appeal for example would be very time consuming and expensive. Commercial litigants such as insurance companies and banks and building societies have considerable resources at their disposal and this may mean that they are able to take full advantage of an individual who may have problems in funding their case. Delay and expense are likely to operate against individuals and commercial litigants will know this.
There are a number of advantages to using one of the methods of alternative dispute resolution (ADR) and under the Civil Procedure Rules it is generally expected that the parties should have considered the use of ADR before commencing court proceedings. It is the duty of the court to consider, at every stage in proceedings, whether alternative dispute resolution is appropriate.
The advantages of ADR are:
Cheapness – The relative cheapness of ADR in comparison with the Courts is advantageous. Costs normally associated with court proceedings such as court fees, delays and having to follow complex court processes are not incurred with ADR.
Speed – The use of ADR is much quicker. In particular one of the quickest and cheapest methods of ADR is negotiation and this is because parties get round the negotiation table themselves to solve the dispute without the need for representatives.
Control – With ADR the parties retain control over the dispute and the way it is resolved rather than handing over control to the Courts. There is a saying with litigation in the courts to the effect that once started no matter how sure you are of the merits of your own case, there is no knowing when it will end.
Adversarial – Court proceedings are adversarial and about winning not losing, whereas ADR is about finding possible solutions to disputes. As the proceedings are in private it can be a damage limitation exercise and this can be important if the parties expect to do business with each other in the future. ADR can avoid bad feeling between the parties.
Privacy – Court proceedings are conducted in public. The press is admitted and it is possible for the case to be reported in the local or national newspapers. A clear advantage of ADR is that the methods used are private and again this may be an important factor if commercial reputations are at risk.
Expert Arbitrators – With court proceedings the Judge may be an expert in the area of law involved but is not likely to be an expert in building or civil engineering or whatever the subject of the dispute is about. The judge relies upon facts being presented to him or her following detailed and expensive trial preparation. Expert witnesses may well be necessary and this will inevitably contribute to the length of the trial and the overall cost. When expert arbitrators are used they do not rely upon expert evidence in the same way, this means that the proceedings are usually quicker and cheaper.
There are a number of disadvantages associated with ADR these are:
Willingness to compromise – The use of ADR is dependant upon the willingness of individuals to compromise and to this extent it is arguable that the parties are more likely to settle for less whereas once they have embarked upon court proceedings their expectations may be higher. It could be that one of the parties does not accept there is a problem and is not prepared to compromise.
Uncertainty – Although ADR is generally quicker and cheaper this is not always the case. Even negotiations can drag on and become lengthy and expensive with no certainty of a resolution of the dispute. At least with court proceedings there is usually certainty.
Complexity and Expense – Generally ADR is cheaper than using court proceedings but some formal arbitration hearings can still be complex and expensive depending on the subject matter of the dispute. There are professional and trained arbitrators and these can be expensive.
Making a statement – Because ADR is confidential they are unsuitable if one party wants to make a point and put out a clear warning or send out a message about the proceedings and their outcome.
Immediacy - ADR is not suitable where one party wants the other to stop instantly. This could be in the case of one party wanting to prevent another from selling goods which are of a similar design to something they are selling or in the case of harassment.
Time limits – It is worth remembering that if there is a time limit involved in a legal claim it may not be appropriate to use ADR. It does not put a stop to any legal time limit and may mean that, if unresolved, the time to make a legal claim has passed.
The courts now encourage the use of ADR as a result of the Woolf Reforms. Judges can stay proceedings to give parties the opportunity of exploring whether ADR might be of a possible benefit. In fact the Centre for Dispute Resolution has reported that there is a growing trend for Judges to stay proceedings. In 2000, 27% of disputes the Centre dealt with had been stayed. This compared to 19% in 1999 and only 8% in 1998.
The availability of ADR means that the use of these various methods can free up the courts for essential cases where ADR is inappropriate. The result being that the use of ADR has an impact upon vital resources and the effectiveness of civil courts. Many would argue that Lord Woolf should be commended for helping to identify the advantages of ADR and encouraging its greater use.
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Alternative dispute resolution: the court's ... - Ministry of Justice
The Civil Courts and other forms of dispute resolution - arcade games quiz
CEDR : Effective Dispute Resolution
This essay discusses the problems of bringing civil proceedings in the civil courts. The work of Lord Woolf is also mentioned. It talks of court proceedings being unequal, slow, expensive, uncertain and complex and gives practical examples of these problems.
The essay then goes on to identify the advantages of using ADR (Alternative Dispute Resolution): cheapness, speed, control, non-adversarial, privacy and the use of experts. The work gives practical examples of these advantages.
The essay identifies a number of disadvantages: willingness to compromise, uncertainty, complexity and expense and gives practical examples of what this might mean in individual cases.
Finally the essay talks about the increased use of ADR and the power of judges to stay proceedings whilst the use of ADR is explored.
The essay refers to the case of Vinos v Marks and Spencer PLC (2000).
Organisations such as the Centre for Dispute Resolution and their influence are also raised.
This is an important study area and potential examination area for the purposes of A/S Law.