ALTERNATIVE DISPUTE RESOLUTION and ARBITRATION

MECHANISM OF DISPUTES RESOLUTION

(a) Litigation – Take a dispute or a claim to a Court of law

Advantages:
 Decision is binding
 Well structured
 Set of procedures to be followed
 Formal
 Not Confidential

Disadvantage:
Time and delay may be costly

(b) Alternative Dispute Resolution

 Not based on the adversarial approach.
 While parties to a dispute may want to carry on business after they have resolved
their dispute, they may prefer a less formal and non-adversarial mechanism

ALTERNATIVE DISPUTE RESOLUTION (ADR)

Recently some courts and law firms have started to put more emphasis on alternative methods to
resolve disputes. The wide variety of alternative dispute resolution mechanisms are collectively
referred to as ADR. There are many potential advantages to ADR including reduced costs, faster
resolutions, less emotional stress, the ability to construct solutions that are outside of the courts'
authority and, in some cases, the opportunity to preserve personal or business relationships that
might be shattered by a trial.

ADR occurs in many different contexts and encompasses various specific methods. ADR may be
mandated as the settlement option in a written contract — construction contracts and securities
brokers' agreements. ADR can be agreed to by the parties or ordered by the court. Party-initiated
ADR can happen at any time and can use any method and procedure the parties find helpful.

ADR methods include negotiation, Mediation/Conciliation, arbitration and a number of other

creative procedures designed to facilitate a fair and reasonable settlement.

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NEGOTIATION

Negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of

action, to bargain for individual or collective advantage. It is the primary method of alternative
dispute resolution.
Negotiation occurs in business, non-profit organizations, government branches, legal
proceedings, among nations and in personal situations such as marriage, divorce, parenting, and
everyday life. Those who work in negotiation professionally are called negotiators.

Straightforward negotiations between the parties or their advisors are always the most obvious
but not the easiest way of reaching a consensus and to compromise the controversy. Negotiation
is the most flexible, informal and party-directed method; it is the closest to the parties’
circumstances and control, and can be geared to each party’s own concerns. Parties choose
location, timing, agenda, subject matter and participants.

Negotiation should normally be the first approach at resolution of any dispute. However,
negotiations may fail because of previous poor relations, intransigent positions of the parties,
neither party being prepared to “lose face” and the fact that a party cannot be pressured against
its wishes from adopting an unreasonable position.

The following conditions make success in negotiations more likely.

 
Identifiable parties who are willing to participate. The people or groups who have a
stake in the outcome must be identifiable and willing to sit down at the bargaining table
if productive negotiations are to occur. If a critical party is either absent or is not willing
to commit to good faith bargaining, the potential for agreement will decline.
 
Interdependence. For productive negotiations to occur, the participants must be
dependent upon each other to have their needs met or interests satisfied. The
participants need either each other's assistance or restraint from negative action for
their interests to be satisfied. If one party can get his/her needs met without the
cooperation of the other, there will be little impetus to negotiate.
 
Readiness to negotiate. People must be ready to negotiate for dialogue to begin.
When participants are not psychologically prepared to talk with the other parties, when
adequate information is not available, or when a negotiation strategy has not been
prepared, people may be reluctant to begin the process.
 
Means of influence or leverage. For people to reach an agreement over issues about
which they disagree, they must have some means to influence the attitudes and/or
behaviour of other negotiators. Often influence is seen as the power to threaten or
inflict pain or undesirable costs, but this is only one way to encourage another to
change. Asking thought-provoking questions, providing needed information, seeking
the advice of experts, appealing to influential associates of a party, exercising
legitimate authority or providing rewards are all means of exerting influence in
negotiations.
 
Agreement on some issues and interests. People must be able to agree upon some
common issues and interests for progress to be made in negotiations. Generally,

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participants will have some issues and interests in common and others that are of
concern to only one party. The number and importance of the common issues and
interests influence whether negotiations occur and whether they terminate in
agreement. Parties must have enough issues and interests in common to commit
themselves to a joint decision-making process.
 
Will to settle. For negotiations to succeed, participants have to want to settle. If
continuing a conflict is more important than settlement, then negotiations are doomed
to failure. Often parties want to keep conflicts going to preserve a relationship (a
negative one may be better than no relationship at all), to mobilize public opinion or
support in their favor, or because the conflict relationship gives meaning to their life.
These factors promote continued division and work against settlement. The negative
consequences of not settling must be more significant and greater than those of
settling for an agreement to be reached.
 
Unpredictability of outcome. People negotiate because they need something from
another person. They also negotiate because the outcome of not negotiating is
unpredictable. For example: If, by going to court, a person has a 50/50 chance of
winning, s/he may decide to negotiate rather than take the risk of losing as a result of a
judicial decision. Negotiation is more predictable than court because if negotiation is
successful, the party will at least win something. Chances for a decisive and one-sided
victory need to be unpredictable for parties to enter into negotiations.
 
A sense of urgency and deadline. Negotiations generally occur when there is
pressure or it is urgent to reach a decision. Urgency may be imposed by either
external or internal time constraints or by potential negative or positive consequences
to a negotiation outcome. External constraints include: court dates, imminent executive
or administrative decisions, or predictable changes in the environment. Internal
constraints may be artificial deadlines selected by a negotiator to enhance the
motivation of another to settle. For negotiations to be successful, the participants must
jointly feel a sense of urgency and be aware that they are vulnerable to adverse action
or loss of benefits if a timely decision is not reached. If procras- tination is
advantageous to one side, negotiations are less likely to occur, and, if they do, there is
less impetus to settle.
 
No major psychological barriers to settlement. Strong expressed or unexpressed
feelings about another party can sharply affect a person's psychological readiness to
bargain. Psychological barriers to settlement must be lowered if successful
negotiations are to occur.
 
Issues must be negotiable. For successful negotiation to occur, negotiators must
believe that there are acceptable settlement options that are possible as a result of
participation in the process. If it appears that negotiations will have only win/lose
settlement possibilities and that a party's needs will not be met as a result of
participation, parties will be reluctant to enter into dialogue.
 
The people must have the authority to decide. For a successful outcome,
participants must have the authority to make a decision. If they do not have a
legitimate and recognized right to decide, or if a clear ratification process has not been
established, negotiations will be limited to an information exchange between the
parties. A willingness to compromise. Not all negotiations require compromise. On

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 occasion, an agreement can be reached which meets all the participants' needs and
does not require a sacrifice on any party's part. However, in other disputes,
compromise--willingness to have less than 100 percent of needs or interests satisfied--
may be necessary for the parties to reach a satisfactory conclusion. Where the
physical division of assets, strong values or principles preclude compromise,
negotiations are not possible.
 
The agreement must be reasonable and implementable. Some settlements may be
substantively acceptable but may be impossible to implement. Participants in
negotiations must be able to establish a realistic and workable plan to carry out their
agreement if the final settlement is to be acceptable and hold over time.
 
External factors favorable to settlement. Often factors external to negotiations
inhibit or encourage settlement. Views of associates or friends, the political climate of
public opinion or economic conditions may foster agreement or continued turmoil.
Some external conditions can be managed by negotiators while others cannot.
Favorable external conditions for settlement should be developed whenever possible.
 
Resources to negotiate. Participants in negotiations must have the interpersonal
skills necessary for bargaining and, where appropriate, the money and time to engage
fully in dialogue procedures. Inadequate or unequal resources may block the initiation
of negotiations or hinder settlement.
 
 
WHY PARTIES CHOOSE TO NEGOTIATE
The list of reasons for choosing to negotiate is long. Some of the most common reasons are
to:
 
• Gain recognition of either issues or parties;
 
• Test the strength of other parties;
 
• Obtain information about issues, interests and positions of other parties;
 
• Educate all sides about a particular view of an issue or concern;
 
• Ventilate emotions about issues or people;
 
• Change perceptions;
 
• Mobilize public support;
 
• Buy time;
 
• Bring about a desired change in a relationship;
 
• Develop new procedures for handling problems;
 
• Make substantive gains;
 
• Solve a problem.

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MEDIATION/CONCILIATION

This is a process in which a neutral third person, called a mediator, acts to encourage and to
assist in the resolution of a dispute between two (2) or more parties. This is an informal and non-
adversarial process. The objective is to help the disputing parties reach a mutually acceptable
agreement between or among themselves on all or any part of the issues in dispute. Decision-
making authority rests with the parties, not the mediator. The mediator assists the parties in
identifying issues, fostering joint problem-solving, exploring settlement alternatives, and in other
ways consistent with these activities.

Mediation is a process whereby a mediator i.e a neutral third party, works with the parties to
resolve their dispute by agreement, rather than imposing a solution. It is sometimes known as
conciliation. Because of the slightly different methods applied in mediation and conciliation, they
were perceived as different processes. Consequently mediation sometimes refers to a method
where a mediator has a more proactive role (evaluative) and conciliation refers to a method where
a conciliator has a more facilitating mediator role (facilitative)

The mediator is usually taken to be a person accepted by the parties whose role is to reach an
agreed settlement. He will see each party privately and listen to their respective arguments. He
will make sure that each party understands the other’s point of view. He will also bring the parties
together in order they may themselves reach a compromise solution.

A conciliator performs a different function. He will himself draw up and propose the terms of an
agreement designed to represent what is, in his view, a fair compromise of a dispute, after having
discussed the case with the parties.

The usual pattern for conciliation is for the conciliator to ask the parties to the dispute if they are
prepared to try to reach an amicable settlement. If yes, the conciliator will then hold a meeting
with the parties after having studied the relevant documents.

Before drawing the proposed settlement agreement, it is appropriate for the conciliator to ensure
that each party has had an opportunity to rebut the evidence and submissions made by the other
party.

Mediation can be more effective than simple negotiations. This is because the mediator works
with the parties to effect a compromise, either by suggesting grounds of agreement or forcing
them to recognize weaknesses in their cases. The mediator may, if required, evaluate the merits
of the parties’ cases in a non-binding manner. However, the mediator cannot make a binding
adjudicatory decision. The parties can obtain any remedy they wish; the only limits are on what
they can agree. This differs from the position of litigation and arbitration where the court or tribunal
is limited to remedies available at law.

A mediator cannot compel the parties to reach an agreement and a conciliator has no power to
impose his award on the parties.

When mediation is successful and an agreement is reached, it is written down and forms a legally
binding contract unless the parties state otherwise.

The role of the mediator is to assist in identifying the issues, reducing misunderstanding, clarifying
priorities, exploring areas of compromise, and finding points of agreement as well as legitimate

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points of disagreement. Any agreement reached by the parties is to be based on the autonomous
decisions of the parties and not the decisions of the mediator. It is anticipated that an agreement
may not resolve all of the disputed issues, but the process can reduce points of contention.
Parties and their representatives are required to mediate in good faith, but are not compelled to
reach an agreement.

Parties may try negotiation, mediation or conciliation first and then if this fails, they may resort to
arbitration.

ARBITRATION AS A DISPUTE SETTLEMENT MECHANISM

Arbitration is a process in which a neutral third person or a panel, called an arbitrator or an

arbitration panel, considers the facts and arguments which are presented by the parties and
renders a decision. The decision may be binding or nonbinding as provided in these rules.

Definitions of Arbitration

Read and contrast the various definitions.

Shorter Oxford English Dictionary

‘an uncontrolled decision; the settlement of a question at issue by one to whom the parties agree
to refer their claims in order to obtain an equitable decision.’

Words and Phrases Judicially Defined

‘the reference of a dispute or difference between not less than two parties for determination, after
hearing both sides in a judicial manner, by a person or persons other than a court of competent
jurisdiction.’

Domke ‘Commercial Arbitration’

‘a process by which parties voluntarily refer their disputes to an impartial third person, an
arbitrator, selected by them for a decision based on evidence and arguments to be presented
before the arbitration tribunal. The parties agree in advance that the arbitrator’s determination, the
award, will be accepted as final and binding upon them.

Halsbury’s Laws of England

‘the process by which a dispute or difference between two or more parties as to their mutual legal
rights and liabilities is referred to and determined judicially and with binding effect by the
application of law by one or more persons (the arbitral tribunal) instead of by a court of law.’

Lew, Mistelis and Kröll

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International arbitration is a specially established mechanism for the final and binding
determination of disputes, concerning a contractual or other relationship with an international
element, by independent arbitrators, in accordance with procedures and structures and
substantive legal or non-legal standards chosen directly or indirectly by the parties

What is clear from the definitions above is that there are four fundamental features of arbitration. It
is:
 for the final and binding determination of disputes
 a contractual or other relationship with an international element
 independent arbitrators
 in accordance with procedures and structures and substantive legal or non-legal standards
 chosen directly or indirectly by the parties

There are four fundamental features of arbitration

1. an alternative to national court

- The most obvious fora for all disputes are national courts. It provide a
dispute settlement service for parties
- it is a manifestation of state power and responsibility of the state to ensure
that court exist.
- Arbitration is not a national court procedure. When parties agree to
arbitration they remove their relationship and disputes from the jurisdiction
of national courts. In reality parties regularly agree to arbitration instead of
the courts.
2. a private mechanism for dispute resolution
- Just as national court is public, arbitration is private and so is the arbitration
agreement.
- When a dispute arises it is to be resolved in the private dispute resolution
system agreed between the parties subject to certain safeguards.
- The intention is for the arbitrator to determine the dispute, entitlements and
obligation of the parties in respect of the issue raised.
3. selected and controlled by the parties
- The parties have ultimate control of their dispute resolution system
determine the form, structure, system and other details of the arbitration.
- National arbitration law seeks only to give effect to supplement and support
the agreement of the parties for their dispute s to be resolved by arbitration.
- Only where the parties are silent as to some aspect of the arbitration
process will national laws impose their provisions.
4. a final and binding determination of parties’ rights and obligation
- as the chosen alternative to a national court, the decision of the parties for
arbitrators to resolve the dispute, not only will arbitration be the form of
dispute settlement, but also that they will accept and give effect to the
arbitration award.

Arbitration compared with National Courts.

National courts have or perceived to have an inherent national prejudice. Judges are
drawn from the nationality. They do not necessarily have the knowledge or ability to

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handle disputes arising.

1. from international business transactions

2. Between parties from different countries.

The procedure followed in national courts is in accordance with the laws set down by the
state. National courts are generally open to the public.
A principle factor differentiating a national court from an arbitration tribunal is the rigidity of
national court procedure.
The form, structure and procedure of every arbitration is different and will vary according
to the characteristics of the case.

The main points of comparison between arbitration and national courts are:

 Flexible procedure. With parties of different origins, with arbitration from various
jurisdictions being conducted under different legal system and rules, there can be
no rigid arbitration procedure.
 A special procedure is needed for each arbitration. This can be fixed by the
parties and arbitrators to meet the characteristics of each case.
 Suitability for international transaction. the neutrality and independence of the
arbitration is a real attraction for the parties for international arbitration. As parties
are drawn from jurisdictions across the world, arbitration provides a forum in which
all of these interests can be protected and respected, whilst determining the most
appropriate way to resolve the dispute between the parties.
 Final and binding. As a general rule the decision of arbitrators are to be final and
binding. Limited grounds where awards can be appealed to courts on the basis
arbitrator conclusion was wrong.
Decision can be challenged & set aside
1. where arbitrator has exceeded the jurisdictional authority in the arbitration
agreement
2. or have committed some serious breach of natural justice.

 Easy enforcement. Both domestic and international arbitration awards should be

easily enforceable. A domestic award can be enforced in the same way as a
national court judgment.

 Neutrality. An arbitration tribunal is though to be neutral. It can be established with

its seat in a country with which neither party has any connection.
 Expert arbitrators. Parties having disputes with particular characteristic are able
to select arbitrators with expert knowledge, which will increased confidence in the
arbitration process.
 Confidentiality. Due to the private nature of arbitration, many consider that
arbitration is also a confidential process.
 Expedition. It is assumed that arbitration should be quicker than national court. In
theory this is so. Due to party autonomy, as arbitrators can be selected there is no

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 backlog of cases. If parties can present their cases to the arbitrator at very short
period the whole matter can be resolved with great expedition.
 Costs. In principle arbitration is less expensive than national court. But in practice
this is not always so.

What does not constitute arbitration.

 Arbitration is not :
(1) A national court procedure
(2) an expert determination
(3) a mediation
(4) any of the alternative dispute systems
.
 Other ADR. There are two forms of dispute resolution
- one which imposes a decision and determines issues definitively e.g. expert
determination or arbitration
- the other provides the basis to help the parties reach an agreed solution or
settlement. i.e. negotiation, mediation/Conciliation, neutral listener, early
neutral, and expert evaluation.

OTHER METHODS OF ALTERNATIVE DISPUTE RESOLUTION

Mini-Trials. A mini-trial is a settlement process in which each side presents a highly

abbreviated summary of its case to senior officials who are authorized to
settle the case. A neutral advisor may preside over the proceeding and give
advisory opinions or rulings if invited to do so. Following the presentation,
the officials seek a negotiated settlement of the dispute.

Summary Jury Trials. This is an abbreviated trial with a jury in which the litigants present
their evidence in an expedited fashion. The litigants and the jury are
guided by a neutral who acts as a presiding official who sits as if a
judge. After an advisory verdict from the jury, the presiding official
may assist the litigants in a negotiated settlement of their
controversy.

Private Judges. This is a process in which litigants employ a private judge, who is a
former judge, to resolve a pending lawsuit. The parties are
responsible for all expenses involved in these matters, and they
may agree upon their allocation.