Alternative dispute resolution (ADR; known in some countries, such as India, as external dispute resolution) includes dispute resolutionprocesses and techniques that act as a means for disagreeing parties to come to an agreement short of litigation. It is a collective term for the ways that parties can settle disputes, with the help of a third party.
Despite historic resistance to ADR by many popular parties and their advocates, ADR has gained widespread acceptance among both the general public and the legal profession in recent years. In fact, some courts now require some parties to resort to ADR of some type, usually mediation, before permitting the parties’ cases to be tried (indeed the European Mediation Directive (2008) expressly contemplates so-called “compulsory” mediation; this means that attendance is compulsory, not that settlement must be reached through mediation). Additionally, parties to merger and acquisition transactions are increasingly turning to ADR to resolve post-acquisition disputes.
The rising popularity of ADR can be explained by the increasing caseload of traditional courts, the perception that ADR imposes fewer costs than litigation, a preference for confidentiality, and the desire of some parties to have greater control over the selection of the individual or individuals who will decide their dispute.Some of the senior judiciary in certain jurisdictions (of which England and Wales is one) are strongly in favour of this (ADR) use of mediation to settle disputes.
Alternative Dispute Resolution (ADR) has several definitions. According to Gramberge (2001:pp. 3-5), it is defined as structured informal negotiation processes with the aid of an independent third party. Grace (2002) further defines it as all forms of conflict resolution apart from litigation; dispute resolution processes that leave the form and settlement. In simple terms as put across by Buchanan (2000: p. 16), it refers to other mechanisms of solving conflicts outside the courts environment.
Ireland is a country which took a significant step in May 1998 to attract international commercial arbitration with the enforcement of the Arbitration International Act of 1998.Prior to the inception of the International arbitration Act, Ireland’s arbitration system was governed by the 1954- 1980 Arbitration Acts which were similar to the English Legislation before the 1996 Arbitration Act in its jurisdiction (Bloomfield, 1998: pp. 79-85). Despite these Acts serving adequately domestic arbitration, they were largely inappropriate for international commercial arbitration as they did not take into account the vastly growing vibrant economy of Ireland especially in financial services as well as computers. Ireland is also located in Europe and is well known for international neutrality thus not affected by the stigma of colonial powers. With these, coupled with a favorable judicial system, a superior network of contemporary arbitration laws and conventions, and a strong presence of major arbitration institutions, Ireland is destined to become a unique venue for international arbitration (Bloomfield, 1998: p.82).
Advantages and disadvantages of Litigation in Resolving Commercial Disputes
Litigation refers to filing a lawsuit which is a civil action brought to a court of law where the plaintiff seeks equal remedy for actions committed by the defendant. Judgment may be passed where the plaintiff proves beyond reasonable doubt that the defendant committed the offence. As Krisberg (1999) reiterates, the court orders issued arising from the judgment include; awarding damages, imposing n injunction to prevent or compel an act, or enforce a right. Consequentially, judgment which is declaratory may be issued to prevent future legal disputes. Where contractual dealings are involved, litigation is initiated by a contracting party who alleges that the other party breached the agreement.
Litigation despite providing justice where disputes are concerned still has its demerits which include; it is an expensive undertaking. Before court proceedings take off, several expenses have to be settled such as court fees as well as advocate or lawyer fees. In addition, it is time consuming as dates on appearance have to be set, the defendant has to be served by the plaintiff (Reichert, 2000). Procedural fairness is also lengthy. Individuals involved in the commercial industry consider time a great asset and the loss of it as a result of lengthy judicial proceedings my result in irreversible set backs further influencing the profit margins of institutions and companies.
It is also prone to favoritism in cases where a local party is concerned. Judgment may therefore be skewed. Furthermore, rudimentary procedural systems resulting from incompetence may affect the result of a court case as they may not ensure just results (Burton, 1999).
Another drawback of litigation can be obtained from the nature of jurisdiction of a particular court. If a court lacks jurisdiction over one of the parties, its judgment may be worthless. This may occur in situations where one of the individuals is immuned such as diplomatic individuals or the court’s geographic boundary is limited thus a party located in or flees to another country may affect the worthiness of a judgment (Buchanan, 2000).
Privacy and confidentiality are aspects held in high esteem in commercial undertakings. William (1996: 55) echoes that these aspects provide a remedy of conserving business relationships as network marketing is a common practice in this industry. The effects of publicity of court cases affect the market dynamics of business entities. Litigation to a large extent forsakes the need for privacy and confidentiality which may affect the continuity of certain businesses.
Litigation lacks flexibility in its approach. Flexibility of the time format for example, is less considered. This may be affected by the nature of court working hours. Court proceedings are set within this time frame which may be difficult for parties involved in the cases subjected to the court. Parties have a more active role as they contribute to the opinions of their cases freely where alternative dispute resolution is concerned as opposed to litigation where litigants feel alienated in the participatory process (Bwanika, 2004).
Judges are experienced and skilled in various issues however they may lack decision making expertise in particular subject matters of certain fields. Their decisions may therefore fail to address core issues resulting in lack of satisfaction from the parties involved.
In spite of the above limitations litigation is advantageous in solving commercial disputes, its merits include;
It may provide legal precedence where none existed (Folberg, 1997). Legal precedence helps to ease the workload of future court cases and therefore cuts down on overall expenses involved. It may also yield a more predictable outcome as compared to Alternative Dispute Resolution. Furthermore, it allows for appeal where one is not satisfied with the judgment passed.
Enforceability of the judgment is one attribute of litigation. It provides an opportunity for one to redeem their previous status and therefore faces out unfairness in the sense that one does not continue to gain inappropriately over others. The implementation of the final judgment is taken seriously (Folberg, 1997 p. 28).
It ensures that the due process is adhered to hence providing procedural safeguards such as cross examination. This ensures a fair judgment as it protects individuals from hearsay which may affect the results of the judgment.
Consistency in its application is ensured as decisions are based on principles of the law that have been formerly validated. Precedence is one aspect of these norms and follows consistency on similar cases. This also builds up on the authoritative nature of litigation.
In order to ensure competence which is essential in building the confidence of clients, litigation provides structured public procedures for judges and other court staff to ensure that they are qualified in their relevant fields. This is because they affect the ultimate decisions made (Grace, 2002).
Litigation provides for options ranging from restraining orders, injunction to retributive justice. These options consider situations like patent rights as they protect individual inventions. Such options are necessary and are not available in Alternative Dispute Resolution mechanisms such as mediation (Krisberg, 1999).
Types of ADR mechanisms which may be used by corporations to avoid litigation
Litigation is an option by institutions to address certain conflicts related to corporations. It is however not the only option available for application. Several other mechanisms exist that can be used as alternatives to litigation by corporations.
The first of these to be discussed is mediation. Mediation is a form of Alternative Dispute Resolution that has been in existence for a while (Folberg, 1997: p.50). It is used by one or more than one party to reach an agreement. The parties have an opportunity to determine conditions of settlements reached. Mediation takes into consideration multiparty involvement in order to at concrete solutions to their disputes. A mediator chosen by both parties utilizes appropriate skills to initiate dialogue between and among disputants. He/ she is considered neutral. A third party is included to help settle a contract or agreement. It is a less costly and less expensive undertaking as compared to litigation. It ensures confidentiality as it is private while litigation is mostly public. It therefore preserves ongoing relationships. It is also more flexible in participation and the resolution made is satisfactory to both parties.
As compared to negotiation, mediation is a mutual endeavor and brings out the picture that the parties involved are ready to shift from their previously withheld positions (Burton, 1999).
Arbitration is another alternative in resolving disputes out of court. In this settlement an arbitrator or arbitral tribunal reviews the case at hand and makes decisions which are bound by the parties involved (Grace, 2002). It is similar to litigation where the decision is made by a third party. Arbitration may be legally binding or non-binding. In non binding, the scenario is similar to mediation. However, the arbitrator’s function is to only make a decision and does not take part in helping parties find a common ground. It takes into consideration the importance of expertise and therefore competent personnel are put on board to make a final decision. Just like mediation, it is faster, cheaper, confidential and less costly. They are also flexible thus easier to enforce in other countries hence as their jurisdiction is less limited. It also provides room for binding decisions hence relinquishes the need to access courts.
Its demerits are that there is no right of appeal thus erroneous decisions cannot be easily overturned. The awards of arbitration are not directly enforceable hence the need to seek judicial remedies for enforcement to take place which is known as an ‘action to confirm an award’. This leads to extra expenses that may negate the perceived notion that arbitration is less costly
From Bloomfield’s (1998) perspective, another mechanism employed is negotiation which mainly concentrates on the application of dialogue to resolve disputes. Professional negotiators are involved in the negotiating process. Trained negotiators utilize a variety of tactics to argue out their case. This can be compared with the advocate’s role in a court of law.
The role of commercial courts and their promotion of the use of ADR Mechanisms
In essence, both courts and Alternative Dispute Resolution mechanisms cannot exist singly in their approaches for favorable solutions to be obtained. The demerits of one are the strengths of the other. Governments have a duty to promote trade and investment, to tackle setbacks – real or perceived – which limit businesses and citizen’s opportunities. One of the main hindrances to trade and investment is lack of mechanisms to deal promptly and affordably with commercial disputes. This is backed up by William (1996). Disputes are intrinsic in trade and business dealings. Companies will be reluctant to engage in commercial relations in a foreign nation if they are not convinced that there is a suitable way of solving them.
Generally, ADR has three main advantages; they are speedy and less costly, they offer creative solutions as are not entirely bound by judicial preferences and are less confrontational thus build on long-term working solutions. Judicial proceedings on the other hand provide binding solutions and institute the application of precedence, an essential component in addressing similar disputes (Buchanan, 2000).
In order to merge the two, legal frameworks need to be developed for Alternative Dispute Resolution mechanisms. The creation of soft law by the European Union and United Nations Commission on International Trade Law is a stepping stone towards achieving this goal. The Commission consulted largely on this issue before adopting a proposal for a directive on certain aspects of mediation in civil and commercial related matters (Gramberge, 2001). Following the consultation, it was resolved that legislation should be restricted to ensuring a favorable relationship between mediation and judicial proceedings. On the other hand, a self regulatory instrument, the European code for mediators, was initiated as the best approach to set standards for the mediation process and the appointment and accreditation of mediators.
In Thailand, conciliation (mediation) is practiced by courts of justice successfully. This departs the country from its traditional passive role of a judge in an adversary system to that of a more active judge in the inquisitorial system. The end result of both litigation and ADRs is to ensure an effective enforcement of the judgment or ward.
Court -annexed arbitration seeks to provide solutions where parties fail to include an arbitration clause in the contract resulting further in a civil action. This is seen as a means of involving a judge in case management (Burton, 1999).
The utilization of both litigation and ADRs ensures the liberal use of rules of courts to facilitate efficiency; exclusive jurisdiction in the enforcement of arbitral awards in international matters, appointment of expert witnesses (Krisberg, 1999).
The implementation of integrated systems of ADRs and judicial proceedings should be geared towards supplementing rather than supplanting. This involves mainstreaming both institutions and organizations to foresee the provision of service delivery (Reichert, 2000).
Alternative Dispute Resolution mechanisms should be institutionalized in constitutions and laws of countries for easy enforcement. This ensures that proper machineries are put in place for the application of these mechanisms.
The commercial industry is one sector that is highly influenced by globalization mostly information and communication technology. It is therefore better placed to provide appropriate techniques in conflict resolution that embrace the use of technology to fasten the process hence reduce on time spent. Bureaucracies involved in conflict resolution can also be adequately tackled with the implementation of these techniques (Grace, 2002).
Alternative Dispute Resolution mechanisms lack full autonomy and are partly influenced by judicial proceedings where legally binding agreements are concerned. This autonomy should be adequately addressed to promote their application as well as gain confidence among those who choose to adapt it.
Most projects based on the use of both judicial and Alternative Dispute Resolution mechanisms are of pilot nature. These should be encouraged in more countries and integrated with customary judiciary systems in nations whose customary laws that promote Alternative Dispute Resolutions are already inculcated in their judicial systems (Folberg, 1997).
One major setback crippling the fundamental initialization of these mechanisms is lack of competent personnel. Focus should therefore be equally placed on training personnel to be well versed in these systems hence ease the workload and ensure adequate service delivery.
In conclusion, Alternative Dispute Resolution and litigation are fundamental conflict resolution mechanisms in commercial law. For best results to be achieved, they cannot exist in isolation but require mutual dependence in vast scenarios from developing business constitutions to international marketing. This paper has therefore shed a light on the need to ensure the development of Alternative Dispute Resolution mechanisms and their impact on the sustainability of business entities as well as variations to their applications.