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Alternative Dispute Resolution (" ADR" ) generally refers to any means of settling a dispute outside of a courtroom. Considerations when selecting an ADR method include the type of industry, transaction as well as the governing law set forth in the agreement which in turn may have a bearing preferred set of ADR rules and the enforceability of any settlement as the result of the ADR method utilized.

Generally, litigation is the least desirable method for settling a dispute since the process is adversarial and the outcome is perceived as " winner v. loser." Further, litigation does not support an efficient use of resources philosophy, since even suits considered minor in nature can tie up company resources in the production of documents, depositions of executives and senior management, in court testimony, etc., with the suit being unresolved for several months, if not years. Even when lawsuits are settled, settlement usually occurs only as the trial date approaches and after most of the costs have been incurred. Depending on the jurisdiction, rules of evidence and procedure, litigation can be a costly and complex process. Litigation between international trading partners can be even more complex as the parties argue over jurisdiction and venue issues.

According to a United States Justice Department study, approximately ninety-seven percent of all civil cases filed in state courts are settled or dismissed without a trial. (See http: //bjs. ojp.usdoj.gov/ content/pub/pdf/cbjtsc05.pdf.) The foregoing figure indicates that the vast majority of civil disputes are settled via methods other than litigation. Further, the trend toward " non-litigation" dispute resolution reflects the need for companies to familiarize themselves with the ADR forums available and select the appropriate forum language in their business agreements which offer the greatest advantage to the company in the event the " disputes" clause is invoked.

At an early stage in the business relationship, the parties are in the best position to consider the types of disputes that may arise, and how and where those disputes should be resolved. Inclusion of a disputes clause with a mutually agreed to ADR provision in a contract greatly enhances the likelihood that the parties will be able to resolve the dispute through means other than litigation.

ADR methods and the corresponding disputes contract clauses typically include negotiation, mediation, arbitration, and conciliation. To alleviate the backlog of court cases, many states have initiated ADR programs requiring " settlement conferences." Some of these programs are voluntary, while others are mandatory via state law. The most common forms of ADR methods are negotiation and/or mediation and/or arbitration.

Negotiation

Negotiation alone is the preferred method of settling a business dispute. Since the negotiation process is managed by the parties, the process is usually conducted in a manner that is both expeditious and cost effective. Further, since a settlement of the dispute is predicated upon the parties ' reaching a mutual understanding, much of the goodwill that has been developed during the course of the business relationship can be retained. Under a " multi-step" method of dispute resolution, negotiation is usually required as a precursor to either mediation/ arbitration or litigation. A summary of the advantages/disadvantages follows:

1. Advantages

a. Maintenance of the business relationship

b. Privacy of proceedings (some exceptions)

c. Most cost effective

d. Mutuality of settlement - parties most likely to adhere to negotiated settlement which reflects their interests.

2. Disadvantages

a. Non-binding prior to executed settlement

b. Requires application to courts to enforce

c. " Biased" interests in negotiation

d. Unequal bargaining strength

Mediation

Though more formal than negotiation, mediation is still an acceptable alternative to litigation. Mediation involves the interjection of an unbiased, knowledgeable third party (sometimes called a " neutral" ), to assist the parties in reaching a settlement. Mediators are individuals trained in negotiations who bring the opposing parties together and attempts to work out a settlement or agreement that both parties accept or reject. It is important to note that mediation does not prohibit either party from pursuing additional legal recourse if the mediation process does not result in a settlement. However, statistics support that mediation efforts are more successful than not. The Los Angeles Superior court system reports that 63% of cases ordered into mediation are resolved. Nationwide, the mediation success rate ranges between 60%-90%. (See Final Report of Colorado Governor's Task Force on Civil Justice Reform, Exhibit 7 at: http: //www.state.co.us/cjrtf/report/report.htm ). The main advantage of mediation is that it is a private process between the two parties and informal, while litigation is a formal process conducted in a public courtroom. The primary disadvantage of mediation is that it is non-binding and either party is free to pursue additional legal remedy, with the mediation becoming just another step to a lawsuit.

The following contains a brief summary of the advantages and disadvantages of mediation.

1. Advantages

a. Maintenance of the business relationship

b. Privacy (some exceptions)

c. Cost

d. Use of Specialists/experts in the field as " neutrals"

e. Allows for more " objective" investigation of facts and interests

f. Empathy towards the disputants (recognition)

g. Objective persuasion to obtain concessions

h. Invention of solution only when necessary- let the parties do it (empowerment)

2. Disadvantages

a. Non-binding decisions

b. Mediation discussions are not admissible to show negligence, but are admissible for other purposes (control, bias, etc.)

c. Delay to final resolution - may be mere formality prior to initiating litigation

d. Lack of enforcement of decision

Arbitration

Arbitration is a simplified version of a trial involving little or no discovery and simplified rules of evidence. There are two different types of arbitration: binding and non-binding arbitration. Binding arbitration means that the arbitrator's decision is final and not subject to judicial review or appeal. An arbitrator, unlike a judge in a court of law, is not bound by the rules of law when arbitrating a dispute. Even when the arbitrator agrees to follow applicable state law, an erroneous award, unlike an award of a court, cannot be corrected by any judicial review. The arbitrator's award is final and binding on all parties, unless: the parties have agreed the arbitrator's award is subject to " judicial review; " or the arbitrator applied the wrong law and in so doing exceeded his powers which had been limited to applicable law by the arbitration provision. Non-binding arbitration, as the name implies, means that the parties are not bound to the arbitrator's decision and are free to seek remedy in court if they so choose. Although court-ordered arbitration is stipulated in many jurisdictions, including California, agreements to arbitrate are usually made via private contract (for more information on California court-sponsored ADR forums go to http: www.lasuperiorcourt.org).

The following contains a brief summary of the advantages and disadvantages of arbitration.

1. Advantages

a. Privacy (some exceptions)

b. Cost

c. Expertise of the decision-maker (choose an expert)

d. Finality of Decision (generally, court-enforceable upon application)

e. Procedural Informality (usually)

f. Low cost (no discovery or appeal)

g. Speed

h. Ability to limit certain damages by agreement

2. Disadvantages

a. Usually binding, but arbitrators have no enforcement power.

b. May need to apply to courts for enforcement.

c. More costly than negotiation or mediation.

d. If unhappy with result, no opportunity for appeal.

Conciliation

Conciliation is an ADR process whereby the parties to a dispute use a conciliator, similar to a neutral, who meets with the parties separately in an attempt to resolve their differences. They do this by lowering tensions, improving communications, interpreting issues, providing technical assistance, exploring potential solutions and bringing about a negotiated settlement.

A conciliator assists each of the parties to independently develop a list of all of their objectives (the outcomes which they desire to obtain from the conciliation). The conciliator then has each of the parties separately prioritize their own list from most to least important. The conciliator then goes back and forth between the parties and encourages them to " give" on the objectives one at a time, starting with the least important and working toward the most important for each party in turn. The parties rarely place the same priorities on all objectives, and usually have some objectives that are not listed by the other party. Thus the conciliator can quickly build a string of successes and help the parties create an atmosphere of trust which the conciliator can continue to develop.

Most successful conciliators are highly skilled negotiators. Some conciliators operate under the auspices of any one of several non-governmental entities, and for governmental agencies such as the Federal Mediation and Conciliation Service in the United States.

Conciliation differs from arbitration in that the conciliation process, in and of itself, has no legal standing, and the conciliator usually has no authority to seek evidence or call witnesses, usually writes no decision, and makes no award.

Conciliation differs from mediation in that the main goal is to conciliate, most of the time by seeking concessions from both sides. In mediation, the mediator tries to guide the discussion in a way that optimizes parties’ needs, takes feelings into account and reframes representations.

In conciliation the parties seldom, if ever, actually face each other across the table in the presence of the conciliator.

1. Advantages

a. Reduced tension by parties meeting separately

b. Objective-based – isolates the true needs of each party

c. Encourages " give-and-take" by both parties to reach a compromise solution

d. If the parties are not satisfied with process, they are free to pursue other remedies

2. Disadvantages

a. Lack of legal standing - no discovery, calling of witnesses, or supplying a law-based decision

b. Requires both parties to make concessions in order to reach a settlement

c. Possibility of litigation occurring if the conciliation fails

d. Time – may be little more than an extra step in the litigation process

 

2. Complete the sentences according to the text:

1) Alternative Dispute Resolution (" ADR" ) generally refers to ……..

2) Generally, litigation is the least desirable method for settling a dispute since ….

3) Inclusion of a disputes clause with a mutually agreed to ADR provision in a contract greatly enhances the likelihood that ……

4) Since the negotiation process is managed by the parties, the process is usually conducted in a manner that is both expeditious and cost effective…….

5) Mediators are individuals trained in negotiations who….

6) Binding arbitration means that….

7) Non-binding arbitration, as the name implies, means that ….

8) Conciliation differs from mediation in that…..

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