United States
In your jurisdiction, are there any formal ADR procedures available for resolving commercial disputes other than litigating (or arbitrating) to a final hearing?
Parties invariably informally negotiate to some degree at the outset of a dispute either as an alternative to, or at the same time as, litigation or arbitration. However, there are also a number of more formal types of ADR which are common-place in United States across all types of commercial disputes. The main types of ADR in the United States are mediation, expert opinion, expert determination, early neutral evaluation, collaborative law, mini-trial and neutral fact finding.
Mediation is a voluntary, non-binding, private process in which a trained independent person helps the parties to try to reach their own negotiated settlement. This is the most common method of ADR in United States and has a high success rate. Mediation can take two forms: (1) facilitative mediation — in which the mediator simply facilitates discussions between or among the parties and does not provide any form of evaluation of the merits of their respective positions; and (2) evaluative mediation — in which the mediator provides the parties, either individually or jointly, with early neutral evaluation (see below), such as his/her views as to the strengths and weaknesses of their respective positions, in conjunction with the mediator’s efforts to help the parties fashion an amicable resolution to their controversy.
With expert opinion, an expert will answer a series of questions which represent the areas of dispute between the parties. This non-binding process gives both parties a better understanding of the strength of their respective arguments, and is usually persuasive in influencing the resolution of the dispute without recourse to a hearing.
Expert determination involves the appointment of an expert in the subject matter of the dispute to make a decision which the parties agree beforehand to accept as binding. It is usually adopted for specific technical issues. Although generally classified as a form of ADR, this is significantly different from the other methods, most importantly in that the outcome of the process is generally binding on the parties and non-appealable.
Early neutral evaluation involves a non-binding preliminary assessment of fact, evidence or legal merits by one or more independent professionals, often retired judges.
Collaborative law is the process whereby each party has an attorney who facilitates the resolution process within specifically contracted terms. The parties reach an agreement with the support of the attorneys (who are trained in the process) and mutually agreed experts. No one imposes a resolution on the parties.
In the neutral fact-finding process, a neutral third party, selected either by the disputing parties or by the court, investigates an issue and reports or testifies in court. The neutral fact-finding process is particularly useful for resolving complex scientific and factual disputes.
Mini-trial is a procedure where the parties make abbreviated presentations to a neutral third party who sits with the parties’ designated principal representatives as a mini-trial panel to hear and evaluate evidence relating to an issue in controversy. The neutral may thereafter meet with the principal representatives to attempt to mediate a settlement. The mini-trial process may also be a prelude to the neutral’s issuance of either a formal written non-binding advisory opinion or to the neutral’s rendering of a binding arbitration award.
Does engaging in ADR have any effect on potential or existing litigation or arbitration?
Depending on the type of ADR you engage in, there may be some findings or outcomes to which a court or arbitrator will give deference. However, most ADR processes do not result in binding final decisions. Mediation, for example, is mutually agreed to, and there may be some contractual liability for departures from a mediated resolution. But a court would not hold a mediated settlement to be binding in most circumstances. With respect to procedure, engaging in ADR does not necessarily stop time running for the purpose of limitation of actions, nor does it impose an automatic stay on any proceedings or arbitration already commenced, although this can simultaneously be achieved by other means. But recently, some States have enacted statutes or delivered opinions which indicate a preference for stopping the clock while ADR processes are under way. Generally, the right to litigate or arbitrate is not directly affected by engaging in ADR processes. Unless the parties have agreed they will try an ADR process before issuing proceedings, litigation or arbitration can be commenced or continued whilst ADR is pursued and will be available if no settlement is secured.
Is ADR compulsory and if so are there any consequences if a party fails to engage in ADR? If it is not compulsory are there any plans for this to change?
In 1996, Congress passed the Administrative Dispute Resolution Act (ADRA), establishing a statutory framework for federal agency use of ADR. The ADRA encouraged federal agencies to employ alternative means of dispute resolution including mediation, conciliation, arbitration, minitrials, fact-finding, early neutral evaluation, settlement judges, ombuds, and similar methods in resolving administrative controversies. Later, in 1998, President Clinton issued an order requiring that each federal agency develop a policy to promote greater use of ADR in administrative disputes. Outside of government disputes ADR is not always compulsory. Federal district courts are required to develop ADR procedures for use in civil actions, based on the local rules and regulations. In some jurisdictions civil cases may be automatically assigned to an ADR program upon the initial filing. In others, participation is raised and elected by the parties.
Can the parties agree, in advance of any potential dispute, to engage in ADR?
Yes. The parties can agree in advance that they will or may try one or more ADR methods to resolve any dispute that may arise in the course of a commercial relationship. Many commercial contracts include dispute resolution clauses involving one or more of these methods. This has the advantage of putting ADR automatically “on the agenda” in the event of a dispute and providing a mechanism for reaching a quick solution, without the cost and time commitment of formal litigation or arbitration.
When does ADR generally take place?
ADR can take place at any point in the life cycle of a dispute, in some cases even prior to a formal filing. Optimum timing will depend on the particular circumstances, including whether the issues in dispute are sufficiently clear. But many ADR processes are most effective when utilized early on in the dispute, before tensions rise and before significant time and money have been expended in litigation or arbitration.
Is ADR subject to without prejudice privilege and/or confidential? If not, is there any other means to protect confidential information?
Yes. ADR in the United States is generally confidential and will be protected by without prejudice privilege. Where the parties engage in mediation they will usually be obliged to sign a mediation agreement before the mediation commences, in which they agree to keep matters discussed confidential between the parties. Other forms of ADR may also include confidentiality clauses or Non-disclosure agreements (NDAs), as agreed upon by the parties.
Does the output from ADR create precedents?
ADR processes are usually confidential, and do not create a precedent. This may be valuable to parties as it helps avoid adverse publicity associated with a court judgment. A settlement achieved through ADR is usually recorded in a written agreement which will be enforceable between the parties. These agreements are generally enforceable under US law. They are generally not binding on third parties, although in some circumstances, third-parties can benefit from ADR settlements.
Who bears the costs of ADR?
Typically the parties share the cost of ADR, however it is open to the parties to agree something different as part of the settlement terms. In some cases, a court may order one party to bear the costs, or may otherwise apportion costs.
Is your jurisdiction subject to any specific rules for cross border ADR?
There is currently no dedicated rules or legislation with respect to cross border ADR, outside of arbitration. The United States has signed The United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) but it is not in yet in force.
Are there any particularly unusual features of ADR in your jurisdiction that you are aware are different to other jurisdictions?
Depending on the ADR process you are engaged in, there may be a variety of qualifications required of third party neutrals. With respect to mediation, mediators are required to hold a bachelor’s degree at minimum. Different jurisdictions will also require mediators to have varying hours of experiential training before managing a mediation independently. Some states require formal mediation certification before entering the workforce. However, this is not a requirement for every state.
Contacts
William T. O’Brien Global Co-Head of International Arbitration
T: +1 202 220 8236 E: williamobrien@eversheds-sutherland.com
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