Embracing Alternative Dispute Resolution - Research Paper Example

1a) ADR The augmenting pressure upon the judicial system in recent years created by the “growing culture of complaint1” has arguably stretched the legal framework beyond capacity. For example, the NHS estimated that from 2000 onwards, the average time for a claim against the NHS with settlements exceeding £10,000 to reach court was five and a half years2. However, it has been propounded that “The satisfactory resolution of disputes is a key issue for any society3” and as such, “Litigation has traditionally been regarded as the dispute resolution procedure par excellence4”. However, litigation has not been without its problems and Lord Woolf’s review of the civil litigation system highlighted growing concerns regarding extensive delay and expense of litigation5. Furthermore, the report found that litigation was too expensive often surpassing the value of the claim and it was impossible to adequately predict cost of litigation and the length of time it would take, perpetuated by consistent delays in bringing cases to a conclusion6. Lord Woolf’s report resulted in the implementation of the Civil Procedure Rules7 with a shifting emphasis towards judicial case management in an attempt to alleviate the delay and expense of litigation, and to approach cases in an interventionist/managerial capacity instead of the traditional adversarial approach8. Lord Woolf’s report also proposed that litigation should be seen as a last resort, embracing alternative dispute resolution (ADR) as a substitute to be encouraged by the courts9. It was felt that such an approach would reduce delay and expense and the courts, leading to a more effective system of court administration. There are many forms of ADR and Roney defines it as a “form of structured negotiation into which there is introduced a third party10”. Furthermore, Roney refers to Cowan Erwin’s definition of ADR as “any means of providing a resolution of a dispute between two or more parties which does not involve traditional adversarial procedures”11. As such, ADR has been viewed as a response to litigation, which is costly and sacrifices privacy in bringing the dispute into the public domain. Arguably the most important justification for recourse to ADR is the preference of the solution being based on fairness and equity rather than the rule of law12. It has been propounded that the business community’s propensity towards negotiation and finding an appropriate alternative to litigation has been the driving force behind the growing acceptance of ADR13. Furthermore, the established work of Roger Fisher and Peter Ury in “Getting to Yes14” has widely been viewed as “the genesis of a new approach to dispute resolution”15. It was seized upon by the business community to support its drive towards resolving disputes in a timely and cost effective manner, thereby minimising negative financial consequences and maintaining the possibility of a continued commercial relationship between the parties to a dispute, where significant monies were at stake. ADR encompasses a broad range of voluntary informal processes which are alternatives to litigation for parties in dispute, namely, arbitration, negotiation, conciliation and mediation16. Although the inherent benefits of ADR are obviously important, it has not been without criticism, leading observers to raise concerns regarding regulation of standards and confidentiality of proceedings17. This in itself supports the statement that ADR can resolve issues that litigation cannot. Furthermore, the growing acceptance and support for ADR led to the creation and rise of organisations such as the Centre for Effective Dispute Resolution (CEDR) and the International Dispute Resolution Centre, which offers a wide range of mediation and conciliation services. It is precisely this ability to resolve disputes close to origin without resorting to costly litigation that has been utilised as the major justification for the recent proliferation of ADR into legal and particularly commercial fields. However, in order to evaluate the extent to which ADR “resolves problems that litigation cannot”, it is necessary to consider the various forms of ADR. ADR encompasses arbitration, negotiation, conciliation and mediation18. Arbitration and Expert determinations are both formal methods of ADR whereby nominated “expert” third party determines the outcome regarding the dispute. This “award” is legally binding on the parties to arbitration and may be enforced in court. The process of arbitration and expert determination includes involvement of the Ombudsman and Regulators and as such, has been termed “alternative adjudication”19. The other informal methods of ADR whilst not legally binding, grant autonomy to individuals to exercise a greater degree of control over their decisions. Furthermore, it has been commented that informal ADR negates the win/lose mentality of litigation with a win/win dichotomy in theory20. Although the inherent benefits of ADR are obviously important, it has not been without criticism, leading observers to raise concerns regarding regulation of standards and confidentiality of proceedings21. Arbitration can arise either from contract or from statute and the evolution of arbitration as an alternative to litigation has been encouraged prior to the other forms of ADR22. For example, in the Scottish case of Roxburgh v Dinardo23, Lord Stewart affirmed that a dispute which is subject to a valid arbitration clause will not be litigated and asserted “it is clear that the court in Scotland does not have any discretion to permit an action to proceed because it considers that course to be more appropriate than arbitration24”. In England, a similar approach is taken due to the section 1(c) of the Arbitration Act 1996. It has been commented that the flexibility of arbitration as a method of ADR in permitting the parties to choose arbitrators, the law governing arbitration and the ability to decide upon the rules relating to arbitration renders it a viable alternative to litigation25. Another advantage of arbitration is confidentiality compared with litigated court proceedings26. Indeed the popularity of arbitration is demonstrated by the inclusion of arbitration clauses in many contracts including employment and commercial contracts, in particular the construction industry where many JCT contracts and other forms have incorporated arbitration clauses to avoid litigation27. Mediation on the other hand is a process involving a “neutral” third party who aids the disputing parties in a joint session, in coming to an agreement which they both find acceptable28. It has been said that “mediation is the simplest and most popular form of ADR29”. Mediation can be evaluative or facilitative30, however the inherent limitation is that any agreement reached through mediation is not automatically binding on the parties and they have to apply to the courts to have it enforced31. Conciliation however32, goes further and is more interventionist suggesting potential resolutions to help bring about an acceptable agreement33. Negotiation is the most common form of ADR and generally takes place through lawyers and doesn’t involve the use of a neutral34. As commented by Palmer and Roberts, “Lawyers have approached the practice of dispute management in a distinctive way that has led to the progressive entanglement of settlement and trial35”. Some have criticised negotiation for being adversarial contradicting the essential purpose of ADR36. In practice, many lawyers proceed with negotiation as though it were going to trial, with no intention of getting that far and using it as a tactical measure to force a “late” settlement payment37. Often such settlement is reached near the trial date with criticisms that in practice, negotiation has become “bargaining in the shadow of the law38”. As a result, it is arguable that “settlement and judgment have become entwined with each other sharing a common procedural route39”. Accordingly, it would appear that instead of facilitating effective ADR, with regard to negotiation, litigation is in fact being utilised as a “chosen vehicle for settlement-directed negotiations40”, which questions the efficacy of ADR in actually reducing costs. Moreover, this appears to obfuscate the distinction between adjudication and settlement, blurring the judicial role. This in turn has fuelled the debate regarding judicially sponsored settlement. Fiss for example, attacks judicial sponsored settlement arguing that justice may not be achieved41. For example, there is often an imbalance of power between disputing parties, commonly attributed to monetary resources, which may in turn force an early settlement potentially prejudicing the weaker party in achieving a fair and just settlement42. The ability to resolve disputes at origin or close to the origin of dispute as possible without recourse to courts is undoubtedly meritorious43, particularly in a commercial context where risk allocation is undertaken in pre contractual negotiations. Furthermore, the ability to determine rules in arbitration for example lends itself to support the statement that “alternative dispute resolution procedures are more likely to be based on fairness and equity rather than the rule of law44”. However with regard to other forms of ADR the issue as to whether a clause stipulating that the parties should attempt dispute resolution through conciliation, mediation or some other mechanism is binding remains unresolved45. For example, in the case of Paul Smith Ltd v H & S International Holdings Inc46, Steyn J held that a clause requiring dispute be submitted to conciliation was unenforceable. In Halifax Financial Services Limited v Intuitive Systems Limited47, a clause providing for dispute resolution procedures to be implemented was not upheld by the courts on the basis that it was not a condition precedent and failed to stipulate a particular method. Whilst arbitration remains arguably the most effective mechanism of ADR due to the binding nature of the agreements and scope for the parties to regulate the structure of arbitration, it is submitted that the legal profession must encourage the use of alternative methods ADR as a means of avoiding litigation. Current use leans towards use of ADR to increase bargaining power in instituted litigation proceedings and it is only when the profession’s culture shifts away from this practice that ADR will move towards being effective in working towards a just settlement of disputes. 1b) On the basis of the facts provided it is evident that it is evident that Answer Limited was clearly aware that PLC needed to implement new computer technology to modernise administration of its business and that PLC was motivated to enter into a contract on grounds of Romeo’s express representations regarding the Supersonic Pentium V network after a detailed inspection. With regard to whether or not PLC has a claim for misrepresentation against Answer Limited, I shall evaluate the relevant legal principles and apply to the current scenario. A misrepresentation claim is effectively a remedy claim for a party that has entered into a contract in reliance on a false statement of fact made by the other party; which may not have been incorporated into the contract as an express term48. In order to rely on a statement made in the pre-contractual disclosure phase, the statement must constitute a “statement of fact”, which induces the other party to enter into the contract49. In the current scenario, it is evident that Romeo inspected PLC’s premises and operations and determined that the Supersonic Pentium was the most suitable and stated that it was “the number one system for reliability” and that “it was providng a success and about to be installed in a number of similar businesses to yours”. On this basis, PLC purchased the product. However, confusion has reined as to what constitutes a statement of fact, which is distinct from a statement of opinion or belief, statements of future conduct or intention; statements of law; and cases of silence or non-disclosure, which are not generally actionable50. For example, in the case of Bisset v Wilkinson51, the farm owner stated that he believed the farm would hold a specific number of sheep however the farm had never been used as a sheep farm. It was held that this was merely a statement of opinion not fact. If we apply this to the current scenario, it is evident that PLC purchased the product based on the statement made by Romeo as a representative of Answer Limited and subsequently determined that no other company operating a similar business to PLC limited had installed the same product. Moreover, none of the features advertised in the Supersonic Pentium Sales literature as “being part of the package” worked, which begs the question as to whether Romeo’s statements on behalf of Answer Limited constituted a statement of fact or a mere statement of opinion. Alternatively, there appears to be a different approach when dealing with statements made by dealers or agents considered to have specific knowledge or skill in relation to the matter52. For example, in the case of Smith v Land and House Property Corporation53, the property was sold with a sitting tenant, yet was described as “desirable” and a “first class investment” to the tenant. The tenant was suspected of running a brothel and was in arrears on rental payments. The courts inferred an implied representation of fact as the agent clearly did not believe in the statement54. However, the ad hoc nature of judicial decisions are often motivated by policy and moral considerations as opposed to defined legal principles55. For example, in the case of Dimmock v Hallet56, the seller described his land as “fertile and improvable”, whereas the seller found the land to be useless and covered in rocks. However, the courts determined that the rocks were still fertile in that they grew moss and therefore there was no actionable cause for misrepresentation. In this case, the courts clearly adopted a literal and narrow approach. Indeed, in the case of Edgington v Fitzmaurice57, Bowen LJ stated how “the state of a man’s mind is as much as his stomach58”, thereby suggesting that the courts consider the impact of the representation on the potential remedy available as opposed to the impact of the pre-contractual disclosure on substantive duties under the contract. If we apply this by analogy to the current scenario, ultimately the determination of whether Romeo’s statement was a statement of fact that wasn’t true will be a question of fact. However, in line with the rationale in the Smith decision, in light of the fact that Rome would be considered as having special knowledge and knew that PLC would be relying on his advice to determine which system to purchase, it is arguable that statements will constitute a misrepresentation. The inherent complexity of determining the resultant impact of pre-contractual disclosure is further compounded by the rules relating to silence. The general rule is that pre-contractual silence will not constitute a misrepresentation59. However, as Lord Campbell highlighted in the case of Walters v Morgan60 “although simple reticence does not amount to a legal wrong…a single word or nod or wink or a shake of the head or a smile fm one party might amount to misrepresentation”61. Moreover, the rule regarding silence is subject to four exceptions62. Firstly, pre contractual half truth statements, can amount to misrepresentation63. Secondly, a duty of disclosure may arise where the circumstances have changed and the statement may be false by the time it is acted upon. In the case of With v O’Flanagan 64it was highlighted that failure to disclose a change in circumstances resulted in actionable misrepresentation. In the current scenario, the system has clearly proved to be unreliable and no other company operating a similar business to PLC limited has installed the system. Therefore, while the system may have been installed in other companies, it hasn’t been installed in similar companies to PLC, which arguably constitutes a half truth. As such, this could be actionable as a misrepresentation. The third exception is “contracts uberrimae fidei” (which are contracts of good faith), whereby the contracts require full disclosure of all material facts65, for example insurance contracts. At present, in considering these “good faith” contracts, the law appears to adopt an economic perspective in requiring full disclosure of contract terms66. In the case of Interfoto v Stiletto67, one of the contractual parties failed to point out a particularly onerous obligation in the hire contract. Lord Bingham found that the English rules required a “result not very different from the civil law principle of good faith68” and therefore refused to enforce the term. Accordingly whilst ultimately a question of fact; Romeo’s statement is likely to fall within the definition of constituting a misrepresentation; thereby inducing PLC to enter into the contract. As such, the legal consequences of misrepresentation will mean that the contract between Answer Limited and PLC will be voidable69. As such, PLC can take steps to rescind the contract, the intention of which is to restore the parties to the position they were in before the contract. However, in the current scenario, in addition to the purchase price, the faulty system installed and supplied by Answer Limited has led to a loss of £25,000 in actual profit and a further £30,000 in anticipated profit, therefore rescission is unlikely to be a viable option. Under Section 2(2) of the Misrepresentations Act 1967 (the Act) provides the court with discretion to award damages instead of rescission. Losses under the Act are calculated on a wide basis and will protect PLC’s actual loss, even if not reasonably foreseeable under traditional negligence principles. Moreover, the damages for misrepresentation will be calculated on the basis of reliance interest and in the case of East v Maurer70it was held that a plaintiff could be awarded damages for loss of profit on grounds of loss of opportunity. Accordingly, PLC could potentially claim for the £30,000 anticipated profit under the Act. Additionally, if the representation was included in the contract as an express term of the contract between PLC and Answer Limited, PLC would be able to sue for damages under the contract. In summary, if PLC can establish that Romeo’s statement constituted a statement of fact that induced them to enter the contract, they will have grounds to bring a claim for misrepresentation. The factual scenario indicates that rescission will not be appropriate and therefore PLC will be entitled to recover damages, which may include the anticipated loss of profit in line with the rationale in East v Maurer. BIBLIOGRAPHY P. S Atiyah (2005). Sale of Goods.11th Edition Longman. Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. Comptroller and Auditor General (2001). Handling Clinical Negligence Claims in England. The Stationery Office. Cyril Glasser and Simon Roberts. Dispute Resolution: Civil Justice and its Alternatives. 1993 MLR Vo. 56 Part 3 279. S, Goldberg., (2003) Dispute resolution: negotiation, mediation and other processes. 4th edition Aspen. John Macleod (2006). Consumer Sales Law. 2nd Edition Routledge Cavendish. S R Moody., An Overview of Alternative Dispute Resolution in Scotland” in S R Moody and R E Mackay, “Alternative Dispute Resolution in Scotland” (W. Green, 1995) Linda Mulcahy & John Tillotson (2004). Contract Law in Perspective. Routledge Cavendish. E. O’Connell. (2006) International Dispute Resolution: Cases and Materials. Carolina Publishing. Owen. M. Fiss. Against Settlement. 1984 93 Yale LJ 1073. M Palmer & S. Roberts (1998). Dispute Processes – ADR and the primary forms of Decision Making. Butterworths at p.306. Jill Poole (2006). Contract law. 8th Edition Oxford University Press. John H.B. Roney (1999). “Alternative Dispute Resolution: A Change in Perception”. International Company and Commercial law Review 329-333. Dr B. Soyer, (2007). Reforming Pre-contractual duty of utmost good faith in insurance contracts- An economic perspective. Available at www.canlecon.org/submissions/docs/Soyer. Accessed on 5/09/2008. J. Tackaberry, A Marriott., R Bernstein (2003). Bernstein’s Handbook of Arbitration and Dispute Resolution Practice. 4th Revised edition Sweet and Maxwell. Deborah Tannen (1998). The Argument Culture. Virago Press. G H. Treitel (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. R Fisher & Peter Ury., (1989). Getting to Yes. Hutchinson. M Waring., (2008). Commercial Dispute Resolution. College of Law Publishing. Lord Woolf, Access to Justice, Final Report to the Lord Chancellor on the Civil Justice System of England and Wales (London HMSO) 1996. LEGISLATION Misrepresentation Act 1967 Arbitration Act 1996 Read More