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Pledging to use Alternative Dispute Resolution ("ADR")

30 October 2013

On November 12th, signatories of The International Institute for Conflict Prevention & Resolution (CPR)'s new 21st Century Pledge will be announced.

The UK's Centre for Effective Dispute Resolution (CEDR) has joined forces with CPR to promote the Pledge in the UK. The Pledge updates the CPR Corporate Policy Statement on Alternatives to Litigation, launched in 1984 and already has numerous global companies such as Microsoft, BP and Shell among its signatories.

Unlike the 1984 policy statement, which companies would subscribe to on the basis of individual cases, the new Pledge has a broader and more systemic approach. Signatories pledge:

"Our company pledges to commit its resources to manage and resolve disputes through negotiation, mediation and other ADR processes when appropriate, with a view to establishing and practicing global, sustainable dispute management and resolution processes."

The Pledge is an open commitment to attempt to use ADR when a dispute arises. So is it really necessary when most commercial contracts already provide for some form of ADR in the event of a dispute?

Case law has shown the court's willingness to penalise parties on costs if they have failed to attempt alternative means of settling the dispute. Even ignoring an offer to mediate has been held to constitute an unreasonable rejection of ADR [PGF II SA v OMFS Company, 2012]. In Cable and Wireless PLC v IBM United Kingdom [2002] the court was prepared to enforce a contractual term that did not specify a type of ADR and stated that the parties should attempt in good faith to resolve the dispute or claim through ADR as recommended by CEDR. Halsey v Milton Keynes General NHS Trust [2004] made clear there are only a handful of cases that the courts consider unsuitable for ADR (such as one where a party is seeking a precedent) and ADR should be attempted in the majority of cases.

A party refusing to engage in ADR would need to be extremely confident in its case and in any event should provide reasons for its refusal. However in ADS Aerospace Ltd v EMS Global Tracking Ltd [2012] the judge held that a successful defendant was entitled to refuse to attend a mediation which was suggested close to trial, after the defendant had already made several other attempts to negotiate and where it believed that the claimant would only accept close to the full amount claimed.

Cynics may question what weight the courts will give to the Pledge if signed by one or both of the parties to litigation. The government published its 'Dispute Resolution Commitment' in 2011, following on a pledge made in 2001 which aimed for government bodies to use ADR wherever possible. In Royal Bank of Canada Trust Corporation v Secretary of State for Defence [2003] despite being successful, the MOD were not awarded their costs as they had refused mediation in contravention of the pledge. It follows that the courts would be likely to adopt a similar approach to a signatory to the Pledge who failed to properly engage in ADR.

Most parties to litigation will find themselves obliged to take part in some form of ADR be it under the contract or as a prerequisite to litigation (for example under the Pre Action Protocol for Construction and Engineering Disputes the parties are obliged to have a pre-action meeting before proceedings are issued). It is therefore likely that most commercial entitles will already find that they are required to adopt an approach to disputes which reflects the objectives of the Pledge. CPR state that the Pledge "serves as a “neutral” basis for beginning negotiations with the other party without any implications of weakness or fault" and it should be noted that the Pledge does not preclude parties from ultimately entering into litigation if necessary. When it comes to attempting to resolve a dispute, a public declaration of willingness to avoid litigation such as the Pledge may serve to focus the parties' minds particularly if that declaration is reinforced within organisations by education focused on achieving a common cultural approach to the use of ADR.

For more information about the Pledge please click here