I. ADR and its use

ADR is almost any consensual process whose objective is to facilitate problem solving short of binding adjudication by a third person. Thus, ADR (sometimes 'Alternative Dispute Resolution' or 'Appropriate Dispute Resolution') embraces a broad spectrum of processes and possibilities.1

ADR is often regarded in the United States as including any process from negotiation through arbitration that will facilitate problem solving. One of the most thoroughly discussed forms of ADR, viz. mediation, has been used in labor disputes for 100 years, and increasingly in commercial disputes in the last 25 years.2

The recently increased motivation to use ADR, and especially mediation, in the United States has arisen in substantial part from the length, complexity and cost of litigation. That impetus still obtains. However, the manifest benefits to parties who solve their problem through collaborative problem solving have also provided separate and compelling incentives to utilize ADR.

In some corporations in the United States, the emphasis is turning to collaborative problem solving-so that the parties themselves, and not someone else, agree on the dimensions of the problem and on the procedure for solving it, regardless of the genesis of the problem, its current environment, or the status of litigation related to it. Many in the corporate world understand that the parties themselves are far better positioned than a judge or arbitrator to understand the true dimensions of their problem and to craft a solution that in fact will satisfy their needs and will endure.

As noted in the Lipsky/Seeber Report, page 31:

Mediation has been used to resolve all types of disputes in corporate America

and

Corporate counsel in major U.S. corporations have had very widespread experience in the use of mediation, and familiarity, in this case, has bred affection.3

II. Variations on the ADR theme

Some of the techniques regarded in the United States as within the ADR family are: [Page76:]

A. Negotiation

In the commercial world, everyday negotiation encompasses both hard-nosed positional bargaining and more cooperative interest-based negotiation, as well as combinations and variations of each. In the United States, dispute resolution clauses in contracts often provide for a multi-step approach, with negotiation being the first step. Typically, such clauses provide for participation by party representatives of specific stature (e.g. at the vice-president or higher level) as well as for temporal limitations (e.g. to be undertaken and completed within 60 days).4

B. Mediation

Mediation is a consensual process in which a neutral mediator facilitates communication, negotiation and dispute resolution by the parties themselves. In short, it may be viewed as an ordinary negotiation facilitated by a third person. Mediation is the parties' process. The 'parties' include not only formally identified parties to a contract or in a lawsuit, but also every other entity whose participation or approval is necessary to solve the problem.

By agreement, the parties repose in the mediator authority to convene and manage the process. As time passes, and as the parties gain confidence in the mediator, the mediator assumes more and more power. However, the parties always retain power to create their own solution to their problem.

After negotiation, mediation is the non-adjudicative dispute resolution process of choice in the United States. In this article, mediation is the ADR process of choice.

C. Mini-trials

Mini-trials have been known in the ADR community in the United States for more than 25 years. A mini-trial is not a true trial. Rather, it is a kind of facilitated settlement negotiation in which a panel, comprising (a) party representatives with authority to settle and (b) (usually) a third person neutral, hears argument by each party's counsel and perhaps expert or factual presentations, and immediately thereafter confers in an attempt to settle the matter. The neutral facilitates settlement discussions much like a mediator. As in mediation, the presence of all interested parties, even those not named as parties in pending litigation, is usually essential.

D. Early neutral evaluation

This is typically a court-annexed procedure in the United States. This procedure has enjoyed success in various courts. Customarily, after issue has been joined, a respected neutral receives presentations by counsel, attempts to assist the parties in negotiating a settlement, renders a tentative view as to the merits and, in the absence of settlement, assists in working out a pre-trial schedule. As in other non-adjudicative ADR processes, it is important that party representatives with authority to settle participate. Early neutral evaluation has been disappointing where the neutral has not gained the respect of the parties or has otherwise been ineffective in exploring issues and working out pre-trial schedules. [Page77:]

E. Summary jury trials

Summary jury trials have been used many times in the United States-often on the eve of a long jury trial in a large, complex case.5 Counsel make truncated presentations to a regularly empanelled jury, in the presence of the judge and party representatives with authority to settle. The jury deliberates for an agreed-upon period of time and renders a verdict. Immediately upon hearing the jury's verdict, the party representatives confer in an attempt to settle the dispute.

F. Neutral fact finder or neutral legal expert

Such a person may be engaged to resolve a specific factual issue or rule on a specific legal question. This also is a consensual process, governed by agreement between the parties and the neutral.6 Non-binding forms of arbitration have been used to provide an objective view of the merits of a dispute.

The foregoing epitomize relatively formalized ADR procedures utilized in the United States. These examples are neither exclusive nor limiting, nor should their titles be permitted to open a semantic debate. The examples are meant to be merely illustrative of what creative and collaborative problem solvers can devise to assist them in arriving at their own solutions to their problems.

III. Does ADR work?

The short answer is yes-often, but not always.

It is easy to accept that facilitated dispute resolution procedures will work where there is a relationship to be formed, repaired, or rebuilt. Almost any kind of dispute in these situations is amenable to resolution by the parties on their own or with the assistance of a third person neutral.

It is less obvious that facilitated dispute resolution procedures will work where there is a one-off deal that has gone bad, or where bad faith, wilful breach, counterfeiting, fraud or the like are at issue. In the United States, even one-off disputes thrust in the middle of purely distributive, winner-take-all litigation have been settled via mediation or its variants. Because ADR is consensual and requires the presence of decision makers who are motivated to negotiate in good faith, these requisites will not ordinarily be satisfied in bad faith, wilful breach, counterfeiting, or fraud situations. However, if such disputes have become the subject of litigation, ADR can work and has worked.

In the United States, mediation and its relatives have succeeded many times in disputes which are the subject of hotly contested litigation-even where injunctive relief, treble damages, and other punitive measure have been sought. This is so because both parties have realized the risks of going to war, in open court, where all of their allegations and actions will be aired in public, or where the loss of a valuable right is reasonably possible. They have also realized those risks may far outweigh the need for validation of the right, or potential destruction of the right.

In the United States, some courts adopt a relatively hands-off approach to assisting the parties in resolving their differences. In other courts, the judiciary is far more active. Even a suggestion, to say nothing of an express order, from a court will [Page78:] encourage parties to engage in serious negotiation or mediation. Indeed, courts sometimes participate themselves. However, this is much less common in the United States than in European civil law courts. In bench trials, United States judges are typically reluctant to promote or to participate in settlement discussions. In jury trials, United States judges may be more active. In the federal courts, district judges may assign magistrate judges to act as settlement facilitators. In some federal courts, this is the primary function of at least one magistrate judge. Frequently, they succeed.

Debates flourish in the United States as to when in the life of a dispute mediation or the like should be undertaken. Some urge that mediation should be undertaken before a dispute erupts into full-fledged litigation. Others argue that mediation is much less likely to succeed until potentially revealing, litigation-sanctioned discovery has been concluded. This is a fact-specific matter. Timing involves not only whether or not information is needed, but also attitudes of parties and their counsel, business relationships between the parties in other areas (both subject matter and geographic), overall economic conditions, state of relevant technology, and cultural similarities and differences, to name a few factors. In theory, of course, it should be in the interests of the parties to resolve their differences in a rational, durable manner sooner rather than later.

Mediation may be commenced and adjourned, discontinued or continued at another time or place. It may be suspended to permit information to be gathered, different party representatives to be prepared to participate, a court or other entity to resolve a material issue, or simply to permit parties and counsel to reflect.

Mediation is sometimes difficult to sell and to implement, even where bad faith, wilfulness or counterfeiting are not overriding factors. All parties and all counsel must want to work together to solve the problem. Before approaching a solution to the substantive problem, they must agree on procedures. Often they can, with the happy result that they find themselves engaged in joint problem solving even before they reach the difficult substantive issues.

ADR works in the United States when (1) the appropriate party representatives participate, (2) counsel conduct themselves as counsel, and not only as no-holds-barred litigators, (3) parties (and their counsel) are willing to get beneath positions and identify and understand each other's real interests and needs, and (4) a competent neutral possesses the wisdom and stature to assist parties and counsel to stay on course toward their own answer to their problem.

IV. Barriers to success

The barriers to getting to the table, much less to success, vary from dispute to dispute and from party to party.

A. Cultural attitudes

In many cases, the principal barrier to success is the culture of the corporate party. It may be the culture of a small closely-held company, a large multi-national conglomerate, or a different kind of business entity.7

If the attitude or policy of the party is millions for defense and not a penny for tribute, the barrier to utilizing ADR, to say nothing of succeeding with it, is high. Also, legitimate strategic reasons may stand in the way of utilizing ADR. It may be [Page79:] imperative to establish a legal principle, obtain an injunction against a counterfeiter, restrain a party from disposing of assets, obtain an order preserving perishable goods, or protect trade secrets. Many legitimate reasons may turn a party away from ADR.

Also, the attitudes of lawyers may raise barriers to utilization of, or success with, ADR. In the United States, experienced transactional lawyers and enlightened litigators will embrace ADR. However, aggressive gladiators may tend to shy away from ADR and expressly discourage its use. Some of these attitudes may stem from monetary self-interest. Others may flow from a litigator's need to demonstrate his capacity to carry the day in any battle. Even a well-intentioned litigator may find it difficult to carry the spear and at the same time encourage the client to consider a process that would lead to settlement-unless the litigator has candidly advised the client that the odds of prevailing in litigation are low or, even if the odds are reasonably favorable, the relief obtainable will not justify the expense and risks of battle.

In addition, an adversary may simply be unfamiliar with ADR, may have heard of 'bad' experiences, or may itself have had a bad experience with ADR.

B. Emotion

Emotion often poses apparently insurmountable barriers. If market share is lost, intellectual property is infringed, trade secrets are misappropriated, or a partner has apparently breached, emotions always run high. Anger, suspicion, betrayal, mistrust all are typical components of a commercial dispute. Even in ordinary deal making, emotion often plays a prominent role.8 Unless emotions are understood and managed, progress toward resolving the underlying dispute short of litigation may be severely impeded.

C. Focus on positions

Focusing on factual or legal positions within the formal dimensions of the problem often constructs a barrier to success. Interminable exchanges of volleys as to factual dids or did nots, or as to legal rights or wrongs, seldom serve any purpose other than to polarize the parties.

D. Need for courtroom win

The perceived need for a courtroom 'win' often creates a large barrier. Almost equally often, the perceived need is an illusion. Even if a party were to 'win', the net result might not be a gain financially or in the market place, or vindication of a cherished principle. Indeed, the relentless drive to a 'win' may yield only a 'loss-loss' result, with the only beneficiaries being the lawyers. Litigation risk analysis, together with careful consideration of the consequences of a win, a draw, or a loss-in light of the costs of litigation -, always ought to be undertaken. When objective analysis and rational consideration are given to the situation, often the perceived need to forge ahead in court is exposed as misguided.9

E. Wrong participants

The absence of an important participant may erect a barrier to success. Senior business people from each of the named parties to a litigation must participate in [Page80:] an ADR proceeding. Whoever represents a corporate party, an officer or employee who 'owns' the problem, i.e. whose personal advice, decision or other conduct must be validated, should not be the only party representative. While the apparent need for such validation may be a legitimate issue among the disputants, if the person with that specific need is the only party representative, the person's interests and needs may overshadow that party's real interests and needs.10

Also, success may be delayed, if not permanently deferred, without the participation of a non-party. Often, a principal investor, creditor, licensor, licensee, vendor, customer, insurer or indemnitor, partner, or government agency must participate in order to solve the problem. The importance of the presence of such a person is frequently ascertainable as the parties consider the problem and the process for attempting to resolve it. However, it is not unusual for the need for such a person's participation to become apparent only after the ADR process is under way and various options have been explored outside the limits of the problem as originally defined.

F. Party withdrawal

In addition to the reluctance of a party even to come to the table, a barrier to success is the withdrawal of a party. ADR is consensual. Even in court-ordered processes in the United States, the parties are not obliged to participate or to negotiate indefinitely. Any one or all of the parties may withdraw after a minimum effort to succeed has been undertaken. The minimum is measured in terms of good faith participation by an appropriate representative for a reasonable (sometimes stated) period of time. For example, if it is apparent that a senior member of management of a party devoted at least a full day in a manifestly good faith effort to resolve the problem, it is not likely (absent an express agreement committing the party to a longer period of participation) that a court in the United States would criticize the party if it withdrew from the process.

G. Mediator qualifications and availability

The Lipsky/Seeber Report, at page 26, observes that 'a surprising number of respondents told us they did not use ADR because they lacked trust and confidence in ADR neutrals, especially arbitrators'. On the other hand, the report states:

Our respondents generally expressed a high level of satisfaction with the qualifications of the ADR neutrals they dealt with. . . . More than 94 percent of the respondents told us that they thought the mediators they had used were either somewhat qualified or very qualified. (page 28)

Overall, it appears that our respondents' evaluations of mediators and arbitrators are mixed. (page 29)

Qualifications encompass both process skills and subject-matter expertise. ADR users customarily want a neutral with both. In some matters-especially multi-faceted disputes -, this is difficult to achieve. One answer is co-mediators, e.g. the use of two mediators each with different strengths. Another answer is to determine whether the mediation is likely to be facilitative or evaluative (or directed) and to select a neutral accordingly. [Page81:]

Mediators and other neutrals must agree to be available for the duration, in terms not only of time but also impartiality and independence. The unavailability of a neutral to continue an ADR process may be explainable and excusable, but it nevertheless is likely to be a barrier to success.

More delicate situations may arise during the ADR process. For example, in the United States, it is clear that a mediator must withdraw if a mediation is being used to further illegal conduct. At minimum, this is a matter of preserving the integrity of the process. And indeed, if a neutral withdraws for this reason, it may well avoid a legally flawed arrangement, which if agreed to should hardly be included in the 'success' column.

V. Scaling the barriers

A. Focus on interests and needs

Planning, preparing and participating in the ADR process with the focus on underlying interests and needs, not merely announced positions, is commonly accepted in the United States as the secret to success for parties who wish to solve their problem themselves. This does not mean that a party that focuses on interests and needs must be prepared to give in on all matters, or 'compromise' to the party's detriment. Rather, it means that at least one party, and preferably all parties, should focus on their own real interests and needs, the real interests and needs of the other party or parties, and look to the differences as presenting an opportunity to create value.

This often sounds entirely too soft and fuzzy to the corporate executive whose charter is to present a promising quarterly report to shareholders, the innovator whose invention or proprietary information has been misappropriated, the financial institution whose debtor has defaulted in material amounts, or the joint-venture partner whose project seems to have been wilfully scuttled. On reflection, however, the virtues of attempting to understand the real interests and needs of all concerned, to explore options, and to create and to capture added value tend to overcome initial skepticism about such undertakings.

If each party representative (including counsel) can stand in the other party's shoes, it is likely to be much easier for the parties to fashion a solution that permits each party, in its own interest, to give the other party what it wants.11

B. Corporate culture from the top down

Finding and understanding real interests and needs are enhanced where the culture of at least one party embraces the notion that such endeavors are beneficial. In some United States corporations, an ADR culture has been implemented. The 1997 CPR publication, Building ADR into the Corporate Law Department, by Catherine Cronin-Harris, describes the ADR programs in 23 United States corporations in a variety of industries.12 One lesson to be learned from the reports of those programs is that a corporate ADR program must be promoted and implemented from the top down.13 Another lesson is that all personnel involved in dispute management and resolution must be motivated to use ADR, including in-house counsel, outside counsel, business personnel, and adversaries. [Page82:]

Building ADR into the Corporate Law Department describes how involving business personnel in the planning and design of ADR programs, with the express endorsement of executive management, is an important step in forming an appropriate corporate culture. Shifting all costs of litigation to the business unit involved, and creating personal financial incentives to use ADR (e.g. basing salary increases and bonuses, at least in part, on the use of ADR), have sent a clear message from the top that all business personnel are to take seriously the use of ADR.

C. Incentives to adversaries

Providing incentives for adversaries to use ADR may be a more difficult concept for the result-oriented executive to accept. However, as Ms Cronin-Harris points out, an adversary may be induced at the least to consider ADR if specific non-binding processes and their advantages are described, the proposing company agrees to bear the cost of a neutral, or the proposing company agrees to use a procedure or a neutral recommended by the adversary. As there is more than one road to Rome, so is there more than one procedure and more than one neutral who may be entirely satisfactory for assisting the parties to resolve their problem.

D. Lawyers as counselors

Lawyers in the United States also play a positive role in assisting clients, and adversaries, to understand and consider ADR. Those lawyers who are counselors, and not only gladiators, are of critical importance in this regard. Counselors are capable of performing to the highest professional standards in setting aside personal financial interest and assisting clients in the search for a resolution of their disputes short of full-blown litigation. Occasionally, the counselor and the litigator are two different people. Adding another lawyer (or team of lawyers) in order to explore settlement may be far less attractive financially than it is in theory, and thus may be limited to the larger, more complex cases, or to cases in which the client does not suffer financial constraints. In many commercial disputes, however, at least one party-if not all parties-cannot afford another lawyer, thus leaving it to the litigator to act as both gladiator and counselor. A single lawyer can accomplish this feat, but it is seldom easy.

E. Do not oversell

Another way to scale the barriers to success is to avoid overselling ADR. Confidentiality, lower cost, efficiency, a party's control over its own destiny, and sensible and durable agreements are all touted as advantages of ADR. In many respects they are-especially party control and sensible and durable agreements. Usually, confidentiality, lower cost and efficiency are discernible advantages-but not always. If a client has been disappointed in one ADR experience because expectations were permitted to outrun reality, it is likely that at the next opportunity to utilize ADR the client will balk. Continued education by those experienced with ADR is commonly necessary to scale the barriers.

F. Put a program in place

If an ADR program is in place, ADR will likely be utilized successfully. An ADR program may be the product of express corporate policy. It may be set out in an [Page83:] agreement defining a relationship between parties. It may be that counsel for one or all parties regularly propose and explore ADR with their clients. ADR may be promoted within an industry. Also, an ADR program may be an active part of case management in the court in the United States in which the parties find themselves.

VI. Practical considerations

Two of the keys (not unique to the United States) to a successful resolution of a dispute are (1) preparation, preparation, preparation, and (2) neutral, neutral, neutral.

A. Preparation, preparation, preparation

Without preparation-from the very outset and throughout the process -, the chances of engaging in a useful process are diminished. A lack of preparation will shine through to the adversary. A lack of preparation will hamper the lawyer's and the client's ability to assess the process, the problem, their objectives, their interests and needs, and their strategies, and to negotiate with the other side. For any commercial matter of significance, preparation for alternatives to adjudicative processes must be undertaken as soon as a dispute arises or is anticipated, together with preparation concerning the substantive aspects of the dispute.

B. Neutral, neutral, neutral

Without a competent neutral, the chances of success are also diminished. For the side which is reluctant to negotiate a resolution, an inappropriate neutral may provide a ready excuse for withdrawing from an ADR process. One side may be well advised to accept the other side's nominee for a neutral, thus making it difficult for the nominating party to withdraw on the basis of the alleged inadequacy of its nominee.

Often, in pre-dispute ADR clauses, the characteristics of the neutral are specified in detail. This may be a serious mistake. First, a neutral of those characteristics may not be available when the anticipated dispute arises, if indeed such a person exists. Second, even if such a person is available, by the time the dispute matures, a neutral with those characteristics may be inappropriate. Humans simply cannot predict with certainty how the future will unfold-especially after five years of working in a complex arrangement with one or more other parties. An unforeseen problem may arise, key personnel may have changed, the market may have altered, technology may have been supplanted, unanticipated players may have appeared, and so on.

C. Getting to the table

Getting all the players to the table and initiating an ADR procedure is often a difficult task. Even today in the United States, some business people and some lawyers regard any mention to any adversary of the prospect of discussing settlement as a signal of weakness.14 On objective reflection, such a suggestion ought to be regarded as completely sensible, stemming from the suggesting party's confidence in its case, and independent of the adversary's perception of the strength or weakness of the suggesting party's side of the dispute. If a [Page84:] proponent of ADR senses that its suggestion may be incorrectly interpreted, the proponent can find any number of ways to defuse such an interpretation. A corporate officer can point to the CPR pledge signed by the corporation which calls upon the corporation to explore with other subscribers negotiation, mediation, or other ADR processes before undertaking full-scale litigation.15 Or the officer can point to a company policy that promotes ADR notwithstanding the company's vigorous prosecution and defense of lawsuits once they are under way.16 A lawyer may point to the CPR pledge the lawyer's firm has signed assuring that the lawyer or the lawyer's firm is knowledgeable about ADR and will discuss it with the lawyer's client-notwithstanding the merits of the client's cause.17 Or the lawyer may invoke professional responsibility as calling for consideration of ADR.18 A lawyer may also advise the adversary that the court in which their litigation is, or will be, pending will sooner or later invite the parties to discuss settlement.19 A United States district court judge may assign a magistrate judge to conduct settlement conferences. In addition, a party and its counsel may invoke the good offices of a respected ADR provider, or a respected person in the industry, to suggest that the parties talk before they shoot.

D. The parties

During almost any kind of ADR process in the United States, the parties themselves play an active role. Some negotiations may be undertaken and conducted solely by counsel. However, in significant commercial matters, almost always senior members of management participate. Not only do they participate in preparing for the ADR process, they participate in the process itself. After all, it is the senior management of each party who will have to shake hands and execute the written agreement. Also, if they are negotiating more than the distribution of a finite amount of money in a one-off situation, it is the business people who will have to begin to build confidence and trust in one another. This is accomplished by way of participation in the process-from beginning to end, and frequently without lawyers present.

It warrants repeating that parties are often well advised to ensure that senior representatives who do not 'own' the problem participate in the ADR process. Specific persons who allegedly breached, or invented the technology, or failed to transfer information, or conducted a failed test, or established a competing business, or withheld a payment all may have their own actions and reputations to justify and promote. Those personal concerns may stand in the way of objective analysis of what is in the interests of the parties overall. Accordingly, the participation of a relatively neutral member of senior management may be required.

E. Counsel

Counsel in ADR processes must persuasively develop and firmly express their client's positions. At the same time, counsel must conduct themselves as 'counsel'. Care must be taken not to poison the well from which the client must drink. Ad hominem attacks, extreme threats, and excessive emotion are not the stuff of which trust, confidence and acceptance of one's views of interests, needs and solutions are fashioned. As often quoted in texts and articles concerning ADR, negotiation of a solution to a problem is 'the art of letting the other person have your way'.20 Or stated differently, a negotiation master possesses 'the supreme art [Page85:] of making every man offer him as a gift that which it was his chief design to secure'.21 These practical pearls dictate against broadside assaults on the other side in any good faith dispute resolution process-especially in a commercial setting and even when the assaulting party appears to have a superior position on the facts, the law, or both.

F. Party control

Integral to any ADR process is party control. The parties agree on the process. They agree on the neutral. They agree on the schedule of events. They agree on confidentiality. And most important, they themselves agree on the substantive resolution to their problem. The process and the solution are taken out of the hands of (1) lawyers who present facts, suggest inferences, and argue the law all within the constraints of the judicial system applicable to the specific causes and defenses pleaded, and (2) judges who resolve the relatively narrow issues, including forms of relief, tendered to them by the lawyers. The lawyers and the judges may do superb work in presenting and resolving the issues. But those presentations and resolutions may be artificially narrow and indeed of little practicable value. Surely, they are not within the control of the parties, nor can the participants explore options outside the constraints of the system. The control over their own destinies vested in the parties in any ADR procedure is of high, practical value.22

G. Confidentiality

In the United States, a so-called 'settlement privilege' typically surrounds ADR procedures.23 The privilege protects statements and conduct during settlement discussions from being used by the adversary in pending or ensuing litigation, unless the information is available to the adversary without restriction from another source. The privilege does not necessarily protect statements or conduct in settlement discussions from disclosure to non-parties. For example, in ensuing litigation, one of the parties to a settlement discussion may be compelled to produce to a non-party to the discussion information as to the 'privileged' settlement discussion. Or a government agency may inquire about settlement discussions. Or a principal investor, lender, indemnitor, customer, vendor, or licensee may properly seek information concerning settlement discussions. Accordingly, in the United States, while 'confidentiality' is an important attribute of ADR processes, the protection is far from absolute.

H. Creating and capturing value

As a result of the fluid nature of ADR processes and the control reposed in the parties, the opportunities to create and capture value are large. The parties' discussions are not confined to the specific issues defined by a lawsuit or by a clause in a contract. The parties can discuss any matter they want to discuss-even matters not relevant to the specific dispute that initially brought them to the table. They can take into account other relationships they or their affiliates may have, changes in the market, changes in technology, changes in personnel, changes in intellectual property rights, changes in the value of currency-all by exploring options that they would be unable to explore within the confines of litigation or the specific issues raised by a specifically alleged breach or other breakdown. They can craft solutions that range far beyond lump-sum payments of money. They can [Page86:] start new relationships, restructure old relationships, engage other entities, and focus on other products and services. In short, the opportunity to enlarge the pie, rather than confine themselves to apportioning a finite quantum, is a substantial advantage afforded by ADR processes.

I. Med-arb

Combinations of ADR processes can be used. Often, to break an impasse in mediation, a mediator will receive permission from the parties to arbitrate a final issue, e.g. price, payment schedule, interest rate, design change. Sometimes denoted as 'med-arb', this variation works best if, before the mediator becomes an arbitrator, all other points of a proposed agreement have been reduced to writing and formally endorsed by the parties. Only the part of the agreement to be resolved by the mediator-now-arbitrator is left blank, e.g. the amount of money to be paid by one party to another.

The mediator-now-arbitrator may determine the amount to be inserted solely on the basis of the information the mediator received in the course of the mediation. Or the mediator may receive further submissions on behalf of the parties. Where it is a matter of inserting a number in a blank in the agreement, or selecting a non-infringing design, the parties and the mediator-now-arbitrator may employ 'baseball arbitration'. Here, each party submits a number to the mediator. The mediator is obligated to choose one of the numbers submitted-not a number in-between, not the average of the numbers, etc. This obligation to choose only one of the numbers submitted tends to force the parties' numbers toward each other. Typically, no party wants to submit a number the mediator-now-arbitrator will regard as excessively high or unfairly low. Many times, this leaves for the neutral a rather easy choice between two relatively close numbers. On other occasions, the numbers may not be so close and the choice is not so easy, but competent neutrals in whom the parties have confidence will make a rational decision.

J. Arb-med

Converting an arbitrator into a mediator is another story. Arbitrators are frequently confronted with the question of why the parties are devoting so much time and energy and expense to arguing about the past (e.g. who breached, who failed to provide, whether the goods were properly accounted for), when they still have a relationship that could apparently be repaired and become profitable. In the United States, the majority of arbitrators and ADR providers argue vigorously against an arbitrator becoming a mediator-unless it is clear the neutral will not reassume the role of arbitrator. One perceived problem is that an arbitrator-now-mediator who receives confidential information from a party on an ex parte basis is forever infected with that information, and improperly so unless that specific information becomes a matter of record in the arbitration.

The minority contends that this and other criticisms deserve careful consideration and require the fashioning of expressly agreed-upon safeguards. The minority says this can be done.24

It seems especially important for the parties and the arbitrator(s) to consider this possibility where the issues in the arbitration require resolution of historical issues, and where the subject of the mediation is a future relationship. The arbitrator-now-mediator is much less likely to receive confidential information in [Page87:] the forward-looking mediation that will impact the arbitrator's view of the historical record, than if the mediation focuses on precisely the same historical issues as the arbitration.

Variations on this theme have been utilized in a variety of arbitrations. For example, it is not at all unusual for arbitrators to negotiate with counsel and the parties as to a narrow set of issues to be arbitrated rather than the entire panoply presented by counsel, not all of which are anywhere near dispositive. Also, arbitrators have mediated with counsel and the parties the outlines of a future relationship and, with the agreement of all concerned, arbitrated a few dispositive issues.

K. Termination

In the United States, ADR processes can be terminated by a party at almost any time. ADR processes are customarily the product of agreement between the parties. Usually, all parties devote themselves to at least one face-to-face session before anyone withdraws or otherwise terminates the process. Even in court-ordered mediations, parties are not compelled to participate ad infinitum.

Termination of a mediation or other ADR process before all substantive issues have been resolved, while perhaps regrettable on many levels, is not necessarily a sin, or even a waste of resources. The parties may have acquired a new understanding of the dispute and of each other's real interests and needs. They may have been prompted to consider discussions at a later time. Also, some disputes cannot settle during the first round of facilitated negotiations. And some disputes cannot settle at all and must be resolved by litigation or arbitration.

L. Costs and fees

Notwithstanding some disappointing results in some ADR processes, the cost of engaging in ADR is usually minimal compared to the cost of litigation or arbitration. When the more than 75% success rate attributable to mediation in the United States is taken into account, the cost of preparing for and participating in an ADR process is usually worth the risk of failure. The costs to the parties comprise preparation time, counsel fees, travel expenses, cost of conference rooms, and the cost of the neutral. Mediations of complex commercial cases seldom are completed in less than two days of face-to-face sessions. Neutrals charge by the hour or by the day for their services, including study time and participation in mediation sessions. (Charging for neutrals' services, in ADR processes such as mediation, based on the value of the dispute or the value of the settlement, is generally regarded as inappropriate.) For complex commercial problems, neutrals may charge up to $10,000 per day for their services. Most neutrals charge less, but $5,000 for a day's services is not uncommon.

M. Ethical and professional responsibility issues

The obligations and conduct of the neutral are at the center of many discussions regarding ethical and professional responsibility issues. Of particular interest to business people and their lawyers are fees and expenses, impartiality and conflicts of interest, and confidentiality. Often, these and other matters are the subjects of a written agreement among the neutral, parties and counsel regarding the neutral's engagement. [Page88:]

Various groups in the United States are considering codifying in one form or another uniform rules or standards governing neutrals in ADR processes. The ABA has proposed 'standards' for the conduct of mediations. Many courts, state legislatures and various bar associations have set out rules or guidelines. Here, we provide only general outlines regarding the three subjects mentioned above.

1. Neutral's fees and expenses

As we have noted, neutrals in ADR processes typically charge by the day or by the hour in the United States. These charges vary depending on the activity (e.g. study time, actual attendance at proceedings, cancellation of proceedings) and geographic region (typically highest in major metropolitan areas). Sometimes, retainers are sought and paid. Usually, parties share a neutral's fees and expenses, but not always. If a neutral is impartial and competent, it may be a matter of no consequence as to who pays the neutral's fees and expenses.

We have already noted that it is regarded as troublesome, if not improper, in the United States for an ADR neutral's fees to be measured by the value of the matter in dispute. Whereas hourly fees or per diems may be perceived as an incentive for a neutral to bill for unnecessary time, a neutral with such a reputation will soon find himself or herself with nothing to do. Attempting to base a neutral's fees on the value of the matter faces at least two problems. First, it is difficult to value a matter, even if it appears to focus solely on the distribution of a fixed amount of money. The initial demands and offers are inevitably different from the final number. Money may not be the paramount issue. Even when money appears to be the only issue, other factors are invariably at play. How are they to be measured? Second, where a neutral's fee is based on an estimate of the value of the dispute at the outset of the proceeding, this stresses the importance of the money issue and may lead to an upward evaluation of this factor by the neutral. Even worse, where the neutral's fee would be based on the value of the settlement, the neutral will have a direct financial stake in the outcome. This creates at least an appearance of partiality-and the suspicion that the neutral might press for resolution based on the largest numbers possible, and perhaps set aside other important but non-quantifiable factors.

Where discussions as to fees directly among a neutral, the parties and counsel may adversely affect the process, an ADR provider can serve a useful purpose in insulating the neutral, the parties and counsel from direct debates.

2. Impartiality and conflicts of interest

Neutrals in ADR proceedings must be impartial-in actuality and in appearance. With informed consent the parties and their counsel may engage a neutral who might otherwise be disqualified, if the neutral objectively believes that his impartiality and the integrity of the process will not be compromised. Disclosure, disclosure, disclosure should be a neutral's pole star-before and after accepting an engagement.

Neutrals who practice alone have a far easier time of sorting out conflicts than neutrals who are affiliated with a business entity or a law firm. Often, a potential neutral who is affiliated with a corporation or a law firm will be unavailable, not because of an obvious conflict but because the neutral or the entity for its own business reasons chooses to decline the engagement. [Page89:]

Neutrals, parties and counsel must also consider a neutral's ongoing or future relationships with a party or counsel. 'Repeat' engagements as a neutral at the behest of one side or its counsel are acceptable-with full disclosure and if the neutral's impartiality and the integrity of the process will not be compromised. Also, a potential or actual future relationship with one party or its counsel may affect a neutral's impartiality and the integrity of the ADR process, and should be a matter of disclosure and agreement among the neutral, the parties and counsel before the engagement of the neutral.

3. Confidentiality

We have discussed confidentiality in section VI(G) above.

With regard to a neutral's undertaking as to confidentiality, the neutral typically agrees to (a) destroy all notes prepared by the neutral and (b) destroy or return all materials sent to the neutral by a party in connection with the ADR process (except for pro forma correspondence).

Also, the neutral, the parties and counsel should understand what the neutral's obligations will be in the event the neutral is requested (or subpoenaed) by a non-party to disclose information about the ADR process. At minimum, the parties and counsel should be notified of any such request and afforded an opportunity to comment. In addition, it should be expressly understood among the neutral, the parties and counsel that the neutral will not be requested on behalf of one of the parties or its counsel to disclose information or testify about the ADR process.

N. Education and training

Most practitioners in the United States hold the view that ADR neutrals are not born with a full complement of skills. Education and training are necessary. Practice is essential. Many opportunities to learn and to practice a neutral's skills are offered to lawyers and business people by universities, bar associations, business associations, ADR providers and courts. The need for training and practical experience poses the classical dilemma of needing experience in order to get work, but not getting work unless one has had experience. However, with time and a willingness to volunteer, experience can be gained and engagements can be expected.

Many practitioners in the United States believe that counselors and clients in ADR proceedings benefit from at least some education and training. Lawyers have been negotiating throughout their professional lives. Business people have been negotiating throughout their business careers. They all know something about negotiation, and thus something about dealing with ADR processes. However, if ADR is viewed as another form of adjudication or of purely positional bargaining, lawyers and business people are less likely to enjoy success. On the other hand, if ADR is viewed as facilitated negotiation, and interest-based rather than purely positional, lawyers and business people are likely to embrace ADR and realize substantial benefits. Again, universities, bar associations, business associations and ADR providers offer workshops and seminars for practicing lawyers and active business people to help them understand and to experience some of the ADR processes. [Page90:]

VII. ADR providers

A. Organizations

In the United States, the American Arbitration Association administers more arbitrations and mediations than any other provider. The disputes range across many industries and many subjects. The AAA currently encourages mediation in many of the arbitrations it administers. The AAA's roster of potential neutrals is continuously being refreshed and retrained, so that users can usually find a competent neutral through the AAA.25

JAMS administers many arbitrations and mediations. It offers training to its panelists. Many businesses have enjoyed success through JAMS-administered processes.26

The CPR Institute for Dispute Resolution offers a wide variety of competent panelists for ADR processes. CPR has been regarded as the leader in bringing ADR to the corporate community in the past 25 years. CPR does not administer ADR processes. It provides model rules, assistance in selecting a neutral, assistance in constructing an appropriate procedure, and training.27

Of course, ICC is perhaps the leading provider of arbitration services for United States corporations engaged in transnational business. With the promulgation of its ADR Rules and Guide to ICC ADR, effective as of 1 July 2001, ICC should become as well a leading organizer of amicable dispute resolution.28

Many regional and local organizations provide ADR services.

B. Rules and procedures

The American Arbitration Association has promulgated arbitration rules and mediation procedures for dozens of different industries and situations. The arbitration rules vary from industry to industry and from subject matter to subject matter. Accordingly, parties should take care to specify the particular AAA rules they have agreed to. Otherwise, they may find themselves attending to procedural issues rather than substantive issues.

JAMS has promulgated rules and procedures. CPR has done so too, with a variety of rules and procedures depending on the nature of the dispute or the industry.

The new ICC ADR Rules replace the 1988 ICC Rules of Optional Conciliation and provide for a full range of ADR procedures, as well as for the selection of neutrals.

C. Neutrals

Neutrals may be found in the United States through an ADR provider or by word of mouth.29 Some neutrals are affiliated exclusively with one ADR provider or another. Many highly respected neutrals are not exclusively affiliated with any organization and obtain their engagements from many sources, often without knowing precisely how their name was placed on a party's or counsel's list. [Page91:]

VIII. Conclusion

Commercial disputes often beg for efficient management and effective resolution. In the United States, ADR processes have rewarded countless parties who have been willing to assume control of their commercial disputes, focus on real interests and needs, and explore options for creating and capturing value. The parties have taken charge, have reached rational resolutions, and have gotten on with running their businesses. Accordingly, in the United States, we can expect the use of mediation 'to grow significantly across the board'.30

1
Often, understanding and use of ADR are frustrated by semantic debates as to what the term includes. These debates are unnecessary and potentially destructive with respect to problem solving.

2
In David B. Lipsky and Ronald L. Seeber, The Appropriate Resolution of Corporate Disputes, A Report on the Growing Use of ADR by U.S. Corporations (Cornell/PERC Institute on Conflict Resolution/PricewaterhouseCoopers LLP, 1998) [hereinafter Lipsky/Seeber Report], the authors report results of their 1997 survey of the Fortune 1,000 corporations' use of ADR, viz. arbitration and mediation.

3
Particularly apposite here is the report's conclusion, at p. 23, 'there appears to be a significant correlation between corporate use of ADR in domestic disputes and its use in international conflicts'.

4
An important discussion of negotiation from an interest-based standpoint appears in Robert H. Mnookin, Scott R. Peppet and Andrew S. Tulumello, Beyond Winning: Negotiating To Create Value In Deals And Disputes (Belknap Press, 2000) especially at pp. 224ff in connection with resolving disputes.

5
Commercial cases may be tried before juries in the United States.

6
In litigation in the United States, a court may appoint a Special Master to receive evidence and resolve one or more issues in dispute, or to manage defined aspects of the proceedings (e.g. discovery). Absent consent of the parties, in federal courts, under the Federal Rules of Civil Procedure, Rule 53(b), 'reference to a master shall be the exception and not the rule'.

7
Lipsky/Seeber Report, p. 26: 'Overwhelmingly, our respondents indicate that the principal reason they did not use either mediation or arbitration was because the opposing party was unwilling to agree to it.'

8
In James K. Sebenius, 'Six Habits of Merely Effective Negotiators' [April 2001] Harvard Business Review 87 [hereinafter Sebenius] at 89, Felix Rohayton is reported to have observed that 'most deals are 50% emotion and 50% economics'.

9
Lipsky/Seeber Report, p. 26, states that mediation is frequently not used by corporate management because it is a 'non-binding procedure' and results in 'compromise outcomes'. These are red herrings. A party can negotiate (or mediate) with another party a mutually acceptable and binding arrangement, or the party can walk away if the apparently acceptable arrangement is not better than another available alternative.

10
Lipsky/Seeber Report, p. 24, notes that 'middle managers sometimes find ADR threatening,', i.e. use of ADR by senior management will 'undercut their authority'.

11
Sebenius, p. 88.

12
A companion CPR publication, also by Ms Cronin-Harris and published in 1997, Building ADR into the Law Firm, describes ADR practices in some United States law firms.

13
Lipsky/Seeber Report, p. 24, confirms that the endorsement of top management is a key factor in successful implementation of ADR by a corporation.

14
Lipsky/Seeber Report, p. 24, states: 'Even initiating a discussion of the possibility of a negotiated settlement can be seen as a sign of weakness.'

15
Since 1984, more than 4,000 United States operating companies have subscribed to the CPR Corporate Pledge. Information as to the pledge and subscribers can be found at the CPR web site: www.cpradr.org

16
United States companies in industries such as chemical, food, franchising, insurance and non-prescription drugs have signed commitments to attempt to resolve disputes among themselves via mediation or other ADR processes. Also, the National Association of Manufacturers has established a Mediation Center for Business Disputes for the Association's member companies.

17
Since 1991, more that 1,500 United States law firms have signed the CPR Law Firm Pledge.

18
The ABA Model Rules of Professional Conduct have been interpreted by some practitioners as obligating United States lawyers to consider and advise clients with respect to ADR procedures. Other bar associations have set out more specific obligations regarding ADR. In addition, some states have codified requirements that lawyers consider and advise clients with regard to ADR.

19
Virtually every one of the 94 United States district courts has some procedure in place for assisting parties in settling their disputes-ranging from settlement conferences to formal mediation and non-binding arbitration procedures.

20
Attributed to Daniel Vare in William L. Ury, Getting Past No (Bantam Books, 1991), p.5, and Sebenius, p. 88.

21
Sebenius, p. 95, attributes this aphorism to Francois de Callières.

22
Lipsky/Seeber Report, p. 31, states: 'Our respondents like mediation because they believe it increases their control over the management and resolution of disputes.'

23
For example, settlement discussions in an action pending in United States federal courts are subject to Federal Rules of Evidence, Rule 408, which provides in part: 'Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible.'

24
e.g. David W. Plant, Resolving International Intellectual Property Disputes (ICC, 1999 (ICC Publication no. 592)) at 105ff, where some of the issues are discussed and points on which parties, counsel and the arbitrator(s) ought to reach agreement are set out.

25
Information about the American Arbitration Association's ADR services and neutrals can be found at www.adr.org

26
Information about JAMS's services and neutrals can be found at www.jamsadr.com

27
We have previously noted that the CPR web site is at www.cpradr.org

28
The ICC's ADR web page may be found at www.iccadr.org and its arbitration web site at www.iccarbitration.org

29
Lipsky/Seeber Report, p. 28, notes that word of mouth is equally as important as ADR providers in obtaining mediators.

30
Lipsky/Seeber Report, p. 31.