An article in the Harvard Negotiation Program newsletter (summarized here) reflects a common view that mediation and arbitration need to be “sold” more as an alternative to litigation. In this view, it is seen as a problem that parties to business contracts often do not anticipate the likelihood of conflicts arising in the course of their relationship, and therefore fail to include as often as perhaps they should, clauses providing for alternative dispute resolution in the event of problems. Because parties fail to anticipate the potential need for ADR, litigation becomes the default alternative when a conflict occurs.
This way of looking at a problem–here the problem of choosing a method of resolving disputes–itself reflects a view of the world as a series of conflicts. In this case, the conflict is between litigation and ADR. ADR practitioners tend to see litigation as “bad” and mediation or arbitration as “good.” Therefore they favor mechanisms to avoid the evils of litigation and steer disputes toward the better methods of ADR; they sometimes disparage litigation so as to encourage disputants to choose “better” methods of resolving disputes. Perhaps some see themselves as competitors to the court system, and are simply trying to sell their services by painting their product as superior to the dispute resolution product offered by the courts.
I think this view is shortsighted and wrong. As noted in my previous post, alternative dispute resolution may work best in conjunction with the court system, not in opposition to it. Moreover there are some practical difficulties with recommending pre-dispute arbitration clauses, or even mediation clauses, in commercial contracts, that should be considered before advising parties to limit their ability to file a complaint in court. Mandatory pre-dispute arbitration clauses force parties to waive rights in advance of any dispute, most importantly the right to trial by jury but also the right to appeal. ADR proponents often denigrate the value of those rights because they come with some fairly significant costs. They forget that the reason for protecting those rights is not necessarily that disputants want a jury trial or an appeal. Rather, those rights provide parties with important legal protections that may guide the resolution of a dispute, and those rights also offer substantial leverage in any potential settlement. To deny or delay a party the ability to sue, or threaten suit, in the event of a dispute, is to take away an important tool.
The court system is the foundation of ADR (you can’t have an “alternative” system without the original); litigation should not be treated as an unwelcome competitor to ADR. To remove the support of the court system from dispute resolution would be like sending people into the wilderness without a compass. We take for granted a legal system that provides a frame of reference that helps answer such questions as whether a particular action constitutes a breach of contract. We trust arbitrators because they agree to follow the law, even if we don’t have the same ability to enforce their adherence to the law. We often base settlement discussions in mediation on an effort to approximate the result that would be obtained at trial, minus the cost and risk. If we remove that framework, we deprive parties of an authoritative source for answering such questions. Without reference to legal rules or norms, it would be difficult to arrive at negotiated outcomes that they accept as fair. That means it should not be the job of arbitrators or mediators to discourage people from using the courts. We should instead be encouraging people to preserve that option when appropriate; but also to resolve disputes more peaceably or more cheaply when it is advantageous for them to do so.
Advising parties to disarm themselves before a dispute arises is like advising nations to disband their armies in advance of any conflict. In some cases, both parties might be better off if diplomacy were the only tool they had for resolving conflict, but in other cases disarmament would grant a license to bad actors to act badly. Some conduct calls for a declaration of war. A summons sends a much more powerful message than an invitation to talk about the problem. It tells the opposing party not only that you have a problem with their actions, but that they may have crossed the line, and that they may be facing serious legal repercussions if they do not make amends. Why wouldn’t a party entering into a business deal want to keep that hammer in reserve?
Forcing parties in advance of a dispute to choose arbitration or mediation may also, paradoxically, make some cases more difficult to settle. Especially with arbitration clauses, a requirement to initiate alternative dispute resolution processes rather than allowing a disgruntled party the option of filing suit in court may send the case down the path toward choosing arbitrators and setting hearing dates. Filing a complaint, on the other hand, may send a case to a preliminary conference with a judge who is likely to suggest, or may even be required to suggest, that the parties initiate some settlement discussions. It’s not always clear, therefore, that litigation is going to be more adversarial than arbitration. These considerations do not apply as strongly to pre-dispute mediation clauses, the only cost of which may be to delay somewhat some inevitable conflicts. At worst, a mediation clause merely mandates diplomacy in advance of declaring war. In general, diplomacy should be encouraged, even if the prospects for resolving a dispute by talking about it are slim.
Most cases that are filed in court are eventually settled, so maybe litigation is the true alternative form of dispute resolution. While litigation does provide many opportunities to exacerbate disputes and impose costs on the parties, litigation also provides many opportunities to negotiate resolution of issues involved in the case. Litigation should not be lightly cast aside as a pathway to dispute resolution. Instead, we should work on improving the court system so that it better incorporates the advantages of alternative dispute resolution methods.