Taking legal action against someone is not a small step! Even after filing a case, the entire courtroom process can be stressful since you are (in all likelihood) unfamiliar with the legal process and not sure what to expect.
Often it has been noted that conflicts that appear simple and easy to resolve to get time-consuming, complicated, and expensive when brought in front of the court.
If you are a creditor and confronted with a range of questions such as: Do I need to hire a lawyer? How much will it cost? How long will it take? Is there any guarantee of winning? , opting for alternate dispute resolution will be a great choice.
Understanding conflict and dispute
Theoretically, bringing a dispute in front of the court for a full-blown trial might seem like a good choice at first. But in reality, as soon as the trial begins, you will come to realize how overwhelming it can be.
With piles of legal documents and long lists of trial dates to attend, you sometimes end up wishing that you had not sued in the first place.
Let us start with the basics by understanding the important terms and their implications.
We often use the words “conflict” and “dispute” inter-changeably. However, disputes can be resolved with as little conflict as possible.
What is a dispute?
A dispute is, simply put, a disagreement.
This disagreement can be over legal rights or duties.
Disputes usually occur when a claimant feels that a breach of contract has occurred. For example, situations in which a person has failed to comply with the terms and conditions of the contract.
It can also occur when the plaintiff feels that he has received inadequate compensation according to the contract.
What is conflict?
Disputes obviously can lead to conflict, which denotes friction between parties. Disputes have to be resolved, and if disputes can be resolved with minimal conflict, that would surely be best.
What is ADR?
Alternative Dispute Resolution (ADR) is simply a procedure that uses alternative means to resolve disputes outside the traditional legal and administrative forums. It is an attempt to resolve disputes quicker and with less conflict than the traditional litigation process.
The alternative methodologies for dispute resolution include arbitration, mediation, or negotiation.
In mediation, a neutral third party, known as a mediator, helps the parties who are entangled in a dispute to come up with an amicable solution beneficial for all. Whereas arbitration involves an arbitrator sitting like a private judge, but in a far less formal setting and with less technical rules, to decide on the dispute.
The popularity of ADR has shot up in recent years. Mainly because companies and courts often get frustrated over the expense, time duration, and emotional toll involved in solving the disputes through traditional legal procedures.
What is the purpose of the dispute resolution clause?
In today’s world of growing business relationships, a dispute resolution clause is of great importance while signing contracts.
A dispute resolution clause is a written understanding between you and the other party. This specifies what should happen in case of any disagreements occurring in the future.
In any business relationship, there are chances of disputes, misunderstandings, differences, and unresolved questions. A dispute resolution clause helps to resolve these problems fairly and peacefully.
This clause will be a part of your contractual agreement and lays down steps to be undertaken to resolve the issue.
A dispute resolution clause that is properly drafted can also reduce the areas of dispute and potentially lead to earlier resolution, thereby ensuring that any dispute will not escalate into a full-blown fight.
This is especially important in cross-border contracts, where issues like jurisdiction are not so straight forward.
Why is alternative dispute resolution important?
In Malaysia, the insolvency department has reported a rise in bankruptcy-related cases since 2007.
This is an alarming condition. The issues must be tackled off very quickly to avoid long-standing harm to the country’s economy.
The present-day judicial system of the country is trying hard to cope with the massive number of cases that are before it.
In situations like these, ADR is a great boon in delivering quick justice in a less formal way.
Let us understand some of the pros and cons of using ADR.
Advantages of ADR
1. May be quicker (although sometimes not necessarily)
Trials can be unexpectedly lengthy. Sometimes it might take several years to solve a dispute with the intervention of the court.
Appeals and postponing of hearing dates can stretch the case for several months or years.
On the other hand, a mediator can facilitate a settlement within a shorter time duration.
Even if the matter is brought to arbitration, the arbitrator’s decision is final and appeals are limited. Therefore, there is a greater finality to the process earlier.
2. More flexibility
ADR focuses on delivering justice that is free from the entanglements caused due to the age-old rigid legal procedures.
With ADR, the parties of the dispute will have more flexibility in choosing the procedural and discovery rules that apply to their dispute.
3. Non-involvement of a judge
Party-autonomy is paramount, and that includes the ability to choose a mediator or arbitrator (or at least for one to be chosen in accordance with the agreed dispute resolution clause).
Choosing someone who is an expert in the substantive field involved in the dispute can help to resolve the dispute in a way that is acceptable to both parties.
There is no need for the parties to explain complex issues to a judge, and the problem can be resolved within a shorter period of time.
Needless to mention that the higher the expertise of the arbitrator quicker will be the judgment.
4. Lower Costs
Mediation would definitely be cheaper and more cost-effective.
The normal court process is complex and high costs are involved for the lawyer to prepare the case and bring in witnesses to testify.
Also, for businesses, every second counts and time is equivalent to money.
5. Less stress
For many, the entire court process can be extremely stressful. Research has indicated that most people do experience certain levels of anxiety and depression during such trying times.
Litigation stress syndrome is known to occur in emotionally sensitive people and is characterized by a negative self-image, isolation, unexpected outbursts of anger, frustration, and fatigue syndromes.
Opting for ADR is an effective alternative to the normal court process. Most people have reported lesser stress with ADR.
6. Guarantee of confidentiality
It is a well-known fact that most trials are conducted in open courts that are accessible to the press and the public. There is no provision for confidentiality in an ordinary court proceeding.
However, by choosing ADR, the parties can agree that the information disclosed during the hearings of arbitration or negotiations cannot be used later.
Besides, there is also an option to keep the final outcome as private if the parties are willing.
7. Maintain a healthy business relationship
Use of mediation is in such a way to ensure the cooperation of the parties involved in the dispute. They work closely with a neutral mediator to resolve the issue. This helps them to have a greater understanding from the perspective of the other party and come up with a remedy that is acceptable to all.
8. Both parties have equal rights to express their side of the problem.
It is a hallmark of ADR that all ADR practitioners need to observe natural justice. This means that both parties must be afforded the opportunity to present their arguments, and be fairly heard on them.
Disadvantages of ADR
1. No guarantee of solution for mediations
Mediation is a great process, but there is no guarantee of a settlement out of it. People usually opt for mediation, keeping in mind that this will provide a better and quicker way to resolve the dispute rather than going through the lengthy court process.
Sometimes the desired results will not be as expected. The parties often invest some time and money to resolve the dispute through mediation, yet end up having to deal with the ensuing arbitration or litigation.
2. Decisions are final
Usually, the arbitration decisions are final and binding to both parties. Avenues for appeal are very limited.
3. Limits on applicability
The extent of influence of mediators and powers of arbitrators are limited to what the parties agree. There is no inherent jurisdiction like the Courts.
4. Discovery limitations
ADR practitioners have lesser powers to compel evidence, unlike judges of the High Court who can subpoena for witnesses as well as documentary evidence.
5. Fee for the arbitrator
Costs for mediation may not be as high as a litigation process because the legal fees may be lower as mediation involves less work-hours. However, an arbitrator effectively sits as a private judge and charges a fee for the service. The arbitrator’s fee can be substantial at times, which would lead to higher costs.
6. Power imbalances
There may be power imbalances in mediation and this sometimes discourages parties from attempting to mediate. However, an experienced mediator would ordinarily know how to address power imbalances of parties appearing before her/him.
7. Cannot be used in case of urgency
In urgent circumstances, a Court may be able to convene faster than arbitration or mediation because both the arbitrator and the mediator would ordinarily require the consent of both parties to act.
8. Requires the cooperation of both the parties
For an ADR to happen, the cooperation of the parties involved in the dispute is a must. When either one of the parties is not willing, then ADR would not be a viable option.
9. Can take longer time than expected
ADR sometimes takes more time to resolve a dispute than its normal duration. The expectation of a quick resolution may sometimes not be met.
Commonly used ADR tools
Mediation is one of the most popular forms of ADR. Mediation can be defined as a voluntary process in which a neutral mediator facilitates communication and negotiation between parties in dispute to reach an amicable settlement.
The Mediation Act 2012 governs mediations in Malaysia.
The process of mediation focuses on excellent negotiation and communication skills. The mediator will act as a guide between the parties, enhancing their ability to reach a decision.
The mediator does not have any right to adjudicate the issue. Here the power to make the decision is strictly vested on the parties involved in the dispute.
How does a mediator help to resolve a dispute?
The main role of a mediator is to give complete assistance until the settlement of the dispute. The parties are free to abandon the mediation process at any time after the first meeting if they feel that it doesn’t help significantly in resolving the issue.
Compromise is one of the principal elements of the mediation process. But, none of the parties are made to compromise forcefully. After carefully understanding each party’s limitations, they are expected to make a change in their approach to the problem only if it is considered reasonable to do so.
In Malaysia, mediation is one of the fast-growing forms of ADR. Mediation has got tremendous success in multiple party dispute resolution.
Arbitration is another important legal technique for dispute resolution without the involvement of a court. Here the dispute is presented in front of a neutral third party, who will adjudicate the matter like a private judge.
In Malaysia, arbitrations are governed by the Arbitration Act 2005.
Almost any commercial dispute is arbitrable.
The fundamental difference between arbitration and mediation is that in mediation, the parties hold full power in the workings and outcome of the mediation, while in arbitration, the result of the proceedings is solely decided by the arbitrator.
The parties can decide the appointment of the arbitrator, along with the procedures and rules to be implemented.
For the resolution of any dispute, arbitration can be implemented in two different ways:
1) Prior agreement-Before signing a contract, the parties can add a clause called arbitration clause. This is used as a reference if a dispute arises in the future.
2)Mutual agreement- Even if there is no clause in the agreement, if the parties feel so, they can mutually agree to appoint an arbitrator to ensure an amicable dispute resolution.
Just like mediation and arbitration, conciliation is one of the good alternatives when it comes to resolving a dispute outside the court.
With the help of a conciliator, the parties under the dispute choose to present their dispute and discuss it together to reach an amicable settlement.
The notable difference between conciliation and meditation is that, in conciliation, the conciliator will be asked by the parties to provide them with a non-binding settlement proposal.
This is a flexible process allowing the parties to choose the time, content, and structure of the proceedings.
Negotiation is another frequently used method for solving a dispute without court intervention.
Negotiation means informal discussions between two parties, to solve a problem and form a joint action to ultimately resolve the problem. The discussion is held between the parties or the representatives of the parties.
Here, unlike the other forms of ADR, such as arbitration or mediation, there is no requirement of a third party. This is the simplest of all the alternative methods available. However, a third-party negotiator with experience may help parties achieve better results.
If you have appointed lawyers, the lawyers could negotiate on behalf of you and come up with a settlement with each other. If discussion fails, you always have an option of filing a case in the court or opt for any other form of dispute resolution such as mediation or arbitration.
This is another popular form of dispute resolution in Malaysia, that is used to resolve disputes in cases involving building and construction.
Construction Industry Payment and Adjudication Act 2012 (CIPAA) helps to resolve the disputes relating to payment issues in construction contracts.
The temporary decision is given validity by the people involved in the dispute. The process is quick and the decision is made fast enough to make sure that the project can continue.
Once the work is complete, the issue is resolved by applying for arbitration or litigation.
Cost of ADR
ADR under the Asian International Arbitration Centre follows a fixed scale fee.
The cost of ADR is dependent on a variety of factors such as the nature, size, and complexity of the dispute involved.
Greater the complexity, higher will be the charges and vice versa.
The cost involved in the ADR can be split up into three sections:
- The fee charged by the institution where the arbitration or mediation takes place.
- Expenses involved & the fee of the arbitrator/mediator chosen by the parties.
- Direct costs involved in the process of ADR such as costs of legal representation and other disbursements.
Who pays for ADR?
Both arbitration and mediation follow a different method of payment. In arbitration proceedings, the rule of thumb is that the losing party has to pay the expenses of the successful party and bear his own costs as well.
On the other hand, in a mediation proceeding, the cost is equally shared between the two parties.
Although the process of Alternative Dispute Resolution is tailored to reduce the cost, emotional stress, and legal formality associated with going to court, many parties are known to hire lawyers to represent them at the ADR proceedings.
They often seek pre-proceeding consultations regarding possible strategies and solutions.
Before applying for ADR, it is advisable to consult a lawyer who is not only experienced in the subject matter of your legal issue but also familiar with the synergetic process of ADR.