The process by which a neutral third party facilitates dispute resolution is called

Alternative Dispute Resolution

5.7.2 Ex post ADR agreements

Parties will tend to make ex post ADR agreements in order to reduce dispute resolution costs and risk. On this account, ex post ADR would also tend to be socially desirable. A full evaluation of ex post ADR, however, must recognize other effects, notably, how the prospect that parties would adopt ADR ex post would affect their ex ante behavior. The proper analysis is similar to that bearing on the private versus the social value of settlements, in Section 5.2.3161.

4.4 Distortions and Deformations of ADR Processes

Within the nascent ADR profession there is concern that the early animating ideologies of ADR are being distorted by their assimilation into the conventional justice system. Within a movement that sought to deprofessionalize conflict resolution there are now competing professional claims for control of standards, ethics, credentialing, and quality control between lawyers and nonlawyers. Processes like mediation that were conceived as voluntary and consensual are now being mandated by court rules and contracts. Processes that were supposed to be creative, flexible and facilitative are becoming more rigid, rule and law based, and judicialized as more common law is created by courts about ADR, and more laws are passed by legislatures. The overall concern is that a set of processes developed to be ‘alternative’ to the traditional judicial system are themselves being co-opted within the traditional judicial process with its overwhelming adversary culture. Policy makers and practitioners in the field are concerned about whether a private market in ADR is good for ‘disciplining’ and competing with the public justice system or whether, on the other hand, there will be insufficient accountability within a private market of dispute resolution.

6.28 Mediation

Mediation is a form of alternative dispute resolution (ADR) and means that unlike a hearing in court or before an arbitrator, it is the parties who make their own judgement or settlement, by agreement, with a person acting as an advisor. The parties could agree at the outset to appoint a mediator to assist them to come to a decision which will settle their dispute. In the event that agreement is not eventually reached, the parties may then resort to either arbitration or litigation.

In the event that litigation is chosen by one party, assuming that an arbitration clause does not exist, then the Civil Procedure Rules 1998 will apply, giving wide powers to the court. Rule 1–4 (2) (e) and (f) says that active case management (by the judge) includes “encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure. (f) helping the parties to settle the whole or part of the case”.

2 Main Characteristics and Practical Impact

Based on the historic development and present day definitions, Lex Mercatoria can be characterized as transnational and a-national. In the absence of a ‘world legislator,’ international trade and commerce have developed very functional and sophisticated rules based on practice and persuasive value. Parties to transnational contracts tend to avoid recourse to domestic law. Relying on well established Lex Mercatoria-clauses, contracting parties have a chance to overcome language barriers and all kinds of biases. Furthermore, they can draw from the condensed experience in their special field of business. When writing a transnational contract, parties or their counsel rarely invoke Lex Mercatoria explicitly. Rather they make use of specific clauses and principles. Therefore, Lex Mercatoria is not as well established in the terminology of international trade as in its practices.

Usually, substantive references to Lex Mercatoria occur in agreements of arbitration or other means of alternative dispute resolution that avoid state courts. Arbitration rules are often part of Lex Mercatoria, too, like UNCITRAL's, ICSID's (World Bank International Center for the Settlement of Investment Disputes), or ICC's rules on international commercial arbitration. In the case of Scherk vs. Alberto Culver Co (417 US 506), the US Supreme Court pointed out the purpose of such arbitration agreements:

A contractual provision specifying in advance the form in which disputes shall be litigated and the law to be applied is…an almost indispensable pre-condition to achievement of the orderliness and predictability essential to any International transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved.

This case from 1974 is in line with the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has been ratified by over 50 countries.

Alternative Dispute Resolution Model

Based on the observation that the costs of war and litigation are too high, the proponents of alternative dispute resolution (ADR) argue that rational individuals should be able to resolve their differences without depending on coercive means. In congruence with the notion of social contract interpreted in terms of the Enlightenment philosophy, this model proposes a more voluntary form of cooperation under conditions of free speech and rationality. Neighborhood disputes can be more easily handled by a participatory mode of decision-making with a strong emphasis on training and education. With goodwill, parties to a dispute can settle their differences by negotiation and compromise. In difficult cases, some skilled third-party intervention may be needed to assist dialog, and to move toward an informed consensus. Instead of threat, consensus is emphasized to promote a nonconfrontational and nonadversarial process approach to stopping violence and promoting social change.

The origin of ADR movements goes back to the early 1970s with the establishment of community dispute resolution centers. However, before the emergence of community projects, the federal government of the United States took initiatives in the early twentieth century. The Federal Mediation and Conciliation Service was founded in 1917 under the aegis of the Department of Labor and was reorganized as an independent federal agency in 1947. In the midst of racial conflict in the South, the Community Relations Service of the Department of Justice was created in 1964 with a mandate to intervene in disputes related to discrimination based on race, color, or national origin. They focus on issues such as school desegregation, issues of fair housing, education, and communications. In response to the growing violence and conflict in schools, there have been efforts to introduce peer mediation in various educational facilities. All these efforts were made to maintain an orderly society without relying too much on law enforcement forces.

The recent expansion of mediation to commercial disputes represents a growing trend to look for alternatives to lengthy, expensive judicial processes. Mediation is recognized as cost-effective, and many mediation businesses have emerged to profit from the demand of a corporate world. Specialists on organizational development advise big corporations in setting up conflict management systems to avoid expensive sexual harassment and discrimination lawsuits. However, there are some significant differences between the community-based and professional mediation services.

In general, community-based dispute resolution programs promote empowerment of individuals through their traditional roles of advocacy. Their original focus was to provide service for the poor seeking justice in a malfunctioning legal system, with an emphasis on building a harmonious community and sharing decision-making power. The community-based models not only utilize nonprofessional mediators but also involve their volunteers in staff work, outreach, and training activities. Most community-based mediation services select and train their mediators exclusively from the local community. This reduces the gap and distinction between ‘disputants’ and ‘third’ parties, and fosters a sense of the community learning to help and heal itself. Though one might think first of such issues as tenant–landlord disagreements or parent–teen communication problems, just about any problem that arises in the community can be amenable to this type of mediation.

In recent years, as the legal system in the USA and elsewhere has become congested, mediation has become more popular in achieving out-of-court settlements. In some states of the US, it is mandatory to try mediation on such issues as divorce and child custody before court hearings. Court officials utilize the system of ADR to reduce their backlogs and speed processes through court referrals. Compared with the original goal of empowerment, its function has turned out to be supplementary to and supportive of the existing legal system. In other countries such as Australia and South Africa, ADR has also been developed at more or less the same pace and in the same areas as the United States.

ADR has been criticized for several reasons. Given its emphasis on how to settle disputes without regard to power disparities, it can be seen as conservative in orientation and as another mechanism of social control. The supposed neutrality of a third party favors compromise and conceals the biased impact of power imbalance on the outcome. Since ADR is embedded in individualism, it does not focus on structural inequalities in the society as a source of conflict. The underlying assumption is that the parties themselves have a sufficient insight into the nature of their conflict, and can reach an agreed outcome that will be lasting. All that is required is a process which facilitates discussion and points out misunderstandings in communication between/among the disputants.

These techniques are not adequate for reconciling sharply contrasting views about fundamental public values such as abortion or environmental protection. Since the basic social structure is rarely questioned, serious grievances may be trivialized and personalized. The model basically ignores the fact that the roots of many social conflicts lie in the alienating decision-making process through which key social and economic issues are handled. Unfortunately, ADR has lost sight of important aspects of its original ethos, such as a concern for the poor who do not have access to the law. Recent development in ADR can be seen as the privatization of dispute settlement along with the professionalization of mediation services – in other words, the creation of a mediation ‘industry’ of sorts. Today, this industry seems to pay more attention to training corporate managers and government officials in order to help companies protect commercial interests and to help governments reduce public opposition to unpopular policies. Again, while undoubtedly useful, this type of dispute solution has little to offer in situations where issues are deeply rooted and, in many respects, non-negotiable.

Coasean Bargaining as Environmental Regulation

The design of natural resource management plans and the resolution of environmental disputes by local stakeholders through Coasean bargaining is attributed to opportunities recently afforded in the regulatory process. (The Alternative Dispute Resolution Act of 1990 has moved environmental protection activities away from an extensive reliance on the federal government to a more balanced approach that includes local citizen groups and others. Before this, the private sector was already using negotiation, mediation, facilitation, and other alternative methods to resolve disputes in the environmental arena.) Alternative dispute resolution techniques are now promoted and used to resolve the environmental disputes that were once dominated by litigation. Much change has occurred within the environmental policy arena over the past four decades in the United States. Driven by increasing social demands for a clean and safe environment, the federal government has been responsible for regulating polluting activities and for otherwise taking a leading role in protecting the environment. In general, this has resulted in significant gains in environmental quality in the United States. Recently, however, regional and local participation in the environmental regulatory process has become more common as environmental protection is no longer exclusively a federal government activity. A significant degree of authority in environmental policy-making is moving to the state and local levels, and with it, a greater reliance on Coasean bargaining procedures.

This development allows increased local involvement in creating environmental policy that can be expected to generate efficiency gains as policies are designed and implemented for strictly local issues. These local policies can often eliminate the welfare losses that can occur when applying a national standard of environmental quality in which a cost-effective solution may not be possible. Devolution of environmental protection and regulation efforts away from the federal government allows states and communities to use alternative decision-making processes to develop environmental management plans and enforce environmental policies while adopting specific policies that complement current federal legislation.

The push away from traditional decision-making strategies has also intensified as more policymakers and affected parties involved in solving environmental problems recognize some shortcomings of command-and-control approaches. In 1990, the Congress passed the Administrative Dispute Resolution Act in response to the success experienced in the private sector with using negotiation, mediation, arbitration, and other similar dispute resolution techniques. The Congress, in Public Law 101-552, reported that alternative means of dispute resolution have “yielded decisions that are faster, less expensive, and less contentious” than existing dispute resolution procedures such as litigation. This legislation authorized and encouraged federal agencies to use alternative dispute resolution techniques for the prompt and informal resolution of disputes and recognized the benefits of negotiation methods.

Two reasons help explain why the traditional decision-making process may generate inefficient solutions in the environmental arena. First, local net benefits are sometimes under-weighed relative to the net benefits accruing to a more broadly defined population. (While winners could hypothetically compensate losers in this scenario, this prospect often is not attractive at the local level. Local groups have an incentive to organize and compete for a transfer of wealth from other groups to themselves (i.e., engage in rent-seeking activities), which can explain why local groups became discouraged with traditional decision-making procedures.) This tends to discourage local support of the traditional decision-making process. Second, traditional methods can foster a general neglect of local and anecdotal knowledge of those people most familiar with specific environmental problems and suggests that substantial benefits may not be captured if local stakeholders are excluded from the negotiation process.

With environmental management practices moving from a centralized to a more decentralized mode of operation and implementation in the United States, the informal mechanisms through which environmental negotiations are taking place and the prevalence of locally derived solutions to environmental management problems contrast with the more structured and institutional nature that was standard in the 1970s and 1980s. This creates an arena where centralized and decentralized approaches to environmental management are interwoven. As such, economic evaluations of current environmental negotiation processes and management planning initiatives rest on the insight and analytic foundation provided by the Coase Theorem.

People have turned to the collaborative decision-making process to resolve environmental disputes and develop natural resource management plans at the local level. The collaborative decision-making process places an emphasis on achieving consensus decisions outside the courtroom by seeking solutions based on mutual gain. Allowing voluntary participation of all concerned stakeholders and providing for assistance from facilitators or mediators gives government, business, and citizen groups the opportunity to jointly develop environment and natural resource management strategies.

Attention to the workings of the collaborative process as an institutional framework used in the environmental arena has focused on documenting the structure of this decision-making process. Researchers using the case study approach have identified a number of key elements that are likely to help produce successful dispute resolution processes. But a prescription for success according to one researcher studying one case can be different from that of another researcher examining another case. As the number of key elements of success required in each design varies (and the probability of generating a successful outcome), the resources required to implement these designs can also be expected to vary. (Reports indicate costs of environmental dispute resolution methods ranging from $1000 for a case with two parties and one mediator to $40 000 for a case with 12 parties and two mediators.) This poses a unique challenge for the environmental decision-maker with an opportunity to select an appropriate and cost-effective collaborative process for a particular environmental issue but with only limited resources to dedicate to the design and implementation of a decision-making process.

2.4 Alternative Dispute Resolution

One way to reduce the tension between law and equity is to divert a dispute from the formal legal system to mediation, arbitration, out-of-court settlement, or other forms of alternative dispute resolution (ADR). Proponents argue not merely that ADR can resolve disputes more quickly, cheaply, and cooperatively than formal adjudication, but that also by particularizing outcomes to the unique facts of each case ADR creates higher-quality justice—it creates something that looks more like equity than law.

Here as elsewhere the argument is very ancient. In Greek authors of the Homeric period, the word ‘justice’ (diké) was synonymous with a mutually-agreeable settlement. In The Laws, Plato distinguished between the best judge, who destroys the wicked, the second-best judge, who subordinates the wicked to the good, and the third-best judge, who reconciles the contending parties with each other. Plato argued that in a real, non-utopian city the third-best judge, the one who settles cases through compromise, is better than the other two (627e–628a).

However, the virtue of ADR and the settlement process—that ADR makes an end run around legal formalities—raises questions about how to evaluate the justice of settlements. Negotiations, which often turn on nothing but naked bargaining power, can yield outcomes fully as inequitable as trials. Furthermore, critics of ADR suspect that informal processes may reinforce unequal power relationships, and that the lack of formal protections will leave vulnerable groups even more vulnerable. Should the justice of a mediated settlement be evaluated against the standard of an ideally fair trial (the ‘shadow verdict’), or an ideally fair negotiation (the ‘shadow bargain’), or something entirely sui generis? How are any of these standards to be determined? Does a compromise promote extralegal justice, or does it merely compromise legal justice? Such questions yield no easy answers. (For further discussion of this point, see Mediation, Arbitration, and Alternative Dispute Resolution (ADR); Negotiation and Bargaining: Role of Lawyers.)

5.9 Enforcing a Contract

Action to enforce a contract that has run into problems should only be taken after careful consideration of all the surrounding issues. In most cases, discussion and compromise, or use of the alternative dispute resolution procedures, will produce a better result than taking the matter to court. Particular points to consider if legal action is proposed include:

whether the business has met every aspect of its own commitments under the contract;

whether any relevant termination clauses have been correctly followed;

whether fulfilment of the contract is the main objective, or whether compensation or damages would suffice.

Legal proceedings can be time-consuming and expensive and should generally be undertaken only when all other options have failed.

4 Conclusions and Further Directions

Naturally, there are many other related topics ranging from game-theoretic concepts of fairness for purposes of mediation and arbitration to various voting schemes. More elaborate structures are under study. For example, where negotiation takes place through agents, whether lawyers or diplomats, or where a result must survive legislative ratification, the underlying structure of a ‘two-level game’ is present (see Putnam 1988). Negotiations also take place in more complex multilevel and coalitional structures (Raiffa 1982, Lax and Sebenius 1986, 1991, Sebenius 1996). In many cases, the individual negotiation is not the appropriate unit of analysis. Instead, the study of ‘negotiation design’—for example, of international conferences, alternative dispute resolution procedures, grievance negotiation processes—seeks to maximize the chances of constructive outcomes from different structures and processes (Sebenius 1991).

While game theorists and behavioral scientists will continue to make valuable progress in understanding negotiation, a complementary prescriptive approach has been developing that conditions its prescriptions on the likely behavior of the other side, fully ‘rational’ or not, and regardless of whether the ‘game’ is fixed and entirely common knowledge. In describing the logic of negotiation analysis and the concepts and tools that can facilitate it, this discussion has not stressed the many useful ideas that arise from focusing on interpersonal and cultural styles, on atmosphere and logistics, on psychoanalytic motivation, on communication, or on other aspects. Yet because the logic is general, it can profitably accommodate insights from other approaches as well as from experience. The basic elements of this logic—parties' perceptions of interests, alternatives, agreements, the processes of creating and claiming value, and changing the game—become the essential filters through which other factors must be interpreted for a meaningful assessment of the zone of possible agreement and its implications for the outcome.