Implementing an effective dispute resolution strategy which promotes the use of ADR March 2019

Organizations can benefit from implementing an effective dispute resolution strategy which ensures that they are consistently using the most appropriate forms of dispute resolution. This guide provides an overview of the techniques organizations can use to create a tailor-made dispute resolution strategy promoting the use of ADR.

Implementing an effective dispute resolution strategy which promotes the use of ADR 2019 5

Practical guide Implementing an effective dispute resolution strategy which promotes the use of ADR

Disputes arise for all organizations. Dealing with a dispute constructively can enable the organization to achieve its ultimate objectives, save on resources, avoid financial exposure, and protect its reputation. In contrast, failing to effectively manage a dispute can negatively impact an organization and risks damaging internal and external relationships and morale.

It is beneficial for an organization to have The default dispute resolution processes an effective dispute resolution strategy to within many organizations are negotiation, ensure that it consistently uses the most litigation and arbitration. The drawbacks appropriate forms of dispute resolution. of litigation and arbitration are that they In order to add value the strategy needs can be time-consuming and expensive. to reflect the organization’s mind-set, be ADR encompasses a range of options, flexible, and outcome-focused. The ultimate falling between litigation and arbitration goal of such a strategy is to ensure that on the one hand and negotiation on disputes are managed in a way that is in the other, for the effective resolution of the best interests of the organization whilst disputes. These include mediation, expert also being cost- effective and protecting determination, adjudication and early the organization’s reputation. neutral evaluation; mediation is the most frequently used option. 6 Hogan Lovells

Benefits of mediation Other common forms of ADR Mediation is a flexible process, conducted Our client note entitled ‘Alternative Dispute confidentially, where the mediator actively Resolution in England and Wales’ sets out assists the parties in working towards brief descriptions of the main types of ADR a negotiated resolution of a dispute or other than mediation. These include, but difference. Importantly, the parties to the are not limited to, expert determination, mediation are in control of the decision adjudication and early neutral evaluation: to settle and the terms of any settlement. Expert determination The majority of disputes that are mediated This is an informal process in which the settle. The results of the mediation audit parties appoint an expert who gives a final conducted by the leading ADR organization and binding decision, usually on a limited in the UK (the Centre for Effective Dispute technical issue. Resolution) (CEDR)) show that over 89% of mediations result in settlement. These Adjudication settlements will have resulted in significant Adjudication is a well-established method savings for the organizations involved, of dispute resolution in the construction including avoiding incurring costs such as industry – parties to certain construction legal fees, management and stakeholder time, contracts have a statutory right under experts’ fees, document management costs, English Law to refer disputes to adjudication. damaged relationships, and lost productivity. An adjudicator (an independent third Those who mediate observe that the value person) usually provides decisions on any of the process goes beyond whether or not disputes that arise during the course of the parties settle. Numerous benefits a contract. Typically, the decision of an can come out of mediation. For example, adjudicator is binding on an interim basis, creating an opportunity for the principals meaning that the decision is immediately from each side to attend a facilitated binding and enforceable but the dispute meeting where they can explain their side may be referred to arbitration or litigation of the story, can have a hugely positive for final determination. This is sometimes effect on the dynamics between the parties. described as “pay now, argue later”. Potential additional benefits include finding out about the other side’s interests and the wider context within which the dispute is taking place. These and other tangential benefits are something that should be taken into account when deciding whether or not to mediate a dispute. Implementing an effective dispute resolution strategy which promotes the use of ADR 2019 7

Early neutral evaluation The parties obtain from a neutral third party (usually a former judge) a non‑binding opinion regarding the likely outcome of the dispute if it were to proceed to trial. The intention is that this opinion will enable the parties to negotiate an outcome, with or without the assistance of a third party, or settle the dispute on the basis of the evaluation provided. England’s Commercial Court and the Technology and Construction Court have schemes facilitating early neutral evaluation. 8 Hogan Lovells

How this guide works Dispute resolution audit Every organization is different and as a Prior to any implementation of a new result no one dispute resolution strategy dispute resolution strategy, it is helpful will work for every organization. With to start with an audit of the organization’s that in mind, in this guide we explain the current dispute resolution systems, previous different techniques that an organization dispute resolution experience and approach can use to implement an effective towards and use of ADR. This enables the dispute resolution strategy. As there is organization to find out more about some often less awareness of ADR processes, or all of the following. significant focus is placed on how to Dispute resolution systems incorporate ADR into such a strategy. We cover the following techniques: The systems that are in place for material disputes to be reported to the organization’s • Dispute resolution audits; legal department and the stage at which • Early case assessment systems; they are reported. • ADR champions; Dispute resolution experience • The types of disputes that the • ADR education and training; organization most commonly faces and • Incentives for ADR promotion; whether there are any patterns to the claims encountered; • ADR clauses; and • The costs to the organization of resolving • Embedding ADR use. disputes, including: As all of the techniques can be used –– the internal costs, such as time spent independently, organizations can pick by in-house lawyers, stakeholders and any combination in order to create a senior management; tailor-made dispute resolution strategy which achieves their specific objectives. –– The external spend on lawyers, experts, document management etc.; –– the indirect costs, such as damage or disruption to internal and external relationships, morale and increased financial exposure; and • The length of time it generally takes to resolve or settle disputes by reference to the type of dispute resolution process used. Implementing an effective dispute resolution strategy which promotes the use of ADR 2019 9

Approach towards and use of ADR Steps to include in an ECA system • The degree to which the organization An ECA system should aim to ensure that already uses ADR in relation to the following steps are followed, often its disputes; within a specified time-frame: • The level of understanding within senior • Examination of the key facts; management and the in-house legal team • Legal analysis of the claims; of ADR processes; • Assessment of relevant commercial • The approach to ADR amongst the interests and relationships (both internal stakeholders who generate disputes, and external); senior management and the in-house legal team; • Consideration of how the dispute impacts the organization’s wider • External lawyers’ ADR skills, the objectives and goals; processes they favor and the stage at which ADR is discussed with them; and • Review of the potential dispute resolution processes that could be used including • The extent to which ADR clauses are negotiation, ADR, arbitration, litigation inserted into the organization’s contracts. or any combination thereof; Early case assessment systems • Assessment of projected internal and Early case assessment (ECA) systems can be external costs in relation to the potential tailored to suit the particular organization dispute resolution processes; and do not have to be overly formal. The key objective is to analyze disputes in a • Dispute resolution strategy development systematic way, at an early stage, to and selection; consistently select the most appropriate • Review of this strategy and the case dispute resolution process or combination; assessment at regular intervals; and acknowledging that it is often beneficial to combine adversarial and ADR processes. • Analysis of lessons learnt once the dispute has been resolved. ECA systems are usually devised by in-house lawyers in conjunction with stakeholders. In order to succeed they should reflect the organization’s culture and mind-set on dispute management. 10 Hogan Lovells

ADR champions As there may be a lack of awareness of ADR • The mediation process, theory processes within some organizations, in order and objectives; to build them into the dispute resolution • The skills required by those who strategy it is often necessary actively to will represent the organization at promote and embed the use of ADR. a mediation, such as negotiation and An ADR champion’s role is to promote advocacy; and and embed the use of ADR within their • The full range of techniques used by organization. ADR champions are usually mediators to help parties to resolve lawyers but could be anyone who is their disputes. passionate about promoting the use of ADR and who has a good understanding Incentives for ADR promotion of the various ADR processes. Members of the in-house legal team and/or claims handlers managing an organization’s ADR education and training disputes portfolio can be incentivized External ADR education and training may actively to promote and embed the use of be beneficial for organizations where levels ADR. Incentives such as personal targets or of ADR knowledge and practical experience bonuses can be linked to individuals raising are low or inconsistent. Training can be the option of ADR, using ADR processes provided by one of the ADR organizations, and/or obtaining additional ADR training. an accredited mediator or an external law It is common for organizations to track firm with sufficient ADR expertise. Where external legal spend and cost-savings. the ‘ADR champion’ or senior lawyers Organizations can also track ADR usage managing the disputes portfolio have a good and any associated cost-savings including understanding of ADR processes, they may internal costs, external spend and indirect prefer to provide the training themselves. costs. If these metrics are tracked then the The training will need to be tailored to entire team managing the organization’s meet the needs of the audience, taking into disputes portfolio can be set cost-savings account their current knowledge levels and targets which can also be linked to bonuses. their roles within the organization. ADR Similar targets can be set for panel firms’ education and training can focus on one dispute resolution teams. If the stakeholders or more of the following: and senior managers within an organization can see identifiable cost-savings resulting • Main types of ADR other than mediation, from increased ADR use they are likely to be such as Early neutral evaluation, motivated to further embed the use of ADR. Expert determination and adjudication; ADR clauses Embedding ADR use By agreeing to have an ADR clause in Guidelines a negotiated contract or including an Dispute resolution management guidelines ADR clause in standard form terms outline an organization’s expectations for and conditions, an organization can the in-house lawyers and/or claims handlers systematically embed the use of managing its disputes. Methods of actively ADR in its management of disputes. encouraging the consideration of and use ADR clauses stipulate how the parties of ADR within such guidelines include: intend to incorporate ADR processes into • Promoting the discussion of early any dispute resolution process. Mandatory settlement and early stage mediation clauses tend to specify that an ADR process, (or other forms of ADR) with usually mediation, must be attempted by the stakeholders; the parties prior to the commencement of • Requiring those managing the dispute formal litigation or arbitration proceedings. to use ADR or explain why the matter is not Non-mandatory clauses state which ADR currently or never will be suitable for ADR; process the parties have agreed to use, most commonly mediation, but do not • Insisting on ADR being raised with oblige them to do so before commencing external counsel at an early stage in proceedings. Tiered clauses require the the dispute and, if ADR is not built into parties to adhere to a specified order of the dispute resolution strategy, obliging dispute resolution processes, moving on to external counsel to explain why ADR is the next process only once the previous one unsuitable; and has failed to resolve the matters in dispute • Where ADR is not used, stipulating a within the timeframe stipulated. review of the dispute resolution strategy and case assessment at regular intervals. 12 Hogan Lovells

Senior management If external counsel are based in jurisdictions The approach adopted by senior where ADR is less common, time may have management and the Board to ADR and to be spent educating them and ensuring the extent to which they publicly support they are completely aligned with the its use can significantly impact the dispute organization’s approach. Conversely, if resolution culture of an organization. external counsel is experienced with ADR, Their stance can be expressed with, their assistance may be enlisted to for example: formulate the ECA system, draft the guidelines and/or any formal statements. • A formal statement of support for External counsel may also be able to assist ADR use; with ADR education and training and the • A requirement for stakeholders and the selection of ADR clauses. If external in-house legal team to either use ADR or counsel’s ability to assist with the promotion explain why it is not appropriate; and/or of ADR is important to an organization, • A public pledge by the organization to then consideration can be given to including use ADR processes wherever possible. it as an element of a law firm panel review, pitch process or global engagement letter. External counsel In order effectively to implement a Here to help consistent dispute resolution strategy, Hogan Lovells’ ADR team has extensive external counsel will need to be fully experience in resolving commercial apprised of the organization’s chosen differences using mediation, expert strategy and all that it entails. If an ECA determination, adjudication and early system has been put in place, then external neutral evaluation. We were a founding counsel will need to know what steps are member of CEDR and are prominent in involved and the relevant time-frames. other leading ADR organizations. Similarly, if guidelines are implemented or This experience enables us to help our senior management has conveyed a formal clients to implement dispute resolution approach to ADR, then the organization’s strategies which actively seek to promote expectations will need to be communicated the use of ADR. to external counsel. This is particularly important if external counsel are expected to comply with specific obligations. Further information If you would like further information on any aspect of ADR or in relation to implementing a dispute resolution strategy, please contact any of the people listed on the next page or the person with whom you usually deal within the firm. Contacts

Neil Mirchandani Partner, London T+44 20 7296 2919 [email protected]

Suzanne Tager Senior Associate, London T +44 20 7296 5327 [email protected] 15 Alicante Amsterdam Baltimore Beijing Birmingham Boston Brussels Budapest* Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Jakarta* Johannesburg London Los Angeles Louisville Luxembourg Madrid Mexico City Miami Milan Minneapolis Monterrey Moscow Munich New York Northern Virginia Paris Perth Philadelphia Riyadh* Rome San Francisco Sao Paulo www.hoganlovells.com Shanghai Shanghai FTZ* Silicon Valley “Hogan Lovells” or the “firm” is an international legal practice that includes Hogan Lovells Singapore International LLP, Hogan Lovells US LLP and their affiliated businesses. Sydney The word “partner” is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee Tokyo or consultant with equivalent standing. Certain individuals, who are designated as Ulaanbaatar* partners, but who are not members of Hogan Lovells International LLP, do not hold qualifications equivalent to members. Warsaw For more information about Hogan Lovells, the partners and their qualifications, see Washington, D.C. www. hoganlovells.com. Zagreb* Where case studies are included, results achieved do not guarantee similar outcomes for other clients. Attorney advertising. Images of people may feature current or former lawyers and employees at Hogan Lovells or models not connected with the firm. *Our associated offices © Hogan Lovells 2019. All rights reserved. 1052436_0319