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How effective are the
current UK dispute resolution methods of litigation, arbitration, mediation and
early neutral evaluation (“ENE”)?
Are they complimentary or mutually exclusive?
What is the anatomy of a dispute that precedes these? Julian Ward, managing
director of JTW Reinsurance Consultants and director of InterResolve and
WordingsPlus, provides a bullet point Summary
1. The anatomy of a dispute
● Issue - what are we arguing
about? Are the reasons objective or personal, how much quantum is
involved, are there intercompany politics?
● Objective - what do you want to achieve? What are the politics
impacting the other side - cash flow implications? What are each
party's settlement parameters?
● Roles - parties, consultants, lawyers? Ensure that advisors
contribute to commercial objectives, not simply trying to “win” an
intellectual challenge.
● Mechanism - which of the dispute processes could and should apply?
● Resolution - ensure key decision-makers get involved early, manage
internal and external political expectations, consider stakeholders
(such as reinsurers) and stay alert to “windows of opportunity” to
resolve matters earlier than prescribed.
2. Litigation
● Litigation is a well established process, with well respected judges,
extremely knowledgeable in insurance/reinsurance matters.
● Time and cost are the usual criticisms - and few mechanisms exist to short circuit these.
● Meticulously defined framework offers little chance of commercial remedy. The rule of law applies absolutely.
● The forum is public. Everyone has the right to access writs, decisions and attend hearings.
● The principle of precedent applies.
3. Arbitration
● The parties themselves write the desire to be bound by arbitration
into the contract, with the 1996 Arbitration Act providing fallback
provisions.
● The strict rule of law does not necessarily apply.
● Contrary to one its main “raison d'etres”, arbitration is increasingly costly and time consuming.
● The forum is private, decisions are private and a commercial approach applies (supposedly).
● Having been adopted by the reinsurance market as the main process for over 30 years, the process is now well established.
● Precedent does not apply.
● There is a pivotal choice of arbitrators - whether they should be
market or legal people. The umpire or third arbitrator is normally a
lawyer.
● The arbitrators have the role of judges, not advocates.
● Rights of appeal are limited to questions of law.
● Reasoned awards are the norm in the UK, unlike the US.
4. Arbitration -vs- Litigation
● The real decision between dispute resolution procedures usually takes
place when the contract is formed, not when the dispute arises.
● The Arbitration Act means courts must stand back where the contract clearly stipulates arbitration.
● Costs and procedures are becoming more and more uniform between the
two systems, particularly with regard to pleadings and discovery.
● Litigation tends to offer more speedy remedies for clear cut cases
(summary judgement), whereas arbitration is normally still quicker for
“full blown” disputes.
● Usually the same remedies are available. English arbitrators cannot,
for example, vary the remedy for non-disclosure or mis-representation.
● There is the possibility of appeal against an arbitration award
through the court process on a point of law, but not to question an
interpretation of the facts.
● Arbitration is private and court proceedings are public. In reality,
the London Market grapevine ensures this once clearest of all
distinctions is becoming blurred.
5. Mediation
● A qualified mediator facilitates a forum for the parties themselves to achieve a resolution.
● Absolute privacy and confidentiality applies throughout.
● Gaining in credibility, thanks mainly to a very high success rate.
● Less successful for complex, fact-intensive disputes (as often applies to reinsurance).
● Normally cheaper and more efficient.
● The outcomes once agreed are enforceable.
● Remedies are far more flexible (one criticism can be “splitting the baby”).
● The key flaw is that mediation is normally used too late in a dispute
- an adjunct to litigation and arbitration rather than an alternative.
6. Early Neutral Evaluation (ENE)
● Characterised by an independent evaluator, very early in a dispute,
listening to both sides key facts and issues and providing a viewpoint
- the finding can be binding or nonbinding.
● The “new kid on the block” in many respects.
● Significant benefits in terms of speed and cost.
● The “worst-case” scenario involves a non-binding ENE providing both parties with a “get real” assessment of their case.
7. Is it mediation or ENE?
● ENE is perceived as a more judgemental procedure.
● There is greater client involvement in the process and outcome of mediation.
● ENE and mediation are potentially complimentary procedures to litigation or arbitration.
● There is the possibility to combine both processes, with a neutral agreeing the terms of reference.
8. Combining the methods
● Certain market players already include litigation/mediation and arbitration/mediation stipulations in their contracts.
● Irrespective of contract provisions, mediation and/or ENE can be introduced by agreement between the parties.
● Combining methods can afford flexibility to both clients and advocates.
● Strict legal needs can be balanced with commercial considerations.
● Clients can balance timing and cost against available information.
ENE used at the start of the process can identify what facts need to be
ascertained before mediation becomes effective.
● Combining the methods affords an entire ADR strategy.
9. The future
● The “formal” processes of litigation and arbitration will always be necessary for certain disputes.
● Where both parties are commercially-minded, alternatives to
litigation and arbitration are available, cheaper and more effective.
● The reinsurance market remains intransigently resistant to embrace new initiatives.
The insurance market is shifting rapidly. The direct market is the most
commercially-minded and open to change. Can the reinsurance market
learn? It simply needs to unshackle itself from the restrictive
attitude of “the way it's always been done”!
Julian Ward is Managing Director of JTW Reinsurance Consultants and a Director of InterResolve and WordingsPlus.
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