LAC Guidelines Chapter 18: Alternative dispute resolution clauses in legislation

Introduction
Background
Issues discussed

Part 1: Is there a need for an alternative dispute resolution mechanism?
18.1.1 Outline of issue
18.1.2 Comment
18.1.3 Guidelines for determining whether or not to include ADR provisions

Part 2: Which dispute resolution processes are most suitable for the disputes likely to arise?
18.2.1 Outline of issue
18.2.2 Comment
18.2.3 The options for ADR
18.2.4 Choice of process: some guidelines
18.2.5 Balance of power between parties

Part 3: What are the principles of ADR that need to be incorporated into statutory provisions?
18.3.1 Outline of issue
18.3.2 Comment

Part 4: How may a statutory dispute resolution process be designed?
18.4.1 Outline of issue
18.4.2 Guidelines for designing an ADR process: a checklist

This chapter deals with methods of dispute resolution that can be included in legislation. It uses the term "alternative dispute resolution" (ADR) as a collective description for any form of dispute resolution, other than methods for pursuing relief through a court or tribunal or under the Arbitration Act 1996 or its predecessor.

History: ADR in legislation

Dispute resolution processes have traditionally been practised in addition to the process of litigation by individuals, corporations, or States wishing to negotiate their differences, whether the dispute relates to the neighbours fence or high-level international affairs. Apparently, in reaction to the high cost and delays associated with conventional litigation, there has, over the last 20 years, been a conscious development of alternatives to litigation. Though often using the techniques of negotiation, these alternatives offer a more structured approach than negotiation. Alternative dispute resolution has been acknowledged as an efficient means of providing effective remedies for parties in dispute.[1]

The growing awareness of the value of resolving disputes by methods other than through the courts is apparent in various ways in New Zealand. The time-honoured alternative to litigation was arbitration under the Arbitration Act 1908 (and now under the 1996 Act). However, policy makers in government have picked up on the notion of including provisions for alternative forms of dispute resolution in statutes other than under the Arbitration Act 1996. A survey of the New Zealand statute book indicates that ADR options have increasingly been adopted by the New Zealand Parliament and that the range of options is wide.[2]

The rules of court have also given an impetus to the use of ADR, for example, by requiring engagement in case management, to help deal with problems of court congestion and delay.[3] Moreover, the courts have encouraged the use of ADR in a variety of contexts, not just where the relevant statute or contract provides for its use.[4]

What are the advantages of providing for ADR?

ADR processes offer some or all of the following benefits:

(i) Process benefits

ADR—

• is more accessible to the parties than litigation:
• allows the flexibility to resolve complex issues not readily adaptable to adjudication:
• gives the parties a "voice" by enabling them to articulate their grievances and have their concerns listened to:
• can give the parties the choice in the selection or appointment of an impartial third person to assist in the process:
• promotes co-operative and problem-solving approaches to disputes:
• may permit clarification of the facts and issues and so enable resolution without further intervention by a third person:
• provides an opportunity for the parties to negotiate settlements that meet their needs and interests (and not just their rights):
• may meet psychological needs, for example, if an apology or explanation is important to 1 or more of the parties:
• permits a speedier resolution of a dispute:
• can accommodate confidentiality:
• can counteract the trend towards "judicialisation" of disputes:
• overall, is a less stressful and less confrontational process.

(ii) Outcome benefits

ADR—

• provides savings in cost and time:
• may promote a sense of achieving better access to justice:
• is conducive to the preservation of relationships (if this is an important consideration):
• empowers parties to buy into and participate in the outcomes:
• offers better scope than is possible in litigation for a wider and more flexible range of remedies that are tailored to the circumstances of the case and the interests of the parties:
• enables privacy to be protected:
• can accommodate an equitable outcome for both or all parties (not just the winner):
• where a dispute involves a number of parties with the same complaint, promotes equity among the parties (for example, where the parties have a common concern in a planning or environmental dispute):
• as a matter of public interest, promotes access to justice by enabling more efficient management of the resources of the courts.

ADR complements the resolution of disputes that takes place within the court system. It provides processes that can either stand in their own right or can be used as an adjunct to litigation. Having recourse to an alternative process to litigation enables parties to select dispute resolution procedures that are appropriate to individual situations; before or after a dispute arises, and allows parties to have greater control over resolving the issues between them.

Even if complete resolution is not achieved at the end of an ADR process, the issues may well have been clarified, with a resulting reduction in the time and costs of any litigation that may follow.

Is ADR always appropriate?

It may not always be appropriate to adopt ADR methods. For example, ADR may not generally be suitable for—

• criminal cases:
• cases where a point of law has to be determined, such as the meaning of a statutory provision:
• cases where the law needs to be clarified:
• cases where it is desirable to establish a general norm or precedent:
• cases where the critical facts are in issue and need to be determined:
• cases where safety issues arise, as in sexual harassment and family violence, unless appropriate security arrangements are available.

Is ADR appropriate in the public law context?

Traditionally, a cautious approach has been taken to resolving public law disputes by ADR. However, even that barrier is now questioned. Unless there is a legal principle dividing the parties, or a better result can be achieved through litigation than by ADR, ADR should be considered as an option for public law disputes.

In the United Kingdom, the courts have endorsed the use of ADR (mediation in particular) to settle disputes arising in the public law arena, by ruling that they should not permit judicial review proceedings to proceed "if a significant part of the issues between the parties could be resolved outside the litigation process".[5] As Lord Woolf stated in Cowl, "Today, sufficient should be known about ADR to make the failure to adopt it, in particular when public money is involved, indefensible".

Those cases indicate that, provided the powers underpinning the decision-making are discretionary, ADR offers a realistic approach in the public law context, even if—

• the facts of the case are complex:
• the decision-maker is a public body and the decision-making is complex and polycentric:
• the dispute focuses on matters such as financial transactions, environmental planning, or the delivery of public services such as education or social services:
• there is a large number of parties with the same concerns, such as in planning and environmental cases.

Undoubtedly there are limits to the resolution of public law claims outside the legal framework of the courts. For example, ADR may be unsuitable if—

• an important question of public interest or public policy arises:
• the dispute turns on a point of law such as the interpretation of statutory provisions:
• a case is concerned with fundamental individual rights or points of principle:
• a case involves an allegation of an abuse of power:
• the outcome sought would involve the public body acting outside its statutory powers (ultra vires).

The approach advocated by the English Court of Appeal has been used in New Zealand in the context of public law disputes, despite the differences in civil procedure between the 2 jurisdictions. Indeed, in a number of public law areas, Parliament has expressly legislated for the resolution of disputes by ADR rather than by litigation, or as a prerequisite to court action.[6]

ADR options available

There are various forms of ADR. Each of the ADR processes has advantages and disadvantages, making a process suitable for some cases but not others. For example, mediation and hybrid procedures provide a framework of informal procedures in which an impartial third person facilitates dialogue and assists the parties to gather information, clarify and narrow issues, smooth out personal conflicts, identify options, and test the reality of their separate views.

The following issues are discussed in this chapter:

Part 1: Is there a need for an alternative dispute resolution mechanism?

Part 2: Which dispute resolution processes are most suitable for the disputes likely to arise?

Part 3: What are the principles of ADR that need to be incorporated into statutory provisions?

Part 4: How may a statutory dispute resolution process be designed?

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The first issue is whether, in the particular statutory context, an ADR mechanism should be included. This will depend on whether, in the scheme of the statute, there is scope for disputes. If there is, consider whether an ADR process would be useful to assist with the better realisation of the policy intent.

The appropriate mechanism will depend on the nature of the dispute, the parties involved, the need for confidentiality, and the goals for resolution. If, on analysis, an ADR mechanism appears to be useful, there is guidance in later parts of this chapter on how to determine an appropriate process to ensure that the goals for resolution can be attained.

The following analysis must underpin all other considerations in determining whether to include ADR provisions in an enactment and, if they are to be included, what form they should take.

The matters set out in this part are relevant to the question of whether to provide for a dispute resolution process.

Is there scope for disputes to arise?

• Consider the kinds of disputes that may arise:
  • are they internal to the organisation?
  • are they between an organisation and outside parties such as clients, contractors, or competitors?
  • will the dispute involve a large group of individuals or entities?
  • will the dispute be in the public arena, involving a government agency or other public body?
• Does the dispute involve—
  • a conflict of values?
  • relationship issues?
  • disparity in access to information?

An affirmative answer to any of these questions is an indication that an ADR process is likely to be useful as a means of permitting the interests as well as the rights of the parties to be met.

There may be additional matters to take into account. In some cases, the dispute will involve safety issues for one or other party, as in cases of sexual harassment or family violence. In others, the underlying statute may be one intended primarily to establish rights that are the subject of dispute.[7] At first glance these factors might seem to indicate that ADR is less appropriate than formal court procedures. However, in practice, the adversarial nature of court procedures can prove unsuitable for determining disputes over delicate matters or matters where there are fundamental differences in the parties’ points of view. In such cases, ADR may better permit the needs of the parties to be met through a process that has an educative or conciliatory effect for the parties. This cannot usually be achieved in the "winner-takes-all" context of conventional court proceedings.

Are there costs associated with the current approach to dispute resolution?

• How are disputes currently resolved?
• What are the costs of the current approach to resolving disputes, in terms of—
  • resources, time, and money?
  • productivity loss (both staff and management)?
  • cohesiveness of the entity?
  • public and client perception of how the dispute is handled?
  • the political impact of the conflict?
  • the impact on business, professional, organisational, or personal relationships?
• If any of these costs arise, could the cost be removed or mitigated by a statutory requirement for ADR?

What are the goals of resolution?

• Consider whether the goals of dispute resolution would be to—
  • maximise the opportunities to settle disputes?
  • minimise the costs associated with a dispute (costs both to the parties and to the taxpayer)?
  • minimise social disruption and disharmony?
  • avoid litigation?
  • maintain confidentiality?
  • preserve relationships?
  • ensure that agreements are fair to all the parties involved?
  • ensure that the parties have had the opportunity to communicate with each other?
  • ensure that the needs or interests of the parties are met (as far as possible)?
  • meet the needs of unrepresented persons such as children or employees?
  • give parties control over the outcome?
  • encourage compliance with agreements, without further legal process?
  • assist resolution by the involvement of an impartial third person?
  • provide for all of the above?

An affirmative answer to any of these questions is another indication that an ADR process could be useful.

Summary

All these matters need to have been considered to answer the question:

Once it has been established that it is desirable to include an ADR mechanism in the statute, it is necessary to determine which process would be most suitable.

There are many forms of ADR. Among ADR practitioners, there is debate about the extent to which the processes should be defined. The prevailing view of practitioners is that clients’ confusion as to which ADR process to use and how the various processes work would be reduced if legislation defined and used ADR terminology consistently.[8] Definitions based on best practice and reputable usage are proposed here for convenience, but in some processes there may be an overlap that cannot readily be captured in a definition.

The ADR processes most likely to be suitable for inclusion in legislation can be divided into 3 broad categories:

• Facilitative processes involve an impartial third person with no advisory or determinative role who provides assistance in managing the process of dispute resolution.
• Evaluative processes involve an impartial third person who investigates the dispute, advises on the facts and possible outcomes, and assists in its resolution.
• Determinative processes involve an impartial third person who investigates the dispute and makes a determination that is legally enforceable.

Facilitative processes

Evaluative processes

Determinative processes

Combined facilitative and determinative ("hybrid") processes

The processes outlined above may be combined into a hybrid system for a particular purpose. For example,—

• elements of arbitration and mediation can be combined (often called "med-arb"). This process begins with mediation and, if this does not resolve the dispute, continues with binding arbitration:
• in some circumstances a mediator may, with the parties’ agreement, make a unilateral determination: see, for example, the use of an "arbitrating body" (as in Schedule 3 of the Police Act 1958):
• counselling can be used in conjunction with mediation:
• expert appraisals can be used during the course of mediation and arbitration.

Particular attention must be paid to procedural matters if a combination of processes is to be used. Clear rules must be established for a hybrid process before it is commenced. These need to cover matters such as:

• how the principles of natural justice will be adhered to:
• caucusing (i.e., private sessions with an impartial third person):
• confidentiality:
• the status of any information, admissions of fact, or offer of settlement terms disclosed in the course of the process:
• appellate rights.

Because of the difficulties likely to be encountered in reaching a common understanding of, and agreement to, such detailed process arrangements, hybrid forms of dispute resolution need to be approached with caution and are not generally recommended.[11] If, however, the desired approach is to allow for a hybrid form of ADR, at the very least, it should be a requirement that the impartial third person who has conducted a facilitative process must not proceed to determine the dispute.

Considerations pointing to the use of a facilitative process

The decision as to which dispute resolution process is best suited to the particular context is likely to be determined in light of a range of considerations. A "Yes" answer to any of the following questions is a strong indication that it is appropriate to adopt a facilitative process:

• Is it preferable for the parties to retain control over the outcome?
• Is a self-determined, consensual outcome preferable to a prescribed decision?
• Would there be benefit in parties being able voluntarily to enter into and exit from the process?
• Is confidentiality desirable?
• Would a flexible and informal procedure assist the parties?
• Are issues of cost and speed of resolution important?
• Would it be advisable to call on the help of an impartial third person?
• Is maintenance of a relationship (for example, a personal, professional, or contractual relationship) significant?
• Is it important to deal with factors that will affect the future as well as with present and past matters?
• Is the dispute best resolved by a remedy not available in litigation?
• Would it be useful to obtain input into the resolution from persons who may not be involved if the matter were dealt with in legal proceedings?
• Would the parties benefit from achieving finality by avoiding the prospect of appeal and enforcement procedures?

Considerations pointing to the use of an evaluative or determinative process

The provision of an evaluative or determinative process may be indicated if the answer is "yes" to any of the following questions:

• Is a legal precedent required (such as a declaration of the meaning of a statute)?
• Is a rights-based determination required (not just desired)?
• Must rights be determined beyond those of the immediate parties?
• Does the case involve an issue of high public policy?
• Is there a high degree of public interest in the outcome?
• Is there a need for the process of resolution to be public for accountability reasons?
• Is there a need for the impartial third person to have particular expertise?
• Is there a need for the impartial third person to be more directive and the process less self-directed?
• Must the process permit finality?

The relative power of the parties is a question that gives rise to both ethical and practical considerations. In a facilitative process the impartial third person may have a role in managing any imbalance of power between the parties.

Commentators vary as to how they assess the importance of the issue. Some see the availability of a swift and inexpensive opportunity to present a grievance across the table as a means of levelling the playing field in favour of the weaker party. Others regard the party with the greater power as being able to take advantage of the informality of the mediation process to exercise that power, to the disadvantage of the weaker party.

Power imbalance is certainly a factor to be aware of, but the extent to which it plays out in each case is not clear. Experience shows, however, that many disputes arising in "power relationships" are successfully mediated under existing statutory schemes, as in the employment and family law environments.

Where there is a significant power imbalance issue, or where sensitive interests are at stake and there is a risk of feelings boiling over during the ADR process, it may be necessary to consider what arrangements should be made for the physical security of the parties. Analogies can be drawn with arrangements made in courts for dealing with the risk of outbursts by parties to a dispute. High sensitivity issues are litigated generally without heavy-handed security. Nevertheless, security is a factor to which attention should be paid when designing a process for dealing with sensitive disputes.

The factors discussed in this Part need to be considered before answering the question:

It is important for the rigour of the process and the protection of parties that, if ADR provisions are included in legislation, the statute recognises and incorporates the relevant principles.

In formulating and designing dispute resolution provisions for legislation, a number of important principles must be considered, bearing in mind the particular context in each case.

Facilitative processes

This is an evolving area in terms of the relevant principles, but the following matters are likely to be key in any statutory scheme setting up a facilitative form of ADR:

• The processes that are facilitative are generally entered into on a voluntary, consensual basis. However, given the advantages of using a facilitative process, a form of compulsion should not inevitably be avoided. The statute should always identify whether the process is to be voluntary or compulsory.
• If the statute is to make a facilitative process compulsory for the resolution of disputes, then the cost of the process should not be a barrier to entering the process.
• An impartial third person (such as a mediator) is not a decision-maker. Decision-making powers should not be vested in the impartial third person unless specific provision is made for the process and rights of natural justice (see "Combined facilitative and determinative ("hybrid") processes", pages 13-14).[12]
• No form of pressure or coercion may be included that would require the parties, once within the facilitation process, to reach an agreement.
• When parties agree to enter a facilitative process, they should always retain the right to withdraw.
• Costs or other sanctions should not generally be imposed if a party refuses to enter a facilitative process or to continue the process to an agreement, although in some contexts there is now a trend to displace this principle.[13]
• Provision should be made for procedural matters to be agreed, including matters as to confidentiality, privilege, and costs.
• Care should be taken to use the correct terminology to describe the impartial third person.[14]
• It is generally desirable that parties have the right to nominate their own impartial third person, although if the parties are meeting the costs of a facilitative process, the right to nominate an impartial third person such as a mediator is imperative.[15]
• If the impartial third person must report on the outcome of an ADR process, it should only be as to whether the matter was settled or not, the terms of the agreement, and, if necessary, matters outstanding. The positions of parties should remain confidential.
• Provision should be made to exclude the personal liability of the impartial third person for things done or omitted from being done (provided that person acted in good faith).

Evaluative processes

These processes are not dealt with in detail here, because there are elements of evaluation within both the facilitative and determinative processes. Definitions of these processes were included in Part 2 for the sake of completeness, recognising that both processes are used in practice and that the term "conciliation" is found in a number of statutory contexts, especially internationally.[16]

Determinative processes

The principles and rules applying to the arbitration process, including the international aspect of arbitration, are set out in the Arbitration Act 1996. For this reason, it is not proposed to deal with arbitration in detail in this chapter.

Adjudication and expert-determination processes may also be proposed as alternatives to litigation through the courts. They are usually designed very specifically to suit the needs of the situation for which they have been created.

The appropriate principles for a determinative process will emerge from considering the following matters:

• the principles that apply in deciding whether to adopt a facilitative process; and
• the type of dispute for which the resolution process is designed; and
• the principles of natural justice, the application of which is critical in a determinative process, namely—
  • that a decision-maker should have no bias or interest in the outcome of the dispute; and
  • that a party has a right to be heard by the person who will decide the dispute; and
  • that to make this right effective, each party must have—
    • notice of the case made against it by the other party; and
    • the opportunity to present its own case and answer the case presented by the other party; and
  • that determinative powers are best exercised in public, with the decision-maker explaining the reasons for his or her decision (openness encourages accountability and minimises the opportunity for corruption); and
  • that, generally, appeal rights from alternative determinative procedures are limited, so as to ensure that the procedure remains truly an alternative to court action, and does not become merely a first step that extends the litigation for which it is meant to be a substitute.

This part deals with what needs to be considered in drafting legislation that includes dispute resolution provisions. In the main it returns to matters dealt with in the preceding parts of this chapter.

After the most suitable dispute resolution process has been decided upon, the next step is to consider which elements to include in legislation. In designing the process, review and be guided by the consideration as to whether ADR is appropriate or needed, as raised in Part 1, the options discussed in Part 2, and in the principles set out in Part 3. It is important to be thoroughly familiar with those matters.

The following 6 matters are suggested as a checklist that might usefully be considered for a statutory scheme for ADR:

(i) The process to be used

• Does the process need to be defined?

(ii) Parties

• Who are the parties that need to participate?
• Is there a need to ensure that persons entering an ADR process have authority to settle?
• Will there be a requirement for the parties to consult with particular people or groups such as stakeholders?

(iii) Getting an ADR process underway

• Will entry into the process be compulsory or voluntary?
• What is the effect of these options on the parties:
  • will voluntary entry merely delay attempts at resolution?
  • will compulsory entry affect the desire of the parties to participate?
• What is the optimum stage at which intervention by ADR should occur?[18]
• How, when, and where will the process be initiated?
• Is there a need to stop time running in any court proceedings to allow ADR to be attempted?

(iv) Impartial third person

• Would it be advisable to use an impartial third person?
• Should the parties have the choice of the impartial third person?
• How is an impartial third person appointed if the parties do not agree on a person?[19]
• Should provisions be considered for setting up a panel of independent mediators to complement the statutory regime and facilitate its implementation?
• Is there a need to identify any particular expertise or qualifications required of an impartial third person or set out the scope of that person’s role in the process?
• Is it necessary to provide for the impartial third person to deal with any imbalance in the resources or bargaining strength of the parties?
• Although mediators do not have an advisory or determinative role, would it be useful to provide the mediator with the discretion to express a view to the parties (but no more than that)?
• Has the personal liability of the impartial third person been excluded in respect of his or her actions in the ADR process?

(v) Matters to include in the process

• Is there an existing process that would be appropriate to follow?[20]
• What features should the process have?
• Should there be screening at the pre-mediation stage, for example, with a filtering mechanism such as a substantive threshold test or criteria, so as to avoid the inappropriate use of mediation (particularly if mediation is to be compulsory).
• Should there be a time frame within which constructive dialogue must take place?
• To improve cost-effectiveness, would it be useful to include a facilitative process, for example, as a pre-condition for entry into—
  • litigation or into another adjudicative process?[21] or
  • another ADR process?[22]
• Has the need to observe the principles of natural justice been covered off?
• Has it been clarified that the process is confidential and privileged?
• In the circumstances, it is appropriate for the process to be confidential, or should it be public for accountability reasons?
• Is it necessary to provide for (or exclude) representation for the parties?
• Who provides and pays for the facilities used for the process?
• Who pays the impartial third person?

(vi) Providing for resolution

• Should any resolution agreement be legally binding?
• How will an agreement be enforced?
• What happens if there is no resolution at the end of the process?
• If ADR fails, wholly or in part,
  • will there be recourse to another process?
  • how may entry to another process (e.g. court proceedings) be initiated?
• Is legal aid, or its equivalent, available?
• Is there relevant legislation that needs to be considered that is,
  • is there a need to clarify how the provisions fit with other legislation?
  • is there a need to save particular statutory provisions from being overridden by the ADR provisions?

Finally, to test the scheme, ask the questions:

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CONTACT DETAILS

For the materials referred to in footnote 20 or advice referred to in footnote 7 to the model clauses:

Arbitrators and Mediators Institute of New Zealand
P O Box 1477
Level 3, Hallenstein House
276-278 Lambton Quay
Wellington

Telephone: 64 4 4999 384
Facsimile: 64 4 4999 387

Email: institute@aminz.org.nz
Website: www.aminz.org.nz

LEADR NZ (Association of Dispute Resolvers)
PO Box 10991
Level 8 Terrace Legal House, The Terrace,
Wellington

Phone: +64 4 470 0110
Fax: +64 4 470 0111

Email: leadrnz@xtra.co.nz
Website: www.leadrnz.co.nz

New Zealand Law Society (Wellington. office)
PO Box 5041, Lambton Quay,
26 Waring Taylor Street
Wellington 6145

Telehone: 64 4 472.7837
Facsimile: 64 4 473.7909

Email: inquiries@lawyers.org.nz
Website: www.nz-lawsoc.org.nz

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