Tuesday, October 13, 2009

Risk management – alternative dispute resolution

1:46 AM Posted by: Slamun Atlanta 0 comments

Disputes represent an obvious risk for organizations; they can be costly in terms of fees and opportunity costs (lost management and executive time), and can be a threat to an organization’s reputation. Even with the best risk management systems in place, it is almost inevitable that an organization will be faced with a dispute at some stage. While it might not be possible in all cases to prevent disputes from arising, an organization can control how it responds to a dispute. The traditional approach, taken by organizations when responding to commercial disputes, has been to consider their legal position and, if there was a genuine relationship between the parties to preserve, initiate negotiations. If negotiations failed, the next step was to commence litigation proceedings in the courts.
In more recent times, organizations have realized the importance of managing disputes before they escalate to the point of litigation. In-house and external lawyers now consider whether an alternative dispute resolution mechanism can be applied to a dispute while it is in its early stages. This is because the costs involved in litigating a matter to trial are often grossly disproportionate to the amount that is at stake. As litigation progresses, management and executives are required to devote more time and attention to the dispute, particularly when parties are required to disclose relevant documents to the other side and submit detailed evidence to support a case.
Managers should be aware that litigation is not the only way to resolve a dispute. There are a number of other methods that exist, collectively described as ‘alternative dispute resolution’ (ADR) procedures, which are being increasingly used effectively to manage disputes and their consequent risks. In the UK, the courts first formally recognized ADR in 1998, with the introduction of the new court rules (known as the Civil Procedure Rules – CPR). Under the CPR, the court is charged with the duty of case management, and part of that duty includes encouraging parties to use ADR if the court considers it appropriate. In this chapter, we briefly outline three forms of ADR that have become more
popular in the UK’s commercial arena in recent times.1 We then focus on mediation, the most commonly used ADR mechanism in the UK. We conclude with a discussion of the costs risk to which organizations are exposed if they do not consider using ADR when faced with a commercial dispute


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