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ADR challenges for general counsel

by Philip McMullan on 09 Jan 2017

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The legal system and legal profession are, by their very nature, conservative. There are good reasons for this. Certainty is key for businesses, to ensure that they operate within the law and that their investments are made with the full facts about potential liabilities. A legal system which changed the rules frequently would make it impossible to do business. And clients are unlikely to be impressed by a lawyer who wants to innovate with a new approach when there are millions of pounds in dispute. Stick to what works, what's tried and tested, to achieve a predictable outcome, is the conventional wisdom.

These facts were brought home to me when I recently discussed ADR with the general counsel (GC) of a large FMCG business and two litigation partners based in London. All are UK-qualified lawyers.

The case against ADR

"Why don't GCs push for more ADR when disputes arise with long-standing business partners?" I asked the group. The litigators immediately opined that any party who requests mediation immediately looks weak to the other side, potentially damaging their long-term interests.

The GC added that when signing a large deal the last thing anyone is thinking about is the dispute resolution clause. And what’s more, the transactional lawyers working on a deal don’t have any experience drafting structured dispute resolution clauses. So, while the parties can agree to mediate, there won't necessarily be an agreed step-by-step process which keeps the dispute from going to court unless absolutely necessary.

Furthermore, they all agreed that there is often personal animus from aggrieved executives fuelling the dispute. When senior stakeholders are pushing for an aggressive strategy – the corporate equivalent of the day in court - it makes it difficult to suggest mediation.  

I found it interesting that these senior lawyers could all see the inherent upsides of ADR – privacy, potential cost savings, risk management – yet, for a variety of reasons (both structural and cultural), were more likely to pursue litigation as a means of resolving disputes.

Why general counsels might consider ADR

The fact that senior lawyers know that ADR might present a better way to resolve disputes was noted across the Atlantic in a 2015 article by former Delaware Supreme Court Chief Justice, Norman Veasey, and former Chancellor of the Delaware Court of Chancery, Grover C. Brown.  The piece, published in US publication "The Business Lawyer", looked at "the hard choices that face a general counsel when weighing the pros and cons of whether and when a particular complex business dispute is better suited for litigation in the public courtroom or through a carefully constructed alternative dispute resolution process, including mediation and/or arbitration".

The distinguished authors also carried out extensive interviews with 19 GCs or their principal in-house colleagues –  from companies including Walt Disney, Oracle, Walgreens, Proctor & Gamble and General Dynamics.

The conclusions drawn by Veasey and Brown reflected what I had found in my discussions in the UK:

  • A preference for mediation is almost universal.
  • Mediation provokes commercially rational thinking and decision making.
  • International arbitration is strongly preferred to litigation in foreign jurisdictions.
  • International arbitration has features that domestic arbitration does not, including restrictions on pre-hearing information exchange and proven experts in both the arbitral process and the subject matter of the dispute.
  • Confidentiality is highly valued.
  • Not all transactional lawyers perceive that they have the ability to negotiate arbitration structures that safeguard against the flaws they fear in the process.
  • Dispute resolution provisions are too often addressed too late in the deal negotiations, either by attorneys who know the deal but are insufficiently familiar with dispute resolution processes, or (ironically) by attorneys familiar with ADR but insufficiently knowledgeable of the deal at hand.

It is probable that the US is ahead of the UK in take up of ADR by senior in-house lawyers. But it is clear that both jurisdictions face challenges in convincing all stakeholders to buy in to robust and structured dispute resolution processes allowing for ADR - despite the fact that they might rationally see the upside. It is up to the ADR community to continue to educate the market about the benefits of adopting a structured approach to dispute resolution and the importance of thinking about it before disputes arise.

The legal market may be conservative but that does not mean it is incapable of change.      

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Topics: ADR, Litigation

Philip McMullan

Written by Philip McMullan