ALTERNATIVE DISPUTE RESOLUTION - NZ TECHO SUMMER 2017 ISSUE 71
Most of you will have come across a clause in an independent contractor agreement under this heading, which includes words along the lines:
“In the event of a dispute, the parties shall use their best endeavours to resolve the issue informally, but if no resolution is achieved within (x) days, the parties agree to submit the dispute to [arbitration/mediation/conciliation/determination by industry expert ]”. These recognised dispute resolution procedures are increasingly taken up by parties to agreements in the entertainment /media industries as an alternative to litigation, hence the clause heading. Litigation is however often retained as a default setting if the parties cannot agree or comply with a process or person to conduct the process.
The reason that alternatives to litigation are becoming more popular is likely to be obvious to those of you who have been caught up in a court case, particularly involving complicated employment, intellectual property or contract interpretation issues. It is frequently a lengthy, stressful and expensive process, often resulting in decisions that bear little resemblance to prevailing industry practices. And not nearly as sexy or dramatic as the courtroom scenes in Boston Legal, Judge John Deed or Rake make civil justice seem…..
On the basis that any party negotiating an agreement can suggest clauses it wishes to include, what do these various processes mean, and which situations are they best equipped to resolve? In the following paragraphs, I will briefly define and compare each method, and then make suggestions as to what might be included in a Dispute Resolution clause depending on what kind of dispute is likely to arise.
Arbitration has been a traditional alternative to litigation for centuries. It diverts commercial disputes away from the legal system into a private process in which an independent “arbitrator” chosen by the parties makes an award to resolve a dispute. Although the process can be without regard to legal technicalities, and can apply existing law and industry standards; there are very limited grounds to review an award – the Courts view being that the parties have agreed on a quicker and (usually) less expensive process before a person familiar with the industry concerned, so it is only if the process was blatantly flawed that an award could be overturned.
Studies of the use of arbitration in the entertainment industries in the USA illustrate an interesting fact – the major producers ie. studios and networks do not use arbitration clauses, but the guilds and unions did prefer these are included in agreements. The reason for this in the view of the Directors Guild for instance was that arbitration was “less adversarial” and therefore “maintained relationships”. The process of arbitration (and mediation) had proved particularly effective when disputes arose mid-term of a contract, and also allowed for parties to devise tailor made resolutions to the specific issues that can arise in the entertainment industry.
Where the dispute concerns narrow issues of industry practice, the parties may be able to limit matters for determination to the point where an agreed industry expert, acting in much the same way as an arbitrator, can be appointed to make a ruling.
The difference between mediation and arbitration is that mediation involves assisting parties in dispute to reach an agreement which resolves the matter, whereas arbitration is a process where the parties agree on an independent party to make the decision that resolves the matter. Having said this, some mediators (particularly with a legal background) take a more active part in the process by expressing an opinion, whereas some refrain from personal views or suggesting compromises. The latter, more passive form of mediation is sometimes termed conciliation.
In the same USA industry studies, mediation was seen as a process better suited to maintaining relationships in a collaborative industry. It “allows participants to formulate a resolution that is mutually agreeable “ and contains useful elements such as “a focus on confidentiality, speed and efficiency of implementation, and ability to solve problems creatively at relatively low cost..”
In the course of researching this topic, I also came across methods of alternative dispute resolution rejoicing in names such as mini-trials, neutral evaluation, Med-Arb (where a mediator becomes an arbitrator if the mediation fails) , even “dueling experts” (where experts debate an issue in front of a neutral party)!
However, the most common processes used in the entertainment industry are arbitration and mediation – both of which can incorporate elements from other methods because the parties can agree and set their own guidelines.
What to look for in ADR clauses
Although the topic of this article is the alternatives to litigation, there are instances where a party may not benefit from an ADR clause. For instance, the only issue facing a supplier of goods or services might be non-payment from the other party, and there may be some clout in retaining litigation as the only means of formal dispute resolution. This should be bourne in mind when deciding on including an ADR clause – the parties cannot resort to a court process if there is an agreed submission to ADR.
Aside from ensuring that the most appropriate method of Alternative Dispute is chosen, then the important features of an ADR clause are choice of adjudicator and the extent to which the process of dispute resolution is defined. As regards the latter point – I often consider whether to define what constitutes a dispute covered by the clause, and usually draft an initial section to the clause requiring both parties to attempt to resolve the matter informally, including at least one meeting in person between people with authority to resolve disputes. If the dispute cannot be resolved informally (within a stated time) then the next section of this clause needs to consider which of mediation or arbitration is the most appropriate method. In many cases, parties might agree to mediate their differences, but then go on to agree either arbitration or litigation if mediation fails.
The question of the person best suited to resolve the dispute may depend on the type of dispute:-
If it relates to the interpretation of a contract – either a Judge or someone with a legal background.
If it relates to industry standards or duties of care – someone with industry experience.
If it relates to compliance with technical specifications – someone with significant technical expertise.
In New Zealand, where there is a small pool of film and television personnel in a collaborative industry, there is obvious sense in attempting to resolve disputes informally and preserve relationships. The chances are that you will be working with the person you had a difference with on a previous project. But the same small industry limits the number of people with the requisite skill (and independence) to conduct a professional ADR procedure. The fall back position seems to be to submit the dispute to organisations such as LEADR or NZIAM, which are almost entirely composed of lawyers. And we all know how that is going to end…..