Close the Gap. Building the Industrial Strategy and the ADR sector Chartered Institute of Arbitrators (CIArb)

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1 Close the Gap Building the Industrial Strategy and the ADR sector Chartered Institute of Arbitrators (CIArb)

2 Close the Gap Building the Industrial Strategy and the ADR sector Chartered Institute of Arbitrators (CIArb) The Industrial Strategy represents a once in a generation opportunity to change the culture of dispute resolution across the whole country. 8% only 8% of small businesses surveyed used ADR to solve their most recent dispute 1 1. The Industrial Strategy represents a once in a generation opportunity to change the culture of dispute resolution across the whole country. CIArb believes that greater use of alternative dispute resolution (ADR) can be made to deliver further efficiencies within the civil courts system in this transformational moment, supporting businesses to start and grow by making it easier to resolve disputes. A business education strategy would foster a culture change in dispute resolution and close a knowledge gap to ensure that conflict avoidance and dispute management are considered from the outset of commercial arrangements, promoting regional ADR hubs at minimal cost. This will support the delivery of a high-skilled and It is time to innovate Anthony Abrahams, CIArb Director General competitive economy, while strengthening the legal framework to encourage the development of well-functioning markets that work for everyone. 2. It is recommended that investing in innovation in the ADR sector should take the form of Government supporting the building of bridges between the various actors, enabling more effective interaction between private ADR providers and the civil courts to deliver savings and improve efficiency at a time of budgetary constraint. This strategy should be supported by the Department for Business, Energy and Industrial Strategy (BEIS), the Ministry of Justice (MOJ), and a coalition of professional bodies to raise awareness of ADR. This follows a landmark Federation of Small Businesses (FSB) report, Tied UP: Unravelling the Dispute Resolution Process for Small Firms, which highlighted that only 8% of small businesses surveyed used ADR to solve their most recent dispute. The report shows the existence of a knowledge gap and the fact that some small businesses are not aware that ADR exists at all. Furthermore, between a quarter and a third of UK business have reported that lack of awareness was a key reason for not using ADR to resolve their most recent disputes. 1 CIArb urges the Government to use the Industrial Strategy to forge a new deal for the ADR sector, businesses and the civil court system to close the gap.

3 25.7bn The legal services market contribution to the UK economy is valued at 25.7bn (1.6% of UK GDP) World-leader 3. The UK hosts a world-leading ADR sector which forms part of a complex dispute resolution ecosystem in which the courts perform an important enforcement function. London is a global centre for international commercial dispute resolution. The legal services market contribution to the UK economy is valued at 25.7 billion (1.6% of UK GDP). 2 Whilst the reputation of the courts system and that 40% of all governing law in all global corporate arbitrations is English law support its competitiveness, this position should not be taken for granted. English law is popular (a 2010 Arbitration Survey by Queen Mary University of London identified that 40% of companies surveyed chose English law for arbitrations and a recent 2015 Queen Mary survey identified that 45% of companies chose English law or England as a seat) but this does not necessarily mean that England will continue to be a popular seat going forward. 3 Disputes with regard to commercial affairs governed by English law can be, and increasingly are, settled overseas. Retired English judiciary are also playing an active role in dispute resolution centres across the Middle East and the Far East. Brexit should be used as an opportunity to develop other regional centres in the UK to drive growth across the whole country. 2

4 Small business disputes and creating the right local institutions 4. The FSB in its report Tied UP: Unravelling the Dispute Resolution Process for Small Firms estimates that between 2010 and 2015, around 62 billion was tied up in disputes involving small businesses. This equates to 12.4 billion per year during that period acting as a significant drag on economic growth. The report asserts that access to justice for small businesses is a burning issue and that helping them with disputes requires the development of a comprehensive three-tier dispute resolution system, consisting of prevention, ADR as well as courts. The FSB states that a new approach to dispute resolution must be put in place. 5 62bn It is estimated that between 2010 and 2015, around 62 billion was tied up in disputes involving small businesses 5. The Industrial Strategy represents a once in a generation opportunity to create a dispute resolution framework that caters for businesses and the wider economy across the whole country. CIArb firmly believes that the sovereign national courts must always remain the ultimate decision making pillar of a democratic society, particularly in the definitive interpretation of the law. ADR should be viewed as a complimentary mechanism utilised to settle disputes consensually or give decisions utilising the precedent based law handed down by the courts. Access to justice for small businesses is a burning issue Martin McTague, FSB Policy Director 4 6. ADR can assist the small business community to avoid protracted disputes in court and CIArb is an expert guide to the sector. CIArb contributed to the government s consultation on the Small Business Commissioner (SBC) and participated in a Confederation of British Industry (CBI) webinar on the reforms. On a separate note its arbitration rules will be utilised for the Pubs Code Adjudicator, with one of our members in post, though we were not directly involved in the development process TheCityUK estimated that there are 22,000 civil and commercial cases a year. 6 In a CIArb White Paper completed in 2016 following consultation with its members, we outlined how there is far greater capacity in the ADR sector to meet increasing needs. CIArb welcomed the recent comments by Lord Justice Briggs at the CIArb Mediation Symposium that ADR is to become a cultural norm in the justice system and that it is to go mainstream. 7 Lord Justice Jackson stated in a keynote on ADR and Civil Justice Reform at CIArb that ADR is an adjunct as well as alternative to the courts, with a substantial growth of ADR since April

5 Civil justice reform and ADR are intertwined Lord Justice Jackson on Civil Justice Reform and ADR 9 8. CIArb stated that the Online Court (OC) for claims up to 25,000 proposed by Lord Justice Briggs in the Civil Courts Structure Review (CCSR) for England and Wales is a concept whose time has come. It has also welcomed efforts in Scotland to promote ADR. As an integrated dispute track within the civil courts, private providers of ADR would complement and enhance the evolving structure of the courts by ensuring specialist expertise could be brought within the system as and when required, creating an innovative local institution that supports British business. Developing skills 9. Professional bodies play a key role in the sector, providing accreditation to practitioners and monitoring the quality of practice as well as facilitating ADR to develop skills. Standardised training and quality indicators such as CIArb s flagship ADR Pathways Programme boost confidence in alternatives to court as well as provide opportunities to enable people to build on their skill set and pursue new opportunities at every stage of life CIArb provides training to learn about dispute resolution, dispute avoidance and management, and to become a practitioner in this growing international field. We work closely with academic institutions and other professional bodies across the world, partnering with a global network of 46 Recognised Course Providers (RCPs). Many practitioners have had careers in other fields and transition to the sector later in life; with a growing demand for dispute management and conflict avoidance skills in the UK and overseas training in ADR can open the door to an exciting career in a critical role supporting businesses to prevent and resolve their disputes. 11. In schools we are seeing an increase in the teaching of mediation skills, from Southwark in London to Birmingham, to help pupils to resolve disputes. 11 This is equipping the next generation of business leaders with an awareness of conflict avoidance and dispute management. The Industrial Strategy offers an opportunity to build on this work as part of a wider programme of culture change, incorporating conflict resolution into other apprenticeships as well as developing an ADR specific scheme as part of a new deal for the ADR sector. 4

6 Culture change to support businesses to start and grow 12. Mediation is just one form of ADR. Arbitration, adjudication, conciliation, Dispute Boards (DBs), expert determination and online dispute resolution also play a major role in ensuring disputes are settled in a cost effective, efficient manner outside of the court system. CIArb has experts in all of these fields in membership and is willing to work with policy makers and the business community to ensure that small businesses have access to cost-effective, efficient redress that supports businesses to start and grow at a time of significant civil justice reform. 13. CIArb is excited by the development of a SBC but more could be done, including focusing on contract design so that they include ADR clauses and ensuring sufficient teeth for the enforcement of decisions. Options available to businesses include a range of ADR schemes, such as CIArb s Business Arbitration Scheme (BAS) which is a fixed fee Take the A out of ADR Lord Justice Briggs on the online court 12 scheme which will issue an award in under 3 months for low to medium value disputes ( 5,000 to 100,000). In complex supply chains and with late payment such a critical issue for small businesses it is more important than ever that contracts are designed effectively and that there is effective access to redress in order to avoid and manage disputes. 14. A key role for the SBC will be in driving wider cultural change. It is important businesses consider disputes from the outset, including in their contract drafting. Government also has a role in improving procurement by promoting conflict avoidance through its contracts. As a registered charity, CIArb provides free contractual clauses such as its recommended BAS Arbitration Clause. 13 Upgrading infrastructure and improving procurement 15. The management and avoidance of disputes must be considered as the UK s strategic infrastructure needs and priorities are analysed over a long-term horizon. CIArb welcomes the Government s continued focus on national infrastructure. It is important that an evolving civil justice system has the capability to enhance rather than hinder these developments. 16. A more strategic approach to dispute management would encourage even further investment, including a greater use of ADR procedures in 5

7 addition to proposed planning courts to fast-track development disputes that impede construction projects, such as delivering affordable energy and clean growth projects. 17. DBs, also known as Conflict Avoidance Boards, used with great success for domestic projects such as the London Olympics and overseas for the Copenhagen Metro and Hong Kong International Airport, reduce contingency and risk. They typically consist of between one to three neutrals and exist throughout the duration of a contract, firstly, to prevent disputes from arising by encouraging informal discussions, and, secondly, if necessary, give enforceable decisions on disputes that may arise before the completion of the contractual arrangements. They would be an effective and efficient means for the Government to ensure it keeps costs down when embarking on long-term, multi-party projects across all sectors; including major IT projects such as the development of the OC. 18. For large scale infrastructure projects, DBs have proved useful in resolving disputes before they crystallise into arbitrations. As referenced in the costs section of this paper, a typical cost of a standing DB on a project internationally is 0.06% to 0.30% of the final construction cost of a project. These are generally multi-million pound projects Action in these areas would contribute to a sustainable upgrading of our national infrastructure and enable the civil justice system to support the work of the National Infrastructure Commission and Infrastructure and Projects Authority. 20. CIArb is a member of a coalition of the UK s principal construction and engineering professional bodies; including the Royal Institution of Chartered 6

8 Surveyors, Royal Institute of British Architects, Institute of Civil Engineers, Dispute Resolution Board Foundation and International Chambers of Commerce UK, who have joined together in a ground-breaking coalition to help government and industry reduce the financial and reputational costs caused by disputes. 15 The future 21. This is a once in a generation opportunity to forge a new deal for the ADR sector; to close the business knowledge gap; to change the culture of dispute resolution; and to enable the UK to capitalise on a world-leading position to support skills development and develop regional ADR hubs across the whole country. 22. CIArb views sustainable commercial justice as a key engine for economic development as part of a modern industrial strategy, supporting the economic interests of businesses and safeguarding the rights of citizens whilst allowing small businesses to have access to redress so that they can compete and grow. It would reiterate that the ADR sector has a critical role to play within the civil justice environment in both supporting the courts and in promoting cost effective, efficient dispute resolution. 23. As with many sectors, there are far reaching debates about regulation in ADR at a global level. These range from mutual recognition to codes of conduct. It is therefore important that the UK continues to be proactive in these debates as well as alongside the Brexit negotiation process to encourage trade and inward investment. Brexit offers an opportunity to really dig into these debates and emerge as a third force to support other jurisdictions and encourage innovation in global regulatory debates; helping to deliver a high-skilled, competitive economy that benefits people throughout the UK. For further information on any of the points made above please contact: 7 Chris Wilford Head of Policy, Public Affairs and Research Chartered Institute of Arbitrators E: CWilford@ciarb.org T: +44 (0) W:

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10 CONTACT US To find out more about the public policy work of CIArb please contact the Policy & Research Team Chartered Institute of Arbitrators 12 Bloomsbury Square London WC1A 2LP T +44 (0) E policy@ciarb.org 21/02/17 ciarb.org Registered charity number: Chartered Institute of Arbitrators 2016