Rather than litigate with clients, accountants are becoming more interested in mediation and arbitration. In this environment, the use of preclaim alternate dispute resolution technique agreements make sense. While there are advantages to such agreements, the author points out there are disadvantages and potential barriers to their use.
One of the results of the accountants' liability crisis is the growing interest by accountants in exploring alternative dispute resolution, commonly referred to as "ADR." The term ADR encompasses many innovative techniques for resolving legal disputes without litigation. While ADR has been used extensively for many years in some fields, its use in accounting is a relatively new development.
Litigation: The Traditional Dispute Resolution Method
Although dissatisfaction with the traditional legal system is well documented, the customary method for resolving most disputes is still the lawsuit. Americans, more than any other people on earth, take their problems to court. In recent years, however, criticism of the lawsuit has grown.
Criticisms fall largely in two areas. First, there are so-called "quality" complaints about the ultimate results of litigation. Critics assert that lawsuits offer only a "win-lose" outcome, preclude innovative solutions tailored to meet the specific needs of the individual parties, and result in unpredictable and inconsistent decisions. The second group of complaints relate to efficiency. Litigation is castigated for being slow, expensive, and time consuming.
As a result of dissatisfaction with litigation for both quality and efficiency, many different ADR techniques have been developed and are in use. Proponents of ADR maintain that ADR methods provide qualitatively better results in a more effcient manner. As a consequence of this widespread belief, ADR usage has experi enced phenomenal growth in recent years, with ADR methods almost completely displacing the lawsuit in certain types of disputes such as labor grievances, construction disputes, and securities claims.
Avoiding Litigation: Alternative Methods of Dispute Resolution
Although many different ADR methods are presently in use, arbitration and mediation are the most common. Other methods are often simply variants of these two basic ADR techniques. In mediation, one or more neutral individuals are selected to assist the parties in negotiating a compromise. Mediators do not have the authority to make a decision in the case, and where a compromise cannot be reached, the claim must be resolved by some other method, usually litigation or arbitration.
By contrast, in arbitration a neutral individual or panel of individuals is selected to consider the evidence at an informal hearing and reach a decision on the claim. Typically, arbitration is "binding," meaning the arbitrator's decision will be recognized and enforced in a court of law, and the parties cannot litigate the claim in court. Accordingly, in binding arbitration, arbitrators serve as a substitute for the judge and jury. In some instances arbitration may be "nonbinding." In this type of arbitration, the decision of the arbitrator is only advisory and either party may elect to ignore the decision of the arbitrators and litigate the claim in court.
ADR methods may be used either as a result of a legal mandate (sometimes referred to as "imposed" ADR) or voluntarily as a result of an agreement between the parties ("contractual" ADR). Since the right to trial by jury in most cases is constitutionally protected, legally imposed ADR is rarely binding on the parties.
Typically, mediation and binding arbitration are the result of a voluntary contractual agreement between the parties. Courts and legislatures generally recognize that individuals may elect to resolve their disputes by some method other than litigation and may, in the case of arbitration, waive their right to a jury trial. As a general rule, courts will enforce agreements to use ADR techniques as long as the agreement is properly and fairly made. …