The International Institute for Conflict Prevention and Resolution is driving broader acceptance of alternative forms of dispute resolution. Its president and CEO, Noah Hanft, explains how the organisation is helping address the major misconceptions
Noah Hanft knows a thing or two about resolving business disputes. After nearly 30 years working at MasterCard, he is well-attuned to the fact that traditional litigation is not always the answer. Now, as head of the International Institute for Conflict Prevention and Resolution (CPR), he is helping to spread the word among corporates and banks.
The message seems to be getting out. A new generation of general counsel are taking a more pragmatic approach to dispute resolution, challenging the traditional view that litigation is simply a cost of doing business. They are realising that alternative dispute resolution (ADR) makes sense economically, and that resolution via arbitration or mediation is more likely – and quicker – than a court case.
To describe this changing mindset, CPR has embraced the phrase 'redefining winning'; success isn't a court ruling, but managing disputes in a way that has minimal business disruption.
Here, Hanft describes why CPR is uniquely positioned to move the ADR debate forward, the misconception that 'A' in ADR is akin to an alternative lifestyle, and the cost savings that flow from early case assessment protocols.
How does CPR differ to international arbitration centres?
CPR is different in significant ways, which give rise to many of the advantages that we have vis a vis other international arbitration alternatives. Firstly, CPR was created over 35 years ago by corporations and counsel who were looking for alternatives to traditional litigation. That in and of itself – that heritage – has led CPR to focus not only on providing services, but also on being a think tank and thought leader in the dispute resolution space.
The composition of CPR's membership is notable. Very progressive law firms, leading corporations, in-house counsel, academics, judges, some government officials – it's very broad, but they all share a common interest in advancing the state of dispute resolution around the globe. And I think this grounding makes it well suited to address many of the challenges that arbitration faces in the international arena. Our members' involvement has also really driven CPR to innovate and contribute to the dispute resolution dialogue.
Can you elaborate on how CPR is well-suited to address many of the challenges faced in international arbitration?
The development of the International Administered Arbitration Rules is a prime example of how our users and practitioners have worked together to advance dispute resolution and, at the same time, realise the fruits of their innovations. A few years ago a number of our corporate members asked us to address some of the challenges that arbitration faces, such as those relating to timeframe, costs, lack of impartiality and confidentiality – matters that go to the integrity of the arbitration process. And so our arbitration committee and CPR formed a subcommittee which, working with CPR staff, came up with these new rules that are highly innovative and designed in every respect to address the challenges that arbitration faces.
"If you can think about any ADR or arbitration process early on, I think it is a sign of strength"
Take, for example, timeframes. The CPR rules provide for a case to be completed within one year from the time the panel is constituted until the award. And this isn't a box-ticking exercise; it's a firm requirement, and CPR must approve scheduling orders that would result in the award being rendered more than 12 months after the constitution of the tribunal. We also wrote into the rules that all the parties, including the arbitrators and CPR, must utilise best efforts to meet that schedule. So it is a very real timeline, designed to get cases moving rapidly and address the concern that arbitration is becoming like litigation in terms of how long it takes.
A speedier process also drives down costs, as it means lower legal fees. In addition, the rules cap administrative fees. No matter how large the claim, the CPR's administrator fee is $34,000, which I understand is much lower than the alternatives.
But the most significant innovation, and the one that has been recognised around the world, involves the selection of the panel. We have the usual options, including appointment by CPR, or each of the parties choosing a panel member and the third being appointed by CPR or the two panellists. But the most unique aspect, and we are the only organisation where you see this, is the CPR Screened Selection Process. This preserves what many users like about arbitration – in terms of playing a role in the selection of the panel – but unlike the typical process, the choice is not known to the arbitrator.
That is a unique innovation in the international arena that CPR originally developed for its domestic market, but one that is particularly appealing for international arbitrations. Not only parties but also arbitrators are excited about it. When I speak to in-house corporate counsel, there is a lot of concern about the notion of arbitrators advocating for parties. And from what I hear from arbitrators, this unique aspect of CPR's rules takes away the psychological baggage stemming from knowing which party selected them, and then potentially coming out the other way. So I think it goes to the perception as well as the integrity of the process.
Separate from these recent innovative rules, CPR is well known for having instituted a self-administered arbitration process from its early days. This is where CPR has minimal involvement in the process, as parties are sophisticated and able to handle the arbitration on their own. Now with the new administered arbitration rules we provide the full range of options from non-administered to fully administered proceedings.
How can companies make use of CPR's services, and does this have to be decided at the time of entering their contract?
The answer to this is twofold. We believe that the best way to address dispute resolution is to have step provisions in contracts that allow for the escalation of disputes internally, then a mediation process followed by an arbitration provision if the parties desire. Using the CPR Protocol in Disclosure of Documents and Presentation of Witnesses in commercial arbitration, they can tailor their provisions. That is a classic way, but not the only way, to deal with it in a contract. Parties can seek CPR's assistance, whether they need a mediator or arbitration panel, so there is a whole number of different dispute resolution services we provide for all companies.
That said, being that the international administered arbitration rules just took effect in December 2014, we are excited that many companies in the US and Europe are putting the model provisions in their contracts.
Separately, I should note that corporations, individuals and law firms can be members of CPR, which provides a whole host of benefits that go beyond the services provided to any company that uses its dispute resolution services. Corporate users don't have to be members, but those that are receive additional tools, resources, and training that focus on making them premium dispute resolvers.
One of CPR's newest services is a flat fee mediation programme. Designed for claims up to $250,000, CPR has access to over 200 participating mediators that will mediate a claim for a daily fee of $3,500, or $2,500 for members.
What are the most common misconceptions about ADR and arbitration?
I think misconceptions are dissipating. There used to be concerns that a party appeared or could be perceived as weak if they suggested mediation. In fact, it is the opposite. If you can think about any ADR or arbitration process early on, I think it is a sign of strength. And I think sophisticated companies and thoughtful general counsel now see it the same way.
"Having a thoughtful, holistic approach to dispute resolution can create extraordinary savings"
That said, there are still some common misconceptions. One is that if you believe in ADR, then you don't believe in litigation. We at CPR recognise that some cases have to be litigated, for precedential purposes or even principle. But we also recognise that they are few and far between. Around 98% of all US federal civil cases are settled. And in terms of ADR, resolution is more of a question of when, than if. So embracing early case assessment protocols, and thinking about a holistic approach to dispute resolution as early on in the process simply makes good business sense.
Other misconceptions include the idea that arbitration is more prone to decisions not supported by law. Anyone familiar with court cases knows you get your share of bad decisions in that forum, too. Also, CPR rules require reasoned arbitration decisions and the application of the governing law of the contract.
Another misconception is that you can't appeal. From our experience, most companies prefer finality, but for those that do want an appellate right, a long time ago we created an internal appeal process that parties can opt into.
But my favourite misconception is that the 'A' in ADR is somehow akin to an alternative lifestyle; that it isn't a mainstream, common-sense process. I try to use the phrase 'thoughtful dispute resolution' rather than 'ADR' to encourage that line of thought.
Do you think the US deserves its reputation as a litigious society?
I think, in part, it continues to be a very litigious environment. But there have been some advancements, part of which is driven by costs, but also by the emergence of a more progressive, thoughtful generation of general counsel. These in-house are approaching disputes and dispute resolution in a business way, rather than taking the traditional view that litigation is a cost of doing business. And I think all those things have given rise to a less litigious mindset. I should also note that there are some jurisdictions, including Brazil and India, which can claim many – perhaps more than the US – lawsuits per person. So while the US is up there, improvements are being made.
What is the biggest hurdle to making corporate America more open to ADR?
One of the things I'm trying to do is talk about the issue not only with in-house lawyers, but also to CFOs, directors, those on the business side. This is because in many ways there is just a lack of awareness. People view litigation expense as a cost of doing business, and that creates a bit of complacency which gives rise to the acceptance of the status quo. But if you think about how much is spent on legal expense generally, in particular litigation, ADR can reduce that figure. Even if it's by 10% to 15%, that saving can be used for more jobs, product development and innovation – many more useful ways. Having a thoughtful, holistic approach to dispute resolution can create extraordinary savings, and the more that message can get out the better.
Also, I think that change like this within a corporation generally needs to be driven by the general counsel. It doesn't have to be – external law firms can help as well – but the more awareness can be raised among procurement officers, financial types and others, the more successful it will be.
You have been a lawyer for more than thirty years. During that time, how have you seen attitudes change towards ADR?
In some ways it has been dramatic, and it makes me think back to my early misconceptions. As a young lawyer I was a litigator, and I saw the litigation process as one that was designed to get to the best results, and which would ultimately be resolved by a trial that generally involved a jury. Then when you experience the world as an in-house lawyer, you realise that cases invariably get settled. Rarely do they go to trial, and sometimes you get bad decisions. But when you start realising the cost of litigation – and not just financial, but also the disruption to business and adverse impact on business relations – you really start to believe that there has to be a better way. I don't think my evolution in this sense is inconsistent with many others. Counsel often begin to embrace alternatives to litigation in a much more serious way as they progress in their career.
Also, the new generation of general counsel that I mentioned earlier includes a very significant increase in women; so you have many more women running law departments. Of course not every generalisation holds true, but I see that helping to drive the change, as some of these thoughtful, female general counsel are focussed not on the fight, but on moving on. I think that has helped change the environment.
In some jurisdictions ADR is required before commencing litigation. Do you think it should be a mandatory step in the court process?
This is a question that has caused some of the most controversy in the dispute resolution community. And I think it is because some view mediation as an entirely voluntary process.
"Change like this within a corporation generally needs to be driven by the general counsel"
The notion of mandatory mediation creates some concern in that compulsion is inconsistent with the whole rationale for the process. Having said that, I think encouraged mediation is successful. Some jurisdictions have required information sessions, and I see nothing wrong with that. The concern I have comes into play when mandatory mediation can give rise to liability for allegedly not negotiating in good faith. This is rare, but if parties are determined not to have negotiated in good faith, which is a subjective measure, they can be exposed to potential costs or sanctions.
So I take a moderate view on the issue. I think mediation should be encouraged so long as there are no adverse implications if a party fails to resolve a case because of the inability of the two sides to agree. It is important to encourage mediation, but making it mandatory and creating adverse implications for not negotiating in good faith – that becomes troubling to me.
In your prior role, as general counsel of MasterCard, your remit was much broader than dispute resolution. What prompted you to focus exclusively on this area?
When I was at MasterCard, over time I expanded my remit to a number of business functions – including franchise development and information security. And running business units for a company actually led me to take a more business-like approach to dispute resolution generally. So it was a combination of that, my experience with litigation, and many of MasterCard's class actions and other serious litigation being resolved through ADR processes that created an intense interest in mediation and arbitration. And the opportunity to run an organisation whose mission is so simple and so important, to continually strive for new and more effective ways to avoid or resolve disputes, was something I could not resist.
Now, the most important message I and CPR are trying to instill in business is the importance of thinking about dispute resolution as broadly as possible. We use the phrase 'redefining winning'. It's about changing the mindset of companies and legal departments so that they equate winning with the ability to focus on business, resolve disputes efficiently and intelligently, and to move on. That captures what CPR is all about.
Noah Hanft spoke to IFLR on July 21 2015
First published by our sister publication IFLR magazine. Take your free trial today.
President and CEO
International Institute for Conflict Prevention and Resolution
About the author
Prior to joining the International Institute for Conflict Prevention and Resolution (CPR) Noah Hanft was general counsel and chief franchise officer for MasterCard, where he was responsible for overseeing legal and regulatory affairs, public policy and compliance. He also had responsibility for franchise development and integrity, global diversity, corporate security and information security, and was a member of the company's executive and operating committee. After joining MasterCard in 1984, he briefly left from 1990 to 1993 to become senior vice president and assistant general counsel of AT&T Universal Card Services.
Hanft has lectured at length on the value of dispute resolution in resolving litigation, has served as an independent arbitrator and is on the mediation panel for the Southern District of New York. He serves on the boards of the Legal Aid Society and the Network for Teaching Entrepreneurship, and is a member of the Council on Foreign Relations. In 2012, he was named General Counsel of the Year at the Global Counsel Awards.
Hanft has an LLM from New York University School of Law in trade regulation, a JD from Brooklyn Law School, and a BA from American University, School of Government and Public Administration.