While mediation remains a highly effective dispute resolution technique, mediation is not always successful. One common reason is that both sides have an unshakeable belief in their case. This prevents the parties from making the kind of concessions needed to achieve resolution. But of course, they cannot both be right! One party, sometimes both parties, is badly misreading its case, and will be very disappointed in an arbitration. But which party is off the mark? Neutral evaluation is an alternative dispute resolution (ADR) tool that can be custom tailored to answer that question, efficiently and promptly, at far less cost than an arbitration or trial.
A well-designed neutral evaluation process with all parties to the dispute involved will yield highly practical, pointed input on the strength of both sides’ positions. If the evaluation is clear and persuasive, and well-grounded in the facts and law, the chances are excellent that the evaluation will be impactful for both sides, greatly easing the path to settlement.
Structuring a Neutral Evaluation
The hallmark of neutral evaluation is its almost unlimited flexibility – the process can be shaped to meet the needs of both simple and highly complex disputes. The three common elements are selecting an agreed evaluator, selecting an efficient process to get the relevant facts before the evaluator, and agreeing what the evaluation will address. These elements should be set out in a written evaluation agreement, but such agreements need not be lengthy - most are only a page or two long. The agreement also guides the evaluator in producing an evaluation that meets the parties’ needs.
The parties should consider obtaining a written evaluation, which can reduce miscommunication as to the substance of the evaluation, and allows that substance to be communicated accurately to upper management and others who must approve settlement. It also provides documentation of the basis for a settlement decision, helping to avoid later second-guessing. Neutral evaluations are non-binding, and typically usable only for settlement purposes.
An evaluation for a smaller dispute may involve only submitting written summaries and key documents. The evaluator’s views may be summarized in a few pages, and the whole process can often be completed within 30 days. That said, the evaluator needs enough information to evaluate the dispute in context, rather than as abstract issues of law and fact. Context is crucial to address accurately how the relevant contract provisions and legal principles are likely to be applied in the specific situation.
Where the heart of the dispute boils down to a few issues, the neutral evaluation can be limited just to those issues, so long as the sufficient context is provided to avoid an evaluation of limited value, not well-grounded in the contract and project history.
More complicated disputes generally add a presentation to the neutral evaluation process. The evaluator can then ask questions to clarify the parties’ positions and relevant context.
Here are some typical ground rules for such presentations:
- Each party has the right to make an uninterrupted presentation.
- All participating parties are entitled to be present.
- Each party can use its allotted time however it chooses. Some may choose to focus on presentations by counsel, while others may put forward individuals (including experts) who would be key witnesses.
- PowerPoint slides often help the evaluator recall the key points.
- The evaluator can ask questions at any time.
- Rebuttal presentations then conclude the process.
Usually the presentations can be completed in a day or less; this is not an extended process. The format is well suited to videoconferencing, such as via Zoom, which saves travel costs.
This basic structure of a neutral evaluation can be customized to fit the number and complexity of the issues and the amount in dispute. A key goal is for each party to believe that it has had a fair and equal opportunity to present its case. Agreement on issues like page limits for submissions and dates for exchanging materials help assure a level playing field and sense of fairness. Similarly, clarifying the parties’ understanding regarding the general scope of the written evaluation both sets expectations and informs the evaluator as to what the parties need to help them resolve their dispute. But even in the most complex and high-value disputes, the cost of the neutral evaluation should be kept to a small fraction of the cost of arbitration. As a non-binding process, neutral evaluation should not be allowed to grow so elaborate as to effectively become a “pre-arbitration” that potentially (if not successful in promoting a settlement) must be followed by a full arbitration.
Choosing the Evaluator
Selecting an appropriate evaluator is probably the most important decision in the process. The selection criteria are basically the same as those used when selecting an arbitrator. Deep knowledge of the type of dispute and the relevant legal and contractual principles is obviously a key component. Of course, choosing an individual with a reputation for integrity and sound judgment is of paramount importance. The value of the process as a settlement tool is closely tied to all parties believing that the evaluation has been impartial, fair and well-reasoned. Evaluators are required to quickly master the relevant facts and law, so choosing someone who is a “quick study” can assure that the process proceeds efficiently.
Decisiveness in a neutral evaluator is a quality that is frequently overlooked. The parties deserve an evaluation that pulls no punches and calls the issues clearly as the evaluator sees them. An evaluation that just outlines each party’s litigation risks can be better obtained from a mediator. At the neutral evaluation stage, the parties are usually more interested in hearing exactly how the evaluator sees the parties’ positions.
Alternative Uses of Evaluation
Neutral evaluation can also be valuable in a multi-party case, when only a subset of the parties wants independent input on the merits, such as for assessing their individual liability and/or convincing the non-participating parties to settle. One side of a two-party dispute often uses neutral evaluation to obtain an independent assessment of its prospects before committing further resources. Obtaining an accurate and useful evaluation without all parties participating requires that arguments and facts favorable to the non-participating parties be accurately presented, such as by assigning one member of the legal team to act as surrogate opposing counsel.
Reaching an Agreed Settlement
Neutral evaluation can be used in many ways to break an impasse. Its usefulness is limited only by the imagination of counsel. Counsel should consider neutral evaluation in every case in which settlement has been elusive due to entrenched views on the merits.