ADR for co-ops, mutuals, friendly, industrial & provident societies

Grant Jones - I understand co-operatives, mutuals, & industrial & provident societies, as I have been a director of two such organisations. There are very few skilled ADR practitioners with experience of this sector.

Co-operatives, Industrial and Provident Societies, Friendly Societies, mutuals in general have idiosyncratic ADR aspects.

(A). Co-operative forms of ADR.

First and foremost, being based on co-operation, the very nature of mutuals is pro-mediation. Litigation is an anathema. Even arbitration is pursued in a co-operative manner. Med-arb, whereby an individual is first appointed as a mediator and if mediation fails, then the same individual is then appointed as the arbitrator has met with some objections within the UK generally; not so in the mutuals arena. The idea of med-arb chimes with the co-operative ethos. If a mutual has to arbitrate it wishes to do so in a mutualistic manner.

(B). The ADR clause in mutuals.

Second, mutuals are not based on the capitalist model. This has important conceptual outcomes. The normal capitalistic model is that of a supplier and customer. The supplier, if it is a corporate, has members, otherwise known as shareholders: ditto the customer. However in a mutual, especially a co-operative, the customer may also be a member, a member of the co-operative. Ownership and custom are intertwined. Not only does this enhance the natural desire to cooperate in dispute resolution, it means that what is often perceived to the outside world as a third-party relationship (customer and supplier) is in fact a two-party relationship (co-operative member and co-operative). The relationship of customer member is not found necessarily within a supply contract. Rather it is found within the constitution of the mutual. In that sense it is rather akin to finding an ADR clause inside a limited liability company articles and memorandum of association.

Because the customer may have a membership relationship, there is a greater impetus to ensure that the ADR procedure maintains the well-being of the relationship.

However not all mutuals have a customer membership relationship with their customers. For many the relationship of the customer to the supplier is no different from an ordinary capitalistic purchase.

It is this range of relationships and where the ADR clauses are found which makes ADR in mutuals so fascinating.

(C).Mutuals: 'sector' interests & ADR.

Third the UK has a wonderful mutual infrastructure: after all the UK can claim to have founded this new form of entrepreneurialism. The different sectors have different ADR interests.

Mutualism is still big in the financial sector: not all building societies have demutualised, one of the few banks not tarnished by recent scandals is the Co-operative Bank, let alone all the mutual insurance companies. However finance is a highly regulated area. Customers are given specific rights: this is notwithstanding the fact that they are members of a co-operative. The fact that so many mutuals are based in finance is probably one of the reasons why friendly societies are now more often than not governed by the Financial Services Authority, the FSA. The sometimes difficult interface between financial regulation and the desire of mutuals to exercise ADR solutions, is most particularly seen in ombudsman schemes. There are a number of ombudsman schemes in the financial sector. ADR clauses cannot override such statutory schemes.

Employee ownership comes in a variety of forms, some fall within the co-operative model. So we have, rather like the 'member customer' noted above, a multilevel relationship, 'the employee owner'. Employment mediation schemes are increasing in popularity. Subject to some minor alterations and contextual setting, they are equally applicable to workers cooperatives. Arbitration however is definitely contextual. Employees have a plethora of rights. This is notwithstanding they may also be co-operative members and in a sense owners.

Clubs, whether they be social clubs, sporting clubs, professional or trade associations and the like are often formed as mutuals. Many clubs have an arbitration clause built in to their constitution. It is rarely if ever utilised. The vast majority of disputes are settled without recourse to a formal ADR methods. Nevertheless if ADR methods, especially arbitration, are used, it should be remembered that costs are especially important. An arbitrators fees can wipe out the existence of a club.

(D). Statute.

Mutuals ADR is governed by statute. For example the Industrial and Provident Society Act 1965, as amended, provides in section 60 that "... every dispute between a registered society or an officer thereof and... a member of the society... or any person agrieved who has ceased to be a member... or any person claiming through a member of the society... or any person claiming under the rules of the society, shall if the society's rules give directions as to the manner in which such disputes are to be decided, be decided in that manner." So if the rules, usually the constitution, provides for ADR, then ADR it shall be. This section is unusual for a variety of reasons. Usually ADR is bound into a classical contract. Yes signing up to rules is contractual, but it is not classically contractual. ADR is presumed to be contractual at heart. You will notice that an officer of a society is also bound. Bound in what context? In the context of a member, but if so why make reference to an officer? In the context of an employee, then we certainly have moved on from classical contractual-based ADR clauses. In the context as an agent of the Society? Well if so why not say so?

Section 60 is reproduced in full below:

"Disputes, offences and legal proceedings

60 Decision of disputes.

(1) Subject to subsections (2), (2A), (4) and (5) of this section, every dispute between a registered society or an officer thereof and—

(a) a member of the society; or

(b) any person aggrieved who has ceased to be a member of the society not more than six months previously; or

(c) any person claiming through a member of the society or any such person aggrieved; or

(d) any person claiming under the rules of the society,

shall, if the society’s rules give directions as to the manner in which such disputes are to be decided, be decided in that manner.

(1A) Nothing in subsection (1) above or in rules of a kind mentioned in that subsection prevents any person, in accordance with the scheme for which Part XVI of the Financial Services and Markets Act 2000 provides (the ombudsman scheme), from having a complaint dealt with under such a scheme before, or instead of, determination in the manner directed in the rules.

(2) The county court or, in Scotland, the sheriff may determine a dispute in a registered society if —

(a) both parties to the dispute consent; or

(b)the rules of the society concerned contain no directions as to disputes.]

(2A) If the rules contain directions by virtue of which a dispute would fall to be determined by the Authority, the dispute shall instead be referred to the county court or, in Scotland, to the sheriff for determination.]

(3) A decision made under subsection (1) or (2) of this section on any dispute shall be binding and conclusive on all parties without appeal; and—

(a) the decision shall not be removable into any court of law or restrainable by injunction; and

(b) application for the enforcement of the decision may be made to the county court.

(4) Subject to subsection (5) of this section, any dispute directed by the rules of a registered society to be referred to justices shall be determined by a magistrates’ court.

(5) Where, whether by virtue of subsection (4) of this section or otherwise, a dispute is congnisable under the rules of a registered society by a magistrates’ court, the parties to the dispute may by agreement refer the dispute to the county court, who may hear and determine it.

(6) Where the rules of a registered society contain no direction as to disputes, or where no decision is made on a dispute within forty days after application to the society for a reference under its rules, any person such as is mentioned in subsection (1)(a) to (d) of this section who is a party to the dispute may apply either to the county court or to a magistrates’ court, who may hear and determine the matter in dispute.

(7) In the application of the foregoing provisions of this section to Scotland—

(a) in subsection (3), paragraph (a) shall be omitted and in paragraph (b) for the words "county court" there shall be substituted the word "sheriff";

(b) subsections (4) to (6) shall not apply, but in Scotland—

(i) any dispute directed by the rules of a registered society to be referred to justices, a justice of the peace court, or a court of summary jurisdiction, shall be determined by the sheriff;

(ii) where the rules of a registered society contain no direction as to disputes, or where no decision is made on a dispute within forty days after application to the society for a reference under its rules, any person such as is mentioned in subsection (1)(a) to (d) of this section who is a party to the dispute may apply to the sheriff, who may hear and determine the matter in dispute.

(8) For the purposes of the hearing or determination of a dispute under this section—

(a) a county court or, in Scotland, the sheriff shall have power to order the expenses of determining the dispute to be paid either out of the funds of the society or by such parties to the dispute as it thinks fit;]

(b) in England and Wales, a magistrates’ court may grant to either party such discovery as to documents and otherwise, or such inspection of documents, being, in the case of discovery to be made on behalf of the society, discovery by such officer of the society as the court may determine, as the court considers necessary for the just and expeditious disposal of the dispute;

(9) The court to which any dispute is referred under subsections (2) to (7) may at the request of either party state a case on any question of law arising in the dispute for the opinion of the High Court or, as the case may be, the Court of Session.

"

(E). Some conclusions.

ADR clauses, especially arbitration clauses, come in a variety of formats within the mutuals industry.

An example whereby a mutual, the Co-Operative Trust Corp, part of the Co-Operative Bank group, contracts with a nonmember (in fundamentally a normal capitalist relationship) customer within a regulated financial sector can be seen LINK LINK NOT WORKING. This can be contrasted with a financial sector mutual, in this case the Foresters Friendly Society and its detailed twin track complaints and arbitration procedure built into its rules. The ADR provisions of the rules of the Foresters Friendly Society can be seen LINK NOT WORKING.can be seen in part VII of the rules, section 31 onwards. An ADR practitioner, especially an arbitrator, should check the validity of his appointment within the given context.

Dispute practitioners should understand the mutual ethos.

Dispute is an anathema to many mutuals: even arbitration and expert determination should be seen in a mutualistic context.

Costs can be of particular concern.

Mutuals are often small, but unlike small companies have many members as small limited liability companies tend to have few shareholders. The possibilities of conflict are therefore increased but the finance base is not necessarily there to support costly dispute resolution.