If your business is experiencing problems with another party, you may be wondering if there’s another way to sort the issue out without having to go through costly court proceedings. Alternative Dispute Resolution (ADR) is commonly used as an alternative to asking a judge or arbitrator to rule on a dispute. There are several different types of ADR, and your choice of which method to use will depend on several factors. In this article, our business dispute solicitors will look at the benefits of using ADR, as well as the different types of ADR available to you.
It’s important to be aware that the courts now expect you to have considered ADR in almost all situations. There are also situations where it is compulsory to use ADR to try to resolve your dispute before starting court action.
Jump to:
- When should ADR be considered?
- What are the benefits of using Alternative Dispute Resolution?
- Can ADR preserve relationships between the parties?
- Are there any disadvantages to using ADR?
- What are the types of Alternative Dispute Resolution?
- What happens if one party refuses ADR?
- Is ADR legally binding?
- Can ADR be used internationally?
- What's Next?
When should ADR be considered?
There are certain circumstances in which ADR should always be considered as an option. These include:
- When the parties are willing to cooperate and compromise: It’s often the case that parties share a common desire to avoid lengthy, costly and often fraught court proceedings – litigation can often be an expensive and time-consuming process for companies, so it’s well worth thinking about whether you’re prepared to cooperate and compromise with the other business in order to resolve a dispute before it reaches that point.
- When the parties want to maintain control over the process: Engaging in a different way of resolving a dispute outside of court definitely means more control over the process. The ADR methods available all lend themselves to greater control for the parties involved compared to the court rules and a judge taking ownership of the running of a case and the ultimate outcome if court proceedings are begun.
- When the parties want to resolve the dispute quickly and efficiently: The timescales for different methods of ADR are generally very short compared to going to court and through the timetable to a trial, which will take many months..
- When the parties want to preserve their relationship: Preserving business relationships is a very important consideration for most companies, especially when historically, the parties have traded on good terms. If this is a priority for you, engaging with ADR is strongly encouraged.
What are the benefits of using Alternative Dispute Resolution?
- Save time: you don’t need to wait for an available court date, because you can agree to a meeting at a convenient time when both parties are available.
- Save money: ADR is typically cheaper than the court process, and it’s not always necessary to instruct a solicitor.
- Flexible: you can agree to a solution which suits both parties moving forward (for example, a re-negotiated contract with a different payment schedule), whereas the court has a limited number of outcomes (usually win or lose) which tend to adversely affect business relationships.
- Confidential: proceedings are held in private and are normally on a ‘without prejudice’ basis, meaning that anything you say can’t be used against you if you do end up going to court.
- No negative reputation: if you go to court, your company may face negative media coverage or adverse judicial comment.
Can ADR preserve relationships between the parties?
Definitely. As we’ve mentioned above, the desire to preserve the business relationship is often a key motivating factor for parties, and engaging with the ADR process can improve the chances of resolving the dispute in a more amicable way before the relationship is potentially damaged beyond repair if things turn sour, which often happens if the matter has to be resolved in court.
Are there any disadvantages to using ADR?
There are a few disadvantages to using ADR that you should be aware of, including:
- There is no certainty of a binding outcome.
- ADR is not always suitable; for example, in a case where emergency relief is necessary, or the opposing party is simply not prepared to engage in the process.
- If ADR fails, you may consider it to have been a waste of time and money.
You should be aware that if you do use a method of ADR, you must consider any limitation periods in bringing your claim to court. Using ADR does not add time to the limitation period so one party could use ADR deliberately to string things out beyond limitation.
To address limitation, it’s also possible for a ‘standstill agreement’ to be signed, which can prevent the time period for limitation continuing to run – but this needs careful attention and you should get legal advice from a business disputes solicitor to make sure that any such agreement is effective.
What are the types of Alternative Dispute Resolution?
There are several different types of ADR, which can be briefly summarised below:
Negotiation
This is the most informal, fast and cost-effective method of ADR. Essentially, it involves you and the other party – with or without your legal representatives – sitting down and having a discussion about how or whether a compromise can be reached.
Mediation (evaluative or facilitative)
Broadly speaking, mediation is a confidential and flexible process that can be used to settle a disagreement which involves appointing an impartial, independent and trained mediator to support the process. There are slight differences in the types of mediation available, so it’s a good idea to think about which is the best fit for your business dispute.
- Evaluative mediation: With evaluative mediation, the mediator is usually a legal practitioner with expertise in the area of law relevant to your disagreement. They can provide evaluation on the strengths and weaknesses of each party’s case when it comes to their legal position, which means it lends itself well to business and contract disputes.
- Facilitative mediation: With facilitative mediation, the mediator provides a structured framework for the parties to reach their own decisions with the support of that framework. The mediator will meet with each party privately and separately first before a joint mediation session takes place.
Conciliation
Whilst there are some similarities with mediation, conciliation is different as a method of ADR because a conciliator, the neutral third party appointed to facilitate conciliation, will take a view of each party’s position and give their opinion on any merits, as well as suggesting any proposals about the terms of settlement. Ultimately though, it’s up to the parties to decide whether they want to accept the proposals.
Adjudication
Adjudication is commonly utilised as a means of ADR for construction disputes. It’s fast, efficient and the adjudicator – the qualified third party overseeing the process – makes a decision which is binding on the parties, unless the matter is ultimately decided upon via arbitration.
Expert Determination
This is another type of ADR where the impartial expert the parties choose to help them resolve the dispute makes a decision which is binding – unless the parties agree otherwise.
Early Neutral Evaluation (ENE)
With ENE, the parties are provided with an opinion on the merits of their respective positions by a neutral expert. This can prove very useful ahead of negotiations.
Executive Tribunal
Executive tribunals are sometimes referred to as ‘mini-trials’ that take place outside of the court process in commercial disputes. They involve significant preparation and the input of senior personnel, which makes this kind of ADR best suited to large-scale commercial disputes.
What happens if one party refuses ADR?
Both parties have to agree to refer their dispute to some form of ADR in order for it to happen. Courts and tribunals can impose penalties on parties who unreasonably refuse to consider it and the court rules (the Civil Procedure Rules, often called CPR for short) strongly encourage it. If you’re thinking about refusing to participate in ADR, it’s wise to think carefully about your reasons in case you have to justify them to the court at a later stage.
Is ADR legally binding?
This depends on the type of ADR you’ve participated in and what the parties agree. Generally speaking, adjudication, expert determination and conciliation are binding whereas mediation, early natural evaluation and the decisions made in executive tribunals are not.
Can ADR be used internationally?
Yes, and mediation in particular is a popular method of ADR that’s engaged with internationally. The mediation process is generally the same across the economically developed world and mediators are well used to dealing with parties from different countries, although it’s important to instruct a mediator with a proven track record of international ADR. Mediation can cut through the complexities of cross-border litigation.
What's Next?
It’s crucial to get the right advice at the outset if a dispute with another business is brewing so that you’re fully aware of all your options. Our team of specialist lawyers are experts at providing bespoke, tailored advice in multiple industry sectors, and have a wealth of experience in dealing with all types of ADR.
