When a dispute arises, your goal is simple, to resolve it quickly, fairly and with as little disruption to your business as possible. Going to court is often costly, time-consuming and damaging to relationships, which is why many businesses now turn to alternative dispute resolution (ADR).
But with several ADR methods to choose from (such as mediation, arbitration and expert determination), how do you know which is right for your situation? The answer depends on factors like the nature of your dispute, your budget, the need for confidentiality and how much control you want over the outcome.
In this guide, we explain the main types of ADR, the pros and cons of each, and how to decide which method best fits your business, dispute and timescales.
If you would like advice on the most effective way to resolve your dispute, our experienced business dispute solicitors can help you choose the right approach for your circumstances and achieve the best possible outcome for your business.
Here we’ll be covering the following topics:
What is alternative dispute resolution (ADR)?
Alternative dispute resolution is a catch-all term for any method of resolving disagreements without going to court. ADR is meant to be quicker, less formal, and more private than litigation. The idea is that people and businesses can sort out their arguments in a way that suits them best, often saving business owners time and money.
The most common types are negotiation, mediation, arbitration, expert determination, and early neutral evaluation. All of these forms of dispute resolution offer distinct ways to deal with disputes, ranging from informal chats to formal, binding decisions.
Negotiation
Most business disputes start (and can often end) with negotiation. This is the most informal and flexible type of ADR. Simply put, negotiation is when both sides talk things through in order to reach a solution everyone can live with. This might take the form of a friendly phone call, a face-to-face meeting, or a series of emails.
One of the biggest benefits of negotiation is that you are entirely in control. You can address what really matters to you, be as creative as you like with the solution, and keep things private. Business relationships often stay intact, and there is usually no extra cost unless you each have lawyers helping you.
That said, negotiation doesn't always work. Sometimes emotions run high, or neither side is willing to budge. If positions become entrenched or conversations get heated, a different approach might be needed.
Mediation
If negotiation isn’t working, mediation offers a way forward. In this process, a neutral person, the mediator, helps you both talk through the problem. The mediator isn’t there to choose a winner or tell you what to do. Instead, their role is to keep the discussion on track, help you both see the other’s point of view, and suggest ways you might compromise.
You may wish to appoint a mediator who simply goes from room to room relaying various points, or you may wish to appoint a mediator who is prepared to take a more proactive approach, actively testing the parties’ strengths and weaknesses and playing devil’s advocate.
Either way, the process is flexible and subject to limited exceptions (e.g. there is a legal obligation to disclose), confidential. Nothing said in mediation can usually be used against you later if things don’t work out. If you are both willing, a solution reached in mediation can be written up as a binding agreement too.
Mediation is a great option for saving business relationships. It’s ideal if you would still like to work together in the future, or if the dispute is sensitive or personal.
Mediation can be much quicker than going to court too, with many wrapped up in a day or less, and costs are usually much lower than litigation, with parties splitting the mediator’s costs and expenses (such as venue hire) evenly, and each side paying their own legal costs.
Arbitration
If you need a definite answer and efforts like negotiation or mediation have failed, arbitration may be the way to go. In arbitration, both sides agree to let an impartial arbitrator, or sometimes a panel, listen to the facts and arguments before making a final decision.
Arbitration is a bit like having a private court case. You present your side, the other party presents theirs, and then the arbitrator issues a decision (called an 'award'). Most of the time in the UK, this award is legally binding and enforceable, meaning it must be obeyed just like a court judgment.
Subject to limited exceptions (e.g. details of the arbitration and any award being made public during a court case to challenge the award or enforce it), arbitration is confidential.
Businesses often choose arbitration if they want their dispute sorted privately and need a guaranteed result. You can also pick an arbitrator with specialist knowledge, such as a surveyor for a property case or an accountant for a financial issue. This can be particularly helpful if your disagreement is technical or industry-specific.
The downside? Formal arbitrations can be costly, sometimes approaching the expense of a court trial, especially if both sides have lawyers and expert witnesses. Plus, while it’s usually faster than court, it can still be lengthy for big or complicated disputes. Importantly, once arbitration is done, it’s usually done for good. It’s very difficult to appeal the decision, even if you think the arbitrator got it wrong.
Internationally, arbitration has particular advantages. If you do business overseas, an arbitration result can more easily be enforced in other countries under treaties like the New York Convention, compared to a court judgment, which depends on reciprocal arrangements or following the local enforcement rules in a particular country.
Expert Determination
Some disputes boil down to a technical question: 'How much is the business worth?' 'Did the contractor build to the agreed specification?' 'What’s the right amount for a licence fee?' These arguments are often best settled by getting in an expert, a person with top-level knowledge on the subject at hand.
Expert determination works like this: both sides agree on the expert and set out (in writing) that they will follow the answer the expert comes up with. The expert looks at the information, weighs both sides' arguments, and then comes to a decision. These decisions are nearly always binding.
This process is usually quick and relatively affordable. There is no long trial or endless paperwork, just a focus on the specific, technical question. Of course, expert determination only works if everyone agrees on the expert, the question is clear and well-defined, and both parties are prepared to accept the result.
It is not the answer for every dispute, if your issue is about broader matters (like company misconduct or breaches of trust), expert determination probably won’t help much. Also, as the expert’s decision is hard to challenge, make sure you set the rules (and choose your expert) carefully.
Early Neutral Evaluation
Sometimes, both sides in a dispute are convinced they are right. With so many grey areas and differing interpretations, it’s easy for a simple issue to become a drawn-out argument. Early neutral evaluation (sometimes called ENE) is designed to break the deadlock.
Here is how it works: both parties agree to let a neutral, experienced evaluator (often a senior lawyer or retired judge) look at the facts and the legal arguments as they stand early in the process. The evaluator tells you, openly and honestly, how strong (or weak) your case is, and how a court might view it.
The evaluator’s opinion isn’t binding, and you don’t have to accept it. But it often provides a reality check, nudging people towards a sensible settlement before everyone wastes more time and money. ENE is generally quick and cheap, though it is best used for complex or technical disputes where both parties are struggling to see eye-to-eye.
Tiered or hybrid approaches to ADR
In many business contracts, you will see a staged approach to dispute resolution written in as standard. This might go: first, negotiate; if that fails, try mediation; if that fails, go to arbitration or court. The logic is simple, you give yourselves a chance to solve things easily and cheaply before heading into more formal and costly territory.
Sometimes, a hybrid process is used. For example, 'med-arb': you start with mediation to see if you can reach a deal. If not, the same person (or a new one) turns into an arbitrator and gives a decision based on what they've heard. These setups can save time and money, but do need careful handling so no one feels the process is unfair or biased.
Having these 'tiered' methods spelled out in your contracts makes it clear to everyone how you will handle arguments, before trouble starts.
Which ADR method is best for your dispute?
There’s no one-size-fits-all answer. The right ADR method for you will depend on several things:
- What’s the dispute about? If it’s a technical matter, expert determination might be right. If it’s a more personal or ongoing business relationship, mediation is often best.
- Do you want an ongoing relationship with the other party? If so, negotiation or mediation will help preserve goodwill.
- Is privacy important? All ADR methods are private, while court cases are public.
- Do you need a final, binding result, or just some help getting to a settlement?
- How much time or money can you commit?
- Are there industry norms you need to follow? Some sectors, like construction or international trade, commonly use certain types of ADR.
For most disputes, starting with negotiation or mediation is wise. These methods are less combative, can save your business relationship, and don’t tie anybody’s hands if things don't work out. For technical arguments, bringing in an agreed expert might be best. For 'must have a result' cases, or where a contract already specifies it, arbitration makes sense.
Are there times when ADR is not suitable?
ADR is brilliant for many business problems, but not all. There are situations where you may need to head to court, such as:
- Emergency situations needing urgent decisions (like getting an injunction to stop someone taking your assets).
- Cases involving fraud, criminal activity, or dishonesty.
- Disputes with parties who won’t agree to ADR or aren’t bound by contract.
- When you need a formal legal precedent.
Summary
Business disputes are a fact of life, but resolving them doesn’t have to mean months of stress, spiralling legal bills, and damaged relationships. Alternative dispute resolution methods offer flexible, private, and often quick solutions that put you in control. From informal chats to formal arbitration, there’s a method to fit almost every business need.
If you run a business, consider including a clear ADR clause in your contracts. This can save time and money down the line, and means everyone knows where they stand if a disagreement arises. When in doubt, it’s always worth getting professional advice from a lawyer with experience in business disputes and ADR. With the right strategy, you can handle disputes confidently protecting your bottom line and your business’s reputation, now and in the years to come.
