Commercial disputes come in a variety of forms – and so too do options for trying to resolve those disputes. This article provides an overview of the main Alternative Dispute Resolution (ADR) methods and issues to think about when deciding what type of ADR method best meets your needs.
What is ADR?
ADR refers to processes where the parties seek to resolve disputes as an alternative to the formal litigation process. ADR may be used to resolve a dispute before it ever proceeds to court, or to help the parties reach a settlement once proceedings have commenced.
While there are a variety of methods of ADR, the main methods are:
- arbitration; and
- expert determination.
This process allows the parties to communicate with each other on a without prejudice basis regarding the issues in dispute, in an attempt to reach a resolution. Negotiation is a process open to parties at any stage of a dispute, however parties may also have contractual obligations that require them to confer when a dispute arises and to use their best endeavours to resolve a dispute.
- Negotiation is the most cost-effective way of resolving a dispute. Parties that are looking to have an ongoing relationship often benefit from adopting this ADR process, as it avoids litigation and encourages the parties to look at commercial options for a mutually acceptable outcome.
- The downside of this ADR process is that parties do not get the opportunity to fully understand each other’s legal positions through pleadings, evidence or discovery, but there will be many cases where parties are happy to forgo this in order to resolve their disputes quickly and efficiently.
This method may be voluntary, court ordered or required as part of a contract. It involves a confidential process whereby the parties might attempt to negotiate a settlement by allowing an independent third party mediator to assist the parties in dispute to:
- identify the issues in dispute;
- help clarify the issues and suggest ways to discuss the dispute;
- help the parties develop options for resolving the dispute; and
- reach agreement where appropriate to resolve their issues.
The mediator will not take sides or give legal, financial or other expert advice and cannot make or impose decisions and a settlement will only occur if the parties agree to resolve the dispute.
Conciliation is also often referred to in the context of ADR. It is similar to mediation, though conciliations often occur to resolve disputes that arise in a statutory framework, and a conciliator may therefore have professional expertise in the subject matter in dispute and be slightly more involved in the process, to achieve outcomes consistent with the relevant legislation.
- Mediations allow the parties to explore all options for what may be offered as part of a settlement. That is, the parties are not constrained to the remedies a court would be able to order if that matter were to proceed to a hearing.
- Mediations are without prejudice and private & confidential. Parties also typically agree for mediations to take place on a without prejudice basis, and to keep matters discussed during a mediation private and confidential. This means that the terms of any settlement will also remain confidential.
- Mediations can occur at any stage of a dispute, with courts often ordering the parties to mediate prior to a hearing.
- Careful consideration needs to be given to the choice of mediator. Different mediators will bring different approaches. Some will facilitate the parties to agree on an outcome themselves whereas others may be more involved and express views about the merits of a party’s case and give an indication of how the dispute may proceed were the matter to proceed to a hearing.
This method involves the parties agreeing to present their arguments and evidence about a dispute before a suitably qualified practitioner who makes a determination which is enforceable. On many levels, presenting arguments before an arbitrator is similar to a court hearing, except that the parties can agree for it to be confidential and can agree to a process that meets their particular needs.
As arbitrations are adversarial, similar to a court process, it is more formal and structured and can put pressure on a relationship between the parties, unlike other forms or ADR.
- Arbitrations can be costly. Depending on the form of the hearing, arbitration may also involve significant costs.
- Appeal of determination. Where a party is dissatisfied with the arbitrator’s determination, then the party may appeal the decision to a court or higher authority.
- Arbitrations are confidential. Arbitrations can be particularly valuable where confidentiality of the dispute is important.
- Arbitrations allow the parties to choose the decision-maker. Arbitrations enable the parties to choose an arbitrator, or panel of arbitrators, suitable for the particular dispute in question.
Parties may also agree for a discrete issue to be determined by an expert, with the parties agreeing whether they will be bound by such a determination. This can be particularly useful where there is a technical issue between the parties and an expert with relevant experience, and who is acceptable to both parties, can be brought in to determine it.
- Quick determination of discrete issues in dispute. Expert Determination allows for issues to be resolved quickly and like arbitration, processes can be adapted to meet the needs of the parties and the specific dispute.
- There may be difficulties if issues in dispute fall outside of the expert’s technical expertise. Difficulties may be experienced if there are factual matters in dispute, or issues of credit, which may fall outside of an expert’s technical expertise.
Key takeaways – consider what ADR method works best for you
Because each ADR method offers different strengths it is important to make sure that the method (or methods) adopted, at the time of contracting as well as at the time a dispute arises, align with your strategic goals. This will also impact on when is the right time to deploy a particular method of ADR.
Before using a particular method of ADR, start by asking yourself the following questions:
- What are you looking to get out of the dispute? Are there remedies that a court cannot provide that would still be an acceptable outcome for you?
- How important is a future relationship with the other party in your dispute?
- Would your position be strengthened by further evidence or discovery or do you have all of the critical information now?
- How important is it that the subject matter of the dispute remain confidential?
- Who are the key decision-makers on both sides, and would a formal or informal structure assist?
ADR can be used at any time during the dispute and can provide more options and greater flexibility for managing and resolving disputes than the traditional court process in a cost-effective way. ADR, and choosing the method that’s best for you, can be a valuable resource in helping you to resolve your disputes effectively, and consistent with your strategic goals.