There has been a significant growth in the use of Alternative Dispute Resolution (ADR) over the past 20 years. To a large extent, this is due to the sharp increase in multi-jurisdictional transactions. So, what exactly is ADR? And what makes it a viable alternative to going to court?
What is Alternative Dispute Resolution?
‘Alternative Dispute Resolution’ is a voluntary process through which parties attempt to settle their civil disputes without going through the courts. The main forms of ADR are arbitration and mediation, but the term also includes methods such as conciliation and adjudication.
Each method of ADR has its pros and cons. Some methods will be more suitable than others, depending upon the type of dispute between the parties. In summary:
- Arbitration – the parties agree to a private hearing at which an independent arbitrator will make a decision which is binding on the parties.
- Mediation – an independent third party helps to facilitate a non-binding agreement between the parties by exploring options for resolution.
- Conciliation – similar to mediation but the independent third party plays a more active role in suggesting options for resolution.
- Adjudication – a short procedure most commonly used for contractual disputes in the construction industry. An independent adjudicator will provide a decision which is binding on the parties, subject to the parties agreeing otherwise or final determination of the dispute through arbitration or litigation.
The Civil Procedure Rules, which govern the litigation process under English law, anticipate the use of ADR before and after issuing a claim. If a party fails to engage with ADR, the court may take this into account in assessing who pays any litigation costs.
Why do parties use Alternative Dispute Resolution?
In most jurisdictions, pursuing a dispute through the courts is costly, lengthy and public. ADR can in some cases save time and money, whilst keeping the dispute confidential.
ADR is also a way for parties to be more flexible about the outcome of the dispute. Court proceedings will usually conclude in a win/lose scenario with the losing party often being obliged to pay a large bill for costs. ADR allows parties to be more commercial in their approach and somewhat creative in negotiating an outcome which is more suitable for both parties. The parties have more freedom to decide how the negotiation will work and how long they want it to take. In turn, this can help to preserve business relationships which might otherwise be seriously damaged by litigation.
There is a close correlation between the increased popularity of ADR and the growth of cross-border transactions. Where there may be concerns about litigating in a particular venue, the flexibility of ADR provides a viable alternative unconstrained by jurisdiction. London has capitalised on this trend and is widely recognised as a leading global centre for ADR.
There are, of course, disadvantages to ADR. In particular, these include increased costs and delay if it is ultimately unsuccessful. Some disputes may also be unsuitable for ADR, such as where the dispute raises a new point of law. What is clear, however, is that ADR is not only a well-established alternative but also an integral part of the dispute resolution process which parties are expected to consider.
Ian Tucker is a partner, Tom Whittaker a solicitor and Sarah Carter a trainee solicitor at Burges Salmon.