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What is ADR?

ADR stands for ‘alternative dispute resolution’. This is a broad term that incorporates a wide range of processes – indeed almost any process except for traditional arbitration or litigation.  ADR originated in the United States in the mid–1970s in response to dissatisfaction with traditional litigation as a means of dispute resolution.  As the volume of litigation increased dramatically, the cost, delay and uncertainty of outcome were the principal motivating factors in the development of alternative methods. ADR, and in particular mediation, is now widely embraced and encouraged across the world.

The advantages of ADR (depending on the process selected)

  • Substantial savings in legal fees and associated litigation/arbitration expenses
  • Much speedier resolution of the dispute – days or weeks as opposed to months or years
  • The ability to focus on the parties’ commercial objectives and preserve business relationships
  • Privacy and confidentiality
  • A lack of formality in the process
  • Voluntary/consensual (parties can leave at any time and the objective is often a settlement agreeable to both parties rather than a decision adverse to one or more of the parties or to all of the parties)
  • The preservation of legal rights and processes
  • Greater flexibility as to process and to structure a settlement – parties can agree to settlements beyond the court’s traditional remedies of money damages, an injunction or specific performance
  • It can be used at any stage of a dispute

When is ADR inappropriate?

There are certain types of dispute when ADR may be less suitable.  Where parties require a definitive statement of the meaning of a particular contractual provision which will set a binding precedent in future contracts, a consensual or agreed outcome may not assist.  Traditionally, disputes involving serious fraud have been regarded as potentially unsuitable for ADR (where there is a concern that the parties will not engage in good faith), but many fraud cases are resolved successfully through ADR.  In short, there is no fixed rule and therefore thought should be given to attempting ADR in all disputes.

Forms of ADR

There are binding and non-binding  ADR processes  (i.e. those which impose a result and those which may culminate in no result or decision at all). The majority of ADR processes involve the third party acting as a facilitator rather than a decision maker.  Some forms of ADR (ie expert determination, adjudication) do involve a third party in the decision making process.  In such cases a third party will be requested to hand down a binding decision/award.

For more details click here to read our  ADR  practical guide  “Common ADR  processes – an  overview”.

(non binding)

Mediation is the facilitation of a negotiated agreement by a neutral third party who has no decision-making power.

Mediation is now recognised as one of the quickest and most cost-effective ways of resolving a dispute and is the most common form of ADR. The number of disputes mediated annually has increased rapidly in the past decade and evidence suggests that the numbers of mediations each year will continue to increase.

A mediator is an independent third party who is appointed by the parties to help them attempt to negotiate a solution.  He will not propose his own solution. The mediation process involves each party sending short written submissions to the mediator followed by a mediation hearing. At the mediation hearing each party will begin by making a presentation to the mediator and normally the other side. The mediator will then meet with each party individually in private in an attempt to facilitate a settlement. The individual private meetings are often known as caucuses.  Caucusing may be followed by one or more joint sessions (plenary sessions).

The mediator's style can generally be described as either evaluative or facilitative.  Evaluative mediators are characterised as more prone to actively narrowing the topics for discussion, assessing their opinion of the law, the merits and what seems fair and working to narrow the "settlement range" in an attempt to cajole the parties to agree. They seek to articulate and impose their view of the merits. Facilitative mediators assist the parties to find a solution through the process, leaving the active evaluation and articulation of views on the merits in the hands of the parties.

Occasionally the mediator may be requested to give a non-binding view on their suggested terms of settlement or the merits of the case. However, this is generally only given at the end of the mediation if there is deadlock. In addition, all parties and the mediator must agree to the mediator giving a non-binding view.

For more information see our ADR practical guides focusing on mediation:

Useful external links:

(Binding)

Expert determination is founded in contract. An independent third party will act as an expert rather than judge or arbitrator, and is appointed by the parties to decide the dispute privately.  There is no right of appeal and the expert’s determination is final and binding on the parties save usually in the case of fraud or manifest error.  Parties will make written and oral submissions to the expert and he or she will then give a binding decision on the case.  It is particularly used in disputes concerning valuation (for example rent reviews, share valuations or price adjustments) or technical disputes across a range of sectors (for example IT, accountancy, supply contracts, oil and gas).

The expression “Expert” is much more commonly used to refer to expert witnesses.  In expert determination, the appointed expert  is not in any sense a witness.

Expert determination clauses govern the jurisdiction of the expert and the conduct of the determination. They should typically cover:

  • the issue(s) to be determined (this must be carefully drafted)
  • the expert’s qualifications, appointment and his duty to act independently, and as an expert not an arbitrator
  • how the reference will be conducted
  • how the decision will be issued (in writing, with or without reasons) and that it will be final and binding save in the case of fraud or manifest error
  • provisions as to the due date for payment and the power to award interest (and sometimes costs)
  • payment of the expert’s fees (these are usually shared between the parties with joint and several liability should one party fail to pay)

Useful external links:

(Binding unless or until the parties litigate or arbitrate)

Adjudication involves an independent third party considering the claims of both sides and making a decision.  The adjudicator is usually an expert in the subject matter in dispute.  He will usually be able to act inquisitorially. Adjudicators’ decisions are usually of a temporarily binding nature  (ie they are binding unless and until overturned in litigation or arbitration). In practice relatively few adjudicated decisions are subsequently referred to litigation or arbitration, and most are accepted as final by the parties.

Adjudication has been a method of dispute resolution used in the UK construction industry for many years.  In certain circumstances there is a statutory right to adjudicate (the UK Housing Grants, Construction and Regeneration Act 1996) whereby any party to a construction contract (as defined in the 1996 Act) has a right to have any dispute decided at any time by an adjudicator.  Adjudication is a quick process and under the statutory adjudication provisions the adjudicator has 28 days from appointment to reach a decision.  The decision can be enforced by summary judgment through the courts.

Similar legislation has been enacted in other jurisdictions such as Singapore, Malaysia, New Zealand and some States of Australia.

Useful external links:

Early Neutral Evaluation (ENE) (non binding)

An independent third party considers the claims made by each side and gives an opinion, either on the likely outcome or on a particular point of law.  The opinion is usually non-binding (unless otherwise agreed).  The process is designed so the parties can then use the decision of the third party neutral to decide how they wish to proceed with the case.  It is a valuable process if you are attempting to get a realistic assessment of your chances of success at trial.

Baseball Arbitration (binding)

Although arbitration is generally not considered to be an ADR process, baseball arbitration is a process more akin to “baseball expert determination”.  The parties exchange final figures at an early stage and indeed usually before a tribunal is constituted.  Those figures are then binding on the parties throughout the arbitral process, and the tribunal may or may not be told about them (the latter being termed “night” baseball).  The key point is that it is the figure of the party which is closest to the award made by the tribunal which becomes the binding figure payable. Less frequently baseball arbitrations involve non-monetary remedies, with the tribunal assessing whose final offer is the preferable ultimate award.

Executive Tribunal (non binding)

This process, sometimes referred to as a “mini-trial”, usually involves a panel which consists of senior management representatives from each party and a neutral third party or mediator who has been chosen by the parties.  The participants may or may not have been involved in the day to day aspects of the dispute.  The senior management representatives listen to a short presentation of the other party’s case.

This process assists each side to understand the commercial objectives of the other party and provide an understanding of their own case with the intention that with their increased knowledge they will take more informed steps to resolve the dispute.  The emphasis is on direct presentation followed by negotiation and the whole procedure is informal and non-binding unless a settlement is reached.  This process is rarely used in the UK but is more common in the USA, where it originated.

Med-Arb/Arb-Med (binding)

Med-Arb/Arb-Med is a combination of mediation and arbitration. In med-arb mediation is attempted first, and if no agreement results, the dispute will go to arbitration, where a binding decision will be issued.  In most cases the same person acts as mediator and arbitrator.

A recent development of the med-arb process is where the parties present their case to the arbitrator, who does not reveal the outcome/decision, but then acts as a mediator to allow the parties a chance to settle the case with the threat that the award will be handed down if no settlement is reached (arb-med).  Usually timescales are very short and this process is still very rare due to the costs of arbitrating before the mediation.

Dispute Board (binding/non binding)

A dispute board (sometimes referred to as dispute review board or dispute adjudication board) typically comprises three independent and impartial persons selected by the contracting parties. It is most often utilised in the construction, engineering and infrastructure industry but can be found in other sectors. The significant difference between a dispute board and most other ADR techniques is that a dispute board is appointed at the commencement of a project. The board will undertake regular on-site visits and be actively involved throughout the project. When a dispute arises, and depending on the contract, the dispute board may be empowered to make non-binding recommendations or decisions (which are binding until an arbitral award or court judgment states otherwise). Combined dispute boards are hybrids which can issue both recommendations and decisions.

For more details click here to read  our ADR practical  guide “Common ADR  processes – an  overview”.