Types of alternative dispute resolution methods: choosing the best one for your business

Last updated: 6 March 2018

Estimated reading time: 9 minutes

We’ve already done a mini-introduction to alternative dispute resolution (ADR) from our expert business dispute solicitors, but what about the finer details? Find out more about the pros and cons of different methods of ADR for resolving your business dispute, and learn about how each type of ADR works in practice.

Here we’ll be covering:

  1. Why should you choose ADR over litigation?
  2. Different methods of alternative dispute resolution: adjudication, mediation, early neutral evaluation, expert determination
    1. Adjudication
    2. Mediation
    3. Early Neutral Evaluation
    4. Expert Determination
  3. Is arbitration a form of ADR?
  4. Do you have to use ADR?
  5. Which ADR method is best for you?

Why should you choose ADR over litigation?

Going to court is a very expensive process. In addition to court fees, you’ll also have to pay the fees of your solicitors, barristers and (very often) technical experts as well. If you lose in court you can expect to be liable for your opponent’s professional fees and other costs. Even if you win in court, you will have funded the costs up until that point and you will only recover a proportion of those costs even if your opponent can afford to pay. In other words, litigation can be expensive whether you win or lose! It will almost always be more cost-effective to use ADR to resolve business disputes. As well as involving lower costs and being confidential, it also more likely to be sensitive to, and therefore preserve, your business relationship with your opponent. Because ADR is quicker than litigation it also means your business is minimally disrupted, so you don’t lose profits from the distraction.

Different methods of alternative dispute resolution: adjudication, mediation, early neutral evaluation, expert determination

There are many different forms of ADR including adjudication, mediation, early neutral evaluation and expert determination. Find out more about each option below:

Adjudication

Adjudication is a compulsory form of dispute resolution used in the construction industry. The process for adjudication is introduced by the Housing Grants, Construction and Regeneration Act 1996. Adjudication is available for non-construction disputes where the parties have included it in their contract or agreed to it after a dispute has arisen.

Adjudication generally requires you to serve the other party with a ‘Notice of Adjudication’. This should include the description of the dispute, the parties involved, the details of where and when the dispute arose, the nature of the remedy being sought, and the names and addresses of the parties to the contract (including an address for where documents can be served).

You will then need to appoint an adjudicator by agreement, or refer the dispute to the Adjudicator Nominating Body who will appoint an adjudicator for a fee.

Once an adjudicator is appointed, a referral notice is generally served. This will set out the details of the case, along with supporting documents. A response to the referral is typically required within seven days (although this can be extended on request). The adjudicator will then reach a decision – in construction adjudications, within 28 days of the referral notice.

The costs of adjudication are typically a fraction of the costs of litigation. The parties may decide either to divide the costs between them, or agree to give power to the adjudicator to decide which party should pay the costs.

Adjudication decisions are binding unless and until they are revised by an arbitration award or a court judgment. Adjudication is therefore a particularly effective tool to resolve issues which may impact (or are already impacting) the smooth running of a project. It provides swift, enforceable, decisions allowing the parties to concentrate on the essential project deliverables without the distraction of on-going issues and disputes. Those (interim) adjudication decisions can be challenged later, perhaps after completion of the project. However, in reality, many such decisions aren’t challenged or are lumped together with other outstanding issues and resolved at the end of the project.

Mediation

Mediation is a voluntary process in which the parties discuss their issues and try to negotiate a resolution with the assistance of an independent third party (the mediator).

There is no set procedure but a typical mediation will start with the parties exchanging case summaries and important documents a few days before the mediation itself. The mediation starts with the mediator explaining the ground rules and allowing all parties to present their positions. Thereafter the mediator ‘shuttles’ between the parties with a view to finding (and with prior authorisation, sharing) common ground and possible solutions. If a settlement is achieved, the parties sign legally binding terms (with legal assistance as required).

Whilst mediation is voluntary, the courts in England and Wales ‘encourage’ disputing parties to submit to mediation (or some other form of ADR). Cost sanctions are imposed for an unreasonable refusal to commit to ADR.

Mediation is private and ‘without prejudice’ meaning that the parties are free to have wide-ranging and ‘warts-and-all’ discussions which will never be shared with the court or tribunal. Because it is private and less confrontational than litigation it tends to ‘lower the temperature’ and creates a more conducive atmosphere for constructive settlement discussions. It is also more likely to preserve business relationships. There is also greater flexibility for parties to be creative in relation to settlement outcomes – for example, outcomes can include on-going or future trading arrangements.

Mediation costs are a fraction of the costs of litigation and are generally shared 50:50 by the parties although the parties can agree that if the mediation is unsuccessful and the dispute proceeds to court, the mediation costs are paid by the losing party.

There are very few disadvantages to agreeing to mediate. However, it is worth keeping a watchful eye out for any attempt by your opponent to use the process cynically to acquire knowledge or information which may subsequently be used to improve their bargaining position (if settlement is not achieved via mediation).

Early Neutral Evaluation

Early neutral evaluation is a dispute resolution method which consists of an independent and impartial evaluator (usually a retired high court judge) giving an assessment/evaluation of the merits of each side’s case. The evaluation is confidential, without prejudice and non-binding. Therefore it is not shared with the trial judge. Instead, the parties can use it in their subsequent settlement negotiations.

Early neutral evaluation is useful where a legal or technical evaluation on a particular aspect may result in a more realistic assessment of the likelihood of success or failure at court. Such evaluations can be instrumental in repositioning the parties and increasing the likelihood of pre-trial settlements. Of course, there is a risk that an evaluation can have the opposite effect and cause the party receiving ‘good news’ to ‘dig heels in’ (making settlement more difficult).

Expert Determination

Expert determination is when an independent technical expert makes a binding decision on a technical issue in a dispute (unless the parties agree in advance that the expert’s decision isn’t binding).

Where it is possible to agree to an expert determination process after a dispute has arisen, after a dispute has arisen, it will generally be included in the agreement between the parties as part of the ADR arrangements. The expert determination procedure may be set out in the agreement or dictated by the expert. Typically, the procedure will involve the parties lodging their submissions in relation to the technical issue supported by relevant documentation. The expert may request additional information and/or documents. Thereafter, the expert will issue the final binding decision, with or without reasons dependent upon the agreed procedure.

Expert determination is generally a swift process. The whole process may only take a few weeks. Even in the most complex cases the process should take no more than a few months. As such, it is quick and cheap compared to litigation or arbitration. Of course, it does not necessarily resolve the entire dispute. Rather, it focuses on key (technical) issues. Having said that, at the heart of many disputes is a technical issue (eg. was the weld faulty; the value of a lost business opportunity) the determination of which facilitates the resolution of the entire dispute.

Is arbitration a form of ADR?

Arbitration is a judicial determination of a dispute by an independent third party, called an arbitrator.  It is not technically a form of ADR. The parties to the dispute will participate in a procedure leading to a hearing, and a third party will make a binding judgment, known as an arbitration award. The third party may be a single arbitrator, or a panel of arbitrators.

Unlike other forms of ADR, you can’t take legal action in court after receiving a final and binding decision via arbitration, save in exceptional circumstances.

Arbitration can be voluntary or compulsory. Although parties are not obliged to participate in arbitration, it’s common for contracts between parties to specify arbitration as the dispute resolution mechanism in the event of a dispute between the parties. In such cases, arbitration is mandatory.

The benefit of using arbitration is that it can be quicker and more flexible than litigation. Typically, disclosure obligations are less onerous and an appropriately qualified arbitrator can be chose, for example a chartered engineer in a dispute concerning defective engine parts. The arbitration process is also confidential, unlike litigation through the courts which is potentially subject to public scrutiny.

Very importantly, an international arbitration award is recognised and can be enforced in countries which are party to the New York Convention 1958. Currently most countries in the world are a party – 180 countries at the last count. It is a relatively swift and easy process to register your award in your target country and then use the courts in that country to ‘force’ your opponent to pay up or otherwise comply with the award. Cross-border enforcement of court judgments is, perhaps surprisingly, less stream-lined and impossible where there are no reciprocal enforcement arrangements between the two countries concerned.

However, if you do choose arbitration, you should be aware that there are very limited rights to challenge and/or appeal an arbitration award. In court, there are potential rights of appeal in England and Wales from the County Court to the High Court, from there to the Court of Appeal and from there to the Supreme Court. Of course, there are pros and cons of extensive rights of appeal. You get a second bite at the cherry but it takes longer and costs more to get a final determination.

Watch our business dispute solicitors explaining the benefits of arbitration below:

Do you have to use ADR?

ADR is not obligatory unless the parties have entered into a contract which makes any procedure mandatory.

Having said this, pre-action protocols to the court process in England and Wales require you to consider ADR before you initiate legal proceedings. Failing to comply could result in cost sanctions being imposed by the court irrespective of the outcome of the case.

Which ADR method is best for you?

The most suitable type of ADR for your business will depend on your objectives. Consider these questions to help you decide which is best for your business:

  • Have you and the party to the dispute entered an agreement which makes any form of ADR compulsory?
    If so, using ADR is compulsory. If you’re not sure, it’s crucial to review the written agreement to identify whether the agreement details the procedure in circumstances of a dispute.
  • Is your main priority to preserve your relationship?
    If so, mediation may be the most suitable ADR option. The mediator will ensure each party is able to put forward their views at all stages. This can help the parties reach a settlement diplomatically. Since the settlement is recorded in a contract, it can be enforced at home (via court proceedings) and abroad (by using a mediation settlement enforcement order).
  • Is your main priority to obtain a final and certain determination to end a dispute without recourse to court?
    If so, arbitration is the most suitable form forum. This will allow you to receive an award from an arbitrator which can be enforced in England and Wales, as well as a huge number of other countries party to the New York Convention. Since this award will be final, there are limited grounds of appeal and you won’t face the uncertainty of a legal claim being brought in court for the same dispute.
  • Could your dispute be resolved by receiving an opinion on a particular technical or legal issue?
    If so, you should consider expert determination or early neutral evaluation. Such forms of ADR are very helpful if you have a dispute that hinges on a few points which a third party can shed light on. They’re also helpful if you’re negotiating a settlement and require clarity on how a technical matter might be decided by a judge or arbitrator.

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If you’re involved in a business dispute and you want to try ADR before going to court, our business dispute solicitors can help. Call us on 0800 689 1700, book your initial consultation hererequest a call back or fill in the short form below and we’ll get back to you within 24 hours.

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