Alternative Dispute Resolution

What is ADR and how does it work?

Alternative Dispute Resolution (ADR) provides an alternative method of tackling legal disputes outside of the court process. It can help parties resolve their issues in a less hostile manner and either aid the litigation process (ie the process of taking legal action in court) or avoid going to court altogether. 

So long as communication has not irretrievably broken down between the parties in dispute, engaging in ADR should be considered as an option for a more efficient method of achieving an outcome than litigation. ADR is typically cheaper, quicker, more flexible, and less stressful than litigation.

Additionally, ADR can be an attractive option for businesses as it enables: 

• a degree of privacy - compared to the more public nature of court proceedings

• confidentiality - which preserves the reputation of the individuals or businesses involved

• the preservation of business relationships for future dealings - which might have been irreparably damaged during the litigation process

The most common types of ADR are mediation, conciliation, arbitration and adjudication. 

What is mediation?

Mediation involves a trained, independent third-party (ie a mediator) facilitating communication between the 2 parties in the dispute, to achieve a settlement or resolution. 

The mediator will discuss the issues and try to help the parties reach an agreement, but will generally not offer their own opinions or assessment. 

For more information, read Mediation.  

What is conciliation? 

Conciliation is when an independent third-party (ie a ‘conciliator’ or ‘conciliation officer’) will discuss the issues constituting a dispute and try to help the parties reach an agreement, often providing their own opinion after assessing the situation and the different arguments. Their opinion may help to form a settlement or achieve a conclusion to the dispute, but they will not recommend any specific course of action. 

Conciliation is generally used for employment situations rather than commercial disputes. Conciliation is a compulsory process that must be undertaken before an individual can bring a claim to the Employment Tribunal. 

For more information, read Conciliation.  

What is arbitration? 

This is a formal process in which the dispute is resolved by the decision of an arbitrational tribunal. An arbitrational tribunal is a panel consisting of generally one or 3 arbitrators (ie independent third parties qualified in arbitration, usually Chartered Institute of Arbitrators members). The arbitrators’ decisions, known as arbitral awards, are legally binding.

Arbitral awards are beneficial as they generally:

• are final and legally binding, so they can be enforced as if they were court judgments

• have very limited opportunities for any challenge or appeal

• can be enforced straight away

• can be enforced internationally

The arbitration process can be particularly useful in disputes that require an understanding of technical knowledge and where privacy is important (eg to avoid disclosure of commercially sensitive information), or which have an international element (ie to avoid requiring litigation in multiple legal jurisdictions). 

Some commercial contracts will contain an arbitration clause, which requires arbitration to be used in the case of a dispute. 

For more information, read Arbitration. 

What is adjudication?

This form of ADR is generally reserved for disputes that arise out of construction contracts. It is a relatively formal process, which involves:

1. providing a written Notice of Adjudication, which sets out the brief details of the dispute

2. appointment of an agreed adjudicator (ie an independent party chosen by either the parties or an appropriate body) to oversee the adjudication

3. serving a referral notice, which sets out the dispute in detail, provided by the aggrieved party

4. a response to this referral notice (ie an opportunity for the party that is responding to set out their position)

5. the adjudicator’s decision, which should be reached within 28 days of the referral notice being served

This decision is final and legally binding.

What is the difference between arbitration and mediation?

Mediation is a less formal and non-legally binding process, whereas arbitration follows a more formal procedure which produces binding decisions. 

Mediation is voluntary and relies on the cooperation of both parties to appoint an independent third party who can act impartially to facilitate and resolve the dispute. An arbitrator is a nominated third party who is legally qualified to handle arbitration. 

Are decisions in ADR legally binding?

Decisions arising from mediation are not legally binding; these are principally a form of mutual agreement. Although the decisions are not legally binding, the parties can both choose to sign a written agreement containing the decision (ie a settlement agreement). This signed agreement will then become legally binding and enforceable in court.

Decisions arising from arbitration, conciliation and adjudication are legally binding and must be followed by the parties.

When should ADR be used?

Parties in dispute should consider using ADR where there is an openness to communicate and they reasonably believe there is a chance to resolve the issue without needing to go to court.

Where a legal claim has been issued, ADR is strongly recommended by the courts as part of the Pre-Action Protocols within the Civil Procedure Rules (ie the rules that govern how legal proceedings must be followed within the civil courts). However, in reality, ADR has become more of a requirement.

The courts encourage the parties to consider ADR before they move forward with any litigation, as ADR:

• promotes the parties working collaboratively to solve their problems, rather than opposingly

• can help streamline litigation proceedings if they’re still necessary, by producing partial resolutions so the court can deal with the unresolved issue more effectively 

There can often be financial penalties for parties who do not genuinely attempt to communicate and settle before continuing with a claim. In some circumstances, the courts have the power to stay proceedings (ie produce a ruling that puts the proceedings on hold) and order the parties to engage in ADR if any of the parties are shown to be unreasonably resisting.

Although these disciplinary actions are currently at the discretion of the court, there have been proposed changes to Civil Procedure Rules, which have suggested making ADR engagement and penalties compulsory considerations for judges. 

When should ADR not be used?

If communications have entirely broken down it may be necessary to go down a more traditional route of litigation (ie fighting a case in court).
Where there is an imbalance of power between the parties (eg a dispute between a small sole trader and a large company), ADR may put the weaker party at a disadvantage and the court should take this into account.