What is ADR?
ADR is an acronym for Alternative Dispute Resolution.
The principal forms of ADR commonly used are
* Mediation * Adjudication * Arbitration
These are all procedures whereby the parties can voluntarily determine how they wish to settle their dispute quickly, fairly and relatively cheaply. The parties are able to choose an arbiter or tribunal in whom they have confidence, who will be impartial, and who will be commercially experienced in the matter under dispute. Further, unlike the courts, any hearings will be in private and relatively informal, thus preserving commercial confidentiality, reputation and future business relationships between the parties.
It is recommended that provision for the preferred ADR mechanism be built into a contract, rather than wait until a dispute arises (at which time reaching agreement on anything, including how to resolve the dispute, may be difficult). Submission to the ADR process then becomes a mandatory pre-requisite of court action - one party cannot change its mind and decide to go to court instead. The voluntary aspect of ADR lies in that the parties choose to adopt the ADR clause in the first place
What is Mediation?
Mediation is a private and structured form of negotiation assisted by a neutral third party that is initially non-binding and held on a without prejudice basis. The neutral may meet each of the parties separately to help them find common ground for resolving the dispute amicably. The meetings are confidential, held in an informal setting, and clear the way for negotiations. The parties are in control of the process and the outcome - the neutral does not issue a decision on the merits of the dispute.
If a settlement is reached the mediator can draw up an agreement that can then become a legally binding contract.
What is Adjudication?
Adjudication is a quick and inexpensive, on-the-job method of dispute resolution resulting in an immediately enforceable, non-binding dispute settlement, by a third person, known as the Adjudicator. The Adjudicator is likely to be an expert first and foremost, ideally coupled with legal expertise, so will not need to hear or read large quantities of expert evidence to understand how the industry operates. This keeps time down to a minimum and avoids much unnecessary expense.
Unlike arbitration, adjudication is not generally (the UK being a notable exception) subject to control by statute, or governed by international conventions. But, unlike mediation, adjudicators are required to decide matters in accordance with contractual and legal frameworks, as in arbitration.
The decisions of adjudicators are not directly enforceable, but the adjudication agreement in a contract may provide that Awards are binding on the parties at least on an interim basis, e.g. unless and until they are amended or overturned at arbitration, or not disputed by one of the parties within a short, fixed time limit.
The great value of adjudication is that the parties get a quick decision while they get on with business. Even if one of the parties decides to take the dispute further, the parties have a firm basis upon which to proceed in the interim period. Prior to the introduction of construction adjudication, for example, it was common for building sites to grind to a halt until a dispute was settled. This is no longer the case. Projects are completed quickly and the industry has saved a great deal of money by avoiding disruption.
What is Arbitration?
Arbitration is a formal, binding, process where the dispute is resolved in private by the decision of a nominated third party, the arbitrator or arbitrators.
As with other forms of ADR, the parties have the right and power to decide many of the procedures that will govern the conduct of their arbitration. Default systems for the conduct of arbitrations are provided by arbitral organisations and by international and domestic arbitration codes. The parties can decide on the degree of formality they desire, how much time will be allocated to various aspects of the process and how documentation, discovery and the taking of evidence will be handled.
Hence, in contrast to litigation, Arbitration offers the possibility of informality, speed, cost savings and privacy - but with the advantage that awards are not only enforceable in the domestic courts, but internationally through treaties such as The New York Convention on Enforcement of Arbitral Awards.
What is the New York Convention?
The New York Convention of 1958, drawn up under the auspices of the United Nations, is the most important international convention relating to international commercial arbitration. It requires contracting states - of which there are now over 140 in number - to recognize and enforce valid arbitration agreements. It places the principal burden on the party resisting recognition or enforcement of an award to establish the reasons why the award should not be recognised or enforced.
There essentially two kinds of arbitration, ad hoc or institutional. An institutional arbitration is one that is entrusted to one of the major arbitration institutions to adminster, while an ad hoc reference is conducted independently without such oversight, according to the rules specified by the parties and their representatives.
1 or 3-Person ADR Tribunal?
In the majority of adjudication or arbitration cases, as with mediation, a single neutral will be appropriate. In complex disputes it may be desirable to have a tribunal of three, with an adjudicator or arbitrator appointed by each party, who then select an independent Chair.
Where will the Hearing be held?
Disputes will be resolved, where possible, by documents-only. If a hearing is required (for a mediation, and complex disputes, a hearing is usually essential), the parties and the neutral agree a venue and time as convenient as possible to all concerned. The proceedings are always in private, which means that market reputations and any sensitive knowledge are preserved. Parties do not have to face the ordeal of attending court, nor the stress of giving evidence in front of a judge, the press, and the other party in a public court room.
How long does ADR take?
In litigation the timetable is usually protracted, designed to suit the needs of the court and not the parties. In ADR timetables are more rapid and flexible, being set by the tribunal in accordance with the rules agreed between the parties.
Who pays the Costs?
In arbitration, as in litigation, there is discretion on costs, although they normally follow the event. Hence, the loser generally pays the winner, although this may be varied to a greater or lesser degree in certain circumstances. In adjudication, standard forms of contract commonly provide for the costs to be shared equally between the parties.
Experience shows that in a well-managed ADR procedure, costs are almost invariably significantly lower than for litigation.