A Guide to Alternative Dispute Resolution (ADR)
What is it and what are your options?
From time-to-time, you and/or your business might become involved in a legal dispute with another party. This could be someone internal or connected such as a director and/or shareholder of the business or an external third party such as a competitor, supplier, or customer. If this occurs, what options are available to you and/or your business to try and resolve matters as quickly and as cost-efficiently as possible? Is it a case of straight to the courtroom or are there other options available?
Contrary to popular belief, litigation (even from a litigator’s perspective) is regarded as the ‘nuclear’ option and should only be considered as a last resort if a compromise/settlement cannot be achieved.
So, what are these other means and options available to the parties? These are commonly referred to as ADR. The aim of this guide is to help you and your business to get familiar with the concept of ADR.
What is ADR?
ADR is the abbreviation of Alternative Dispute Resolution. In England and Wales, ADR is typically used as an umbrella term for a variety of methods used to try and resolve a dispute without the need for Court intervention.
However, this is not to say that ADR can only be used as an alternative to or before Court proceedings are issued. In fact, the Court is keen to see parties consider and utilise ADR at all stages of a dispute and has discretion to penalise a party in costs should it unnecessarily refuse to engage with ADR.
As such, it is very important for you and/or your business and legal advisors to consider ADR throughout any dispute that you might become involved in.
So, what options are open to you?
Even when parties find themselves entrenched in a dispute, this doesn’t mean they cannot try and resolve matters through negotiations and correspondence. Sometimes all it takes is structured discussions to come to a resolution.
As to the structure and format of negotiations, there are several approaches that can be considered:
- Negotiations can involve lawyers, or they can be directly between the parties. This will depend on the appetite of the parties, how far along the negotiations/dispute the parties are, and whether the parties want to incur the additional costs of involving lawyers.
- Negotiations and correspondence can be ‘open’ or on a ‘without prejudice save as to costs’ (“WPSATC”) basis. The difference between the two is very important, especially if the matter reaches the courtroom. ‘Open’ correspondence is the same as all other correspondence sent between the parties and, as such, can be shown to the Court before judgment is handed down. However, ‘WPSATC’ correspondence provides protection to the parties as such correspondence cannot be shown to the Judge unless and until the matter reaches submissions in relation to costs and conduct, which will be after the judgment at trial. Therefore, this allows parties to negotiate more openly and even concede points without the worry of that undermining their case before the Court.
- Should a party wish to make an offer to settle a dispute they can do so on a “Part 36” basis. Part 36 offers are governed by Part 36 of the Civil Procedure Rules, which is the body of rules that govern how litigation should be conducted. The benefit of using the Part 36 procedure is that there are costs sanctions, depending on if and/or when a Part 36 offer is accepted or rejected. Due to the complexity of these sanctions, these are outside of the scope of this guide. Nonetheless, parties should be aware of the rules under Part 36, as they can be a very useful tool in a party’s and lawyers’ arsenal.
Before any dispute is issued, the claimant (the party bringing the dispute) must comply with the Practice Direction on Pre-action Conduct and Protocols (or any specific Practice Direction for that type of case). This sets out what each party should do and provide to the other before the matter is issued. Accordingly, the parties must engage in correspondence before the matter is issued (unless one party requires urgent relief such as an injunction) and therefore there is always the opportunity for negotiations.
One of the main benefits of engaging in correspondence with the other party is that if the correspondence results in a resolution the parties will have saved a lot of time, effort, and money in coming to that resolution in comparison to litigation. However, for correspondence and negotiations to be fruitful, all parties involved must be willing to engage openly and honestly, and even compromise and concede on some points. As such, correspondence and general negotiations alone aren’t always sufficient.
Mediation is one of the most common methods of ADR outside of general negotiations between the parties.
A mediation involves an independent mediator facilitating discussions between the parties in an attempt to come to an agreement. It will usually involve the parties and mediator decamping to a suite of conference/meeting rooms for the day before embarking on several rounds of discussions, negotiations, and debates. Some of these will have everyone in the same room and some with the mediator floating between the rooms relaying information and providing constructive feedback and food-for-thought.
The main aim of a mediation is to have the mediator help the parties untangle knots and remove hurdles between the parties that are preventing settlement being reached. Having an independent third-party parachute into the dispute for these purposes can be very helpful, as it provides not only another perspective to the dispute, but one that has no skin in the game and whose aim is simply to facilitate an agreement.
Other benefits to mediation are that it can be arranged and conducted relatively quickly – usually within 3-5 weeks of the parties agreeing to mediate, potentially even quicker – and it is much cheaper than the matter proceeding to Court. Additionally, to paraphrase a common saying, what happens at a mediation, stays at a mediation.
Like with WPSATC correspondence, mediation is protected by a form of privilege that prevents parties from discussing in open correspondence what happened at a mediation. This allows the parties to again discuss matters openly and honestly without the worry of undermining their case moving forward.
However, a mediation is not always successful or even helpful. For it to work, all parties must come to the mediation table with open minds and be willing to engage open and fully; if they don’t, the mediation will not progress matters and will only waste time and costs. Furthermore, even if a settlement is reached at a mediation, the settlement and outcome is not binding until the parties enter into an appropriate agreement.
Arbitration is like mediation in that the parties agree to submit their cases to an independent third party who will assist. However, unlike mediation the parties submit to the arbitrator’s jurisdiction and agree that the any award granted by the arbitrator is binding on the parties.
This method of resolving disputes therefore has more certainty than mediation, but this is less positive for the party who comes out on the wrong side of any award. Additionally, it is sometimes the case that the ‘winning’ party needs to take the losing party to Court to enforce the award should the losing party refuse to pay up.
Other Forms of ADR
In addition to the above, there are several other methods of ADR which are less common in practice such as expert determination. Due to such methods being much less commonly used in practice, they are outside the scope of this guide. However, depending on the nature and facts of the dispute, they may still be of assistance and maybe worthy of consideration.
Keep in mind…
…even though there are several possible methods of ADR, parties to a dispute should always keep in mind that the contractual documents governing the relationship between them might dictate what methods of ADR must be used to try and settle a dispute. It is commonplace for agreements to include dispute resolution clauses or mechanisms for resolving disputes arising from that agreement without needing to go to Court.
Therefore, before embarking on any pre-action correspondence or ADR-related discussions, it is prudent for the parties to check any agreements between them for any such clauses.
Should the parties not be able to find a way to resolve their dispute in general pre-action correspondence or via a method of ADR, then the last resort is for the claimant to issue proceedings before the Courts.
If litigation is issued and the matter goes all the way to trial, the parties will have to engage in what are known as phases of litigation. These include a Case Management Conference, cost budgeting, disclosure of documents, witness statements, and of course trial itself. However, these are not the only phases that parties may be faced with – there is also the possibility of interim applications and even expert evidence.
The time and costs that could be incurred in litigation are huge. When you factor in both lawyer and barrister fees, you and your business could easily incur legal fees in excess of £80,000-100,000 plus VAT for regular contractual disputes. There is also the additional risk of having to pay the other side’s legal fees should you lose, as well as any damages ordered by the Court.
Sometimes, however litigation cannot be avoided. Should the matter reach litigation it will ultimately result in, subject to any appeals, an enforceable judgment (more readily enforceable than awards obtained via ADR) for the parties which in turn will result in the dispute coming to a head.
Hopefully this guide has provided some useful information and shed some light on the possible options available to parties involved in a legal dispute.
As outlined above, ADR can be a lot cheaper and quicker at reaching a settlement and resolution in comparison to litigation, which are always key considerations but even more so considering the current cost of living crisis. However, for ADR to be truly effective it requires all parties to buy into it – it doesn’t always guarantee a result.
Should a dispute arise, it is very important that you and/or your business act promptly to protect yours and its interests. Therefore, it is always advisable to seek independent legal advice at the earliest possible opportunity. A failure to act promptly may lead to increased costs should thhttps://www.geldards.com/expertise/law-for-business/commercial-disputes/e other side issue proceedings.
Should you or your business be concerned about a potential dispute and wish to discuss your options further, do not hesitate to contact Geldards LLP’s specialist Commercial Dispute Resolution departments.