What is ADR - and how does it work?
Alternative Dispute Resolution (ADR) provides a confidential and alternative method of tackling legal disputes which avoids going to court. The most common types of ADR are mediation, conciliation, arbitration and adjudication.
Mediation involves an independent trained mediator who facilitates communication between the two parties having the dispute, with the aim of achieving 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, please see our guide on mediation.
Conciliation is generally used for employment situations rather than commercial disputes. Conciliation is a compulsory process before an individual wishes to bring a claim to the Employment Tribunal. The conciliator will discuss the issues 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. For more information, please see our guide on conciliation.
This is more formal than mediation, and involves a process in which the dispute is resolved by the decision of an arbitrator (a nominated third party who is qualified to handle arbitration). The arbitration process can be particularly useful in disputes which require an understanding of technical knowledge and where privacy is important (eg to avoid disclosure of commercially sensitive information) or if there is an international element (ie to avoid multiple legal jurisdictions). It runs as a tribunal process and decisions are binding. Many contracts will contain an arbitration clause, which requires arbitration to be used in the case of a dispute. For more information, please see our guide on arbitration.
This form of ADR is generally reserved for disputes which arise out of construction contracts. It is a relatively formal process which involves: providing a written Notice of Adjudication which sets out the brief details of the dispute; appointment of an agreed adjudicator; serving a referral notice which sets out the dispute in detail by the aggrieved party; a response to this referral notice (essentially the defence); and finally a decision being reached by the adjudicator within 28 days of the referral notice. This decision is final and binding.
What is the difference between arbitration and mediation?
Mediation is a less formal and non-binding process of resolving disputes, whereas arbitration follows a more formal procedure in which decisions are binding. Mediation is a voluntary process and relies on the mutual cooperation of both parties to appoint an independent third party who can act impartially to facilitate and resolve the dispute. An arbitrator is usually a legally qualified member of the Chartered Institute of Arbitrators.
Are the decisions legally binding?
Decisions arising from mediation and conciliation are not legally binding; these are principally a form of mutual agreement. However decisions arising from arbitration are legally binding and must be followed by the parties.
When should ADR be used?
ADR is typically cheaper and faster than entering into litigation and resorting to the courts. As long as communication has not irretrievably broken down between the parties at dispute, it should be considered as a more efficient method of achieving an outcome. It is also helpful in terms of maintaining a degree of privacy compared to the more public nature of court proceedings. Arbitration is an increasingly attractive option for businesses as it enables any matters to be kept confidential which preserves the reputation of the individuals or businesses involved.
When should it not be used?
If communications have entirely broken down then it may be necessary to go down a more traditional route of litigation. Also if there is an imbalance of power (eg if this involves a dispute between a sole trader and a large company) ADR may put the individual at a disadvantage, so this is an issue which should be taken into account.