If you have signed a commercial contract, you are likely familiar with the term alternative dispute resolution (‘ADR’). In brief, ADR refers to a suite of processes where a neutral third party assists you and the disputing party in resolving your disagreement without initiating formal legal action. The goal of any ADR process is to help you settle the dispute as quickly, efficiently and amicably as possible, therefore making ADR a common feature of many commercial agreements you sign. Below, we discuss the different types of ADR as well as why parties should include an ADR clause in their agreements.
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
What Are the Types of Alternative Dispute Resolution?
The three main kinds of ADR are:
- facilitative;
- advisory; and
- determinative.
1. What is Facilitative ADR?
Facilitative ADR involves procedures such as:
- mediation;
- conciliation;
- facilitation; or
- facilitated negotiation.
These are processes where an independent third person with experience in dispute resolution will help you and anyone who you are in dispute with:
- identify issues in dispute;
- develop options to overcome them;
- evaluate the alternatives; and
- reach a mutually acceptable agreement.
Typically, you can undertake these processes voluntarily. Notably, the third party cannot:
- impose a resolution on the parties; nor
- advise the parties on the law applicable to their issue or the likelihood of success in the court system.
In other words, the third party’s role is strictly to assist and guide the parties to reach an agreement themselves. This then allows you and the other parties to come up with options that are mutually beneficial and hopefully end the dispute.
2. What is Advisory ADR?
Advisory ADR describes procedures in which a practitioner in dispute resolution will listen to you and the other people involved in the dispute. They will then evaluate the issues and provide you and all other parties with advice about the facts of the dispute and the relevant law. The practitioner might also advise how parties can achieve possible favourable outcomes.
The most common type of advisory ADR is conciliation. During this process, the practitioner will assist you by:
- working out what issues you or the other part are disputing;
- identifying what information for facts all parties agree on;
- identifying areas of common ground you all share; and
- developing options to resolve each issue identified.
Advisory ADR can be beneficial where you need to:
- clearly understand, and then reach an agreement regarding some technical or legal issue;
- get advice on the facts being disputed; and
- have a third party as a resource to provide legal information.
3. What is Determinative ADR?
Determinative ADR refers to a process where a dispute resolution practitioner evaluates and makes a determination on a disagreement. This type of ADR can include hearing formal evidence and having parties submit formal statements, as in:
- arbitration;
- private judging; and
- expert determination.
Arbitration can often seem like a smaller-scale court or tribunal hearing. The dispute resolution practitioner, the arbitrator, will:
- review both parties’ grievances and facts; and
- make a judgement based on the information.
Unlike the two processes mentioned above, arbitration does not involve both parties coming to an understanding together, guided by a third party. Instead, it is the Arbitrator who decides how to resolve the dispute.
Why Include an ADR Clause in your Commercial Contract?
Parties to a commercial contract should include a clause requiring parties to undertake ADR since ADR is:
- typically cheaper than legal action; and
- parties generally reach an agreement quicker than through the courts.
Unlike litigation, ADR can also help parties to a dispute preserve a long-term relationship due in part to the emphasis on finding a mutually agreeable resolution. ADR is also a more flexible process than litigation. For example, where courts decide remedies, the parties to a dispute in ADR can come to an agreement that is considered otherwise unusual in a standard legal setting.
Continue reading this article below the formKey Takeaways
Most commercial contracts include an ADR clause, requiring you and any other parties to the contract to attempt ADR before starting legal action if a dispute arises. If this is the case, then you will find yourself undergoing:
- facilitative;
- advisory; or
- determinative ADR.
Since each ADR works differently, you must understand which process will serve your business best when entering into commercial contracts.
If you need help with resolving a business dispute, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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