What is Alternative Dispute Resolution (ADR)?

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In Short

• ADR is a faster, more cost-effective alternative to going to court.

• The three main ADR processes are facilitative, advisory, and determinative.

• ADR can help preserve business relationships by fostering mutually negotiated resolutions.

Tips for Businesses

Consider including an ADR clause in your commercial contracts to resolve disputes efficiently without resorting to costly court proceedings. ADR offers flexibility, faster resolutions, and preserves relationships, making it a valuable tool in business contracts. Speak to a legal expert to ensure your dispute resolution methods are clearly defined.

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Table of Contents

• What is ADR?
• 1. Facilitative ADR
• 2. Advisory ADR
• 3. Determinative ADR
• Benefits of ADR
• Key Takeaways
• Frequently Asked Questions

It is now standard practice in commercial contracts to include a dispute resolution clause that instructs parties on how to proceed in the event of a dispute. More often than not, that dispute resolution clause refers to a form of alternative dispute resolution (ADR). This article will explain what ADR is, and how you can use it to resolve your dispute successfully.

What is ADR?

ADR refers to resolving disputes or issues between parties through an impartial third party. It aims to offer an alternative to the judicial process, that is, simply proceeding through the Court.

There are several ADR processes, each approaching dispute resolution in a slightly different manner. Below, we outline the three primary types of ADR processes, as well as the benefits of ADR.  

1. Facilitative ADR

This describes ADR processes, such as mediation, conciliation, facilitation, and facilitated negotiation. The most common facilitative ADR process is mediation. It typically involves a third party assisting the parties involved in a dispute or disagreement to identify the issues, develop options, and attempt to reach an agreement.  

Notably, mediation is a voluntary process entered into by the parties. The mediator cannot impose a settlement; it is strictly up to the parties to reach an agreement. The mediator’s role is to provide a framework that allows the parties to attempt to resolve their differences.

2. Advisory ADR

Standard ADR processes include expert appraisal and case appraisal. As the name suggests, advisory ADR processes involve the third party considering the material before them and providing advice to the parties regarding the facts, the applicable law, and how the parties may achieve their objectives.  

3. Determinative ADR

Probably the closest ADR process to a judicial decision (i.e., a Court), determinative ADR includes arbitration, private judging, and expert determination. In these processes, the third party uses more ‘formal techniques’.

It is not uncommon for parties to provide statements and evidence, and the third party (typically an expert or an arbitrator) determines an award.  

Benefits of ADR

ADR is advantageous for many reasons, including: 

• The process is generally faster than going through the Court process. In some instances, a dispute can be resolved in a matter of weeks or months, as opposed to the months or even years that court matters can take.
• It is often cheaper than litigation.
• The processes allow parties to ‘have their day in court’ and return control to the parties, who can then focus on the issues important to them.
• Settlement between the parties can be flexible and involve different remedies, as opposed to a court, where remedies are typically a monetary award.
• The dispute can remain private between the parties.
• Positive results for parties and a high satisfaction rate.
• Preserves relationships between parties, particularly mediation where there isn’t a ‘winner’ and ‘loser’ but rather, a mutually negotiated resolution. 

Key Takeaways

ADR won’t be suitable for every dispute between parties, but it is worth exploring ADR options and is, in some instances, required by the dispute resolution clause.

If you have questions about including a dispute resolution clause in your commercial contract or exploring alternative dispute resolution, our experienced dispute resolution lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page. 

Frequently Asked Questions

How does mediation (facilitative ADR) work?
In mediation, a neutral mediator helps the parties identify the issues, develop options, and try to reach an agreement. It’s a voluntary process, and the mediator cannot impose a solution.

What are the benefits of using ADR?
ADR is faster, often cheaper, more flexible, and allows for a private resolution. It can preserve relationships between parties, especially through mediation, and offers a higher satisfaction rate.