Alternative Dispute Resolution (“ADR”)

In the commercial world, it is common that commercial disputes will arise, particularly when dealing with customers, employees, suppliers and competitors on a daily basis. Commercial disputes can prove to be stressful, confusing, costly and time-consuming for all parties involved. A party may choose to commence legal proceedings and take on litigation. However, this may not be the best course of action. Litigation is likely to add to the emotional and financial stress experienced. It may also fail to achieve a resolution that takes into consideration the interests of the parties and is mutually beneficial.

Is there a better course of action available for resolving a dispute successfully?

Yes, alternative dispute resolution (“ADR”) offers a different course of action and aims to achieve an outcome which is in the best interests of both parties.

What is Alternative Dispute Resolution?

Alternative dispute resolution allows for disputes between parties to be resolved by an impartial third party and offers a dispute resolution process outside of traditional litigation. The process usually involves negotiation between the parties involved and intends for those participating in alternative dispute resolution to act in ‘good faith’. Acting in ‘good faith’ requires the participating parties to display a genuine effort in taking the necessary steps to resolve the dispute; show commitment to the process by listening to the views and position of the other party; and to work towards an outcome which best accommodates the interests of the parties involved. Alternative dispute resolution has become increasingly important and is widely used in Australia.

What are the types of Alternative Dispute Resolution?

The main types of alternative dispute resolution are:

• Arbitration;
• Mediation; and
• Expert determination.

Each of the types named above approach dispute resolution in slightly different manners.

See the article that explains the three types of alternative dispute resolution in greater detail here: Read More

What are the advantages of Alternative Dispute Resolution?

Alternative dispute resolution offers a number of advantages, including the following:

• Time: alternative dispute resolution allows for disputes to be resolved a lot faster. Instead of an ongoing litigation that may be the subject of adjournments and appeals and run over a number of years, alternative dispute resolution can resolve a matter in just a couple of weeks or months;
• Cost: the process is often a lot cheaper than litigation. This is related to the advantage of resolving disputes within a shorter timeframe. The shorter the dispute, the more you are likely to save on legal costs. Additionally, you avoid associated fees, such as court costs and filing fees which may prove hefty;
• Flexible: parties are able to set rules and conditions as they see fit, meaning that the process is more responsive to the needs of the parties involved. The flexible nature of the process may allow for more creative outcomes to be reached, which better accommodate the needs of the parties;
• Remedies: the entire process is more flexible, meaning that resolution is not restricted in the same manner as the courts. This means that there is greater variety in the remedies available to the parties;
• Informal: the process is not as formal as litigation, making the experience less daunting and potentially reliving some stress;
• Confidentiality: alternative dispute resolution allows for the dispute to remain private between the parties. This may be particularly advantageous to a party that wishes to maintain their reputation;
• Preservation of relationships: since the process involves working towards a mutual understanding and an outcome which is in the best interests of both parties, there is a greater chance that a relationship will be maintained following the dispute. This may prove particularly advantageous for businesses that had an ongoing and profitable relationship;
• Control: alternative dispute resolution enables the parties to take back control of the matter and allows for the issues that are important to them to be the focus of the resolution process;
• Expertise: disputes can involve complex issues, particularly commercial disputes. This may mean that a judge may not possess the relevant expertise required to completely understand the dispute. Alternative dispute resolution allows for an impartial third party with the relevant expertise to oversee the matter; and
• Access to justice: alternative dispute resolution allows for those who may not be able to afford the costs associated with litigation to still have access to justice and to a dispute resolution mechanism. This may be particularly important where there is an imbalance of bargaining power, perhaps because one party has greater access to resources.

What are the disadvantages of Alternative Dispute Resolution?

Even though alternative dispute resolution presents a variety of advantages for the parties, it may also offer an incentive for parties to misuse it. Some of the disadvantages include the following:

• Stalling or delaying tactic: it is possible that one party may agree to take part in the alternative dispute process, but have no intention of negotiating or settling. Instead, they may use it as a means to exhaust the other party of its resources. This may prove particularly problematic where there is an imbalance in bargaining power between the parties;
• Obtaining information: it is also possible that one party does not enter into alternative dispute resolution for the purposes of resolving the matter, but rather, uses the process in order to obtain potentially valuable information from the other side. This can prove to be particularly problematic where the party decides to then commence legal proceedings and is already aware of particular facts that it may not have been, had it commenced legal proceedings from the beginning. Though the process intends for the parties to act in good faith, that is not always the case;
• Waste of resources: in the event that a successful outcome is not reached, the process may be viewed as a waste of resources and time. It is important to remember that a resolution is not guaranteed if you decide to engage in alternative dispute resolution;
• Non-binding decisions: though a decision may seem favourable to your party, it may later become apparent that the decision is non-binding and therefore has no force. This is commonly seen during mediation. The mediator does not have the power to impose binding decisions and thus it does not possess the same force as a decision of the court;
• Not appropriate: depending on the nature of the dispute and the remedies that are sought, alternative dispute resolution may not prove to be an appropriate fit for the matter at hand. For instance, if you are seeking a particular remedy, such as an injunction, it may not be able to be imposed as it would by the court.

Is it possible to incorporate alternative dispute resolution into your commercial contract?

Yes, it is possible to incorporate alternative dispute resolution into your contract. It has become increasingly important to include a dispute resolution clause in your commercial contract, which provides some instructions and direction on how to proceed in the event that a dispute arises between the contracting parties. We often see that dispute resolution clauses in commercial contracts make reference to alternative dispute resolution, and it is commonly intended to be a compulsory step prior to litigation. The form of alternative dispute resolution may vary among contracts. For example, the form of alternative dispute resolution could be a simple and informal negotiation between senior managers.

The courts may also order adjournments and encourage alternative dispute resolution to take place, as litigation is not always viewed as the most efficient and effective manner in which to resolve the relevant dispute.

There are however instances where it may seem that the contracting parties intended for alternative dispute resolution to be a precondition to litigation but failed to clearly draft it. For example, the language of the clause may be ambiguous, the dispute resolution process may not be sufficiently specific or certain, or the clause may be indicative of an ‘agreement to agree’. Such factors are likely to render the clause void for uncertainty.

It is important to remember that a dispute resolution clause can prove to be a valuable and useful tool in resolving a dispute between the parties. However, it is equally as important to be aware of how the clause should be drafted. Our team of Sydney commercial lawyers can assist you with any questions you may have about alternative dispute resolution and provide specialised advice in relation to a dispute that you may have. Our highly experienced team at MC Lawyers can also assist you in drafting a commercial contract that covers your best interests and is enforceable.