Dispute Resolution does not mean Litigation: ADR options and why pursue them
With the average duration of court cases rising, and litigation costs skyrocketing, it is paramount for lawyers to embrace Alternative Dispute Resolution (ADR) methods to help their clients reach better outcomes faster, and with fewer costs. There are various options for parties seeking to avoid the burdensome procedure of court litigation, with each providing its own benefits. Lawyers must be able to identify why each of these methods would be suitable for each specific case. In this article, we analyse the main ADR options, examine their benefits and then consider where litigation might still be the better option.
Negotiation is the most informal ADR option. It is a voluntary process that the parties can enter into at any time, even if litigation is already pending before a court. The parties come together, either directly or through their representatives, to make offers to each other. In large commercial transactions, negotiations will usually consist of multiple offers and counteroffers, with the parties either edging closer to a median position, or reaching their red-lines and putting a stop to the process. If the parties find an agreeable solution, they will sign a contract to formalise the terms of their agreement, which would be enforceable in the same way as any other contract.
Mediation and Conciliation are more formal methods, requiring the involvement of a third party to guide the parties to an agreement. Both mediators and conciliators must be impartial, independent, and qualified individuals. Their purpose is to resolve the conflict through the clarification of issues between the parties and the facilitation of communication between them. A contract might include a term as to the obligation of the parties to attend one of the two methods, as well as an obligation to use their best efforts to resolve a dispute through such a process. Yet, the parties remain free to walk out and there is no guarantee of a successful and binding outcome from these methods.
Mediators will not suggest any solutions of their own; this is not their purpose. A mediator’s purpose is to guide the parties to an agreement through the creation of a channel of communication, in which the parties feel safe to express their priorities and any potential reservations. In contrast, a conciliator may make suggestions to the parties. Conciliation is mostly used where there is a pre-existing relationship that requires repairing, hence its wide use in contentious divorces. If either method is successful, the terms agreed by the parties will be put to paper, and the independent third party will sign the agreement, certifying the success of the process.
Arbitration is the most complex of these methods and it resembles the court’s procedure. Parties take turns to make submissions to an independent arbitrator who then reaches a decision that binds the two parties, acting in a manner similar to a private judge selected by the parties. There are no specific requirements for someone to become an arbitrator, but the most respected arbitrators are usually either legal professionals or experts in a particular field. Arbitration is very common in highly specialised fields, being the dominant dispute-resolution method in industries such as construction and manufacturing, where parties can expect to work with each other in the future and seek to preserve functioning business relationships.
All these processes are usually confidential, but they may be made public if the parties agree to do so, with this decision often coming down to strategic reasons.
Benefits and commercial significance
Some of the benefits of ADR are obvious from their very nature. The flexibility they provide means the parties can reach constructive solutions that work for both parties, rather than be forced into an antagonistic situation, where there is a winner and a loser. The most likely outcome of litigation is the award of damages. These may not be of much practical help to parties seeking to find an amicable resolution, that will allow them to continue working together in the future. In contrast, parties can be more creative with their solutions through ADR, working out arrangements that go beyond the provision of money.
Confidentiality may be a significant consideration for high-profile parties. Litigation is conducted in public, and the parties are forced to disclose any material that is relevant to their dispute. In contrast, all ADR methods can be confidential, protecting the reputation and public image of the parties involved, and removing the need for them to reveal matters that they do not wish to disclose. This is why ADR has grown in popularity amongst consumer-facing businesses, as complaints can be dealt with privately and quickly, without attracting the public’s attention in the same way litigation does.
ADR also offers the parties a much quicker resolution than litigation. It takes an average of 18 months for a typical claim to reach the point of trial in the UK. More complex cases may take years, and Covid-19 has only exacerbated the delays, as the backlog of cases has increased. With financial difficulties mounting as a result of the pandemic, the number of commercial cases that go to court is expected to rise to reflect the difficult post-pandemic business environment, making out-of-court processes more attractive.
The sooner a dispute is dealt with, the lower the costs for the parties involved. Litigation is expensive and legal fees can accumulate quickly. The losing party also has to pay for the legal costs of its opponents. This means that the unfortunate party which sees a judgment go against it will not only have to comply with the judgment but will also have to pay the legal fees of all the parties involved. In high-profile cases, these legal fees can be in the millions. For example, EY’s legal fees for its defence against Equitable Life in 2005 reached a staggering £100 million. While most cases won’t reach that level, the potential cost reductions offered by ADR are often the driving force for their use.
Why would anyone still go to court?
ADR offers significant advantages to the parties making use of them, but some disputes are inherently not suited for ADR. Some litigants may not bring a claim for financial reasons, but instead may bring it to send a message. Getting a court judgment in your favour may be vital in many scenarios, such as when a business faces allegations of wrongdoing. A judgment in such cases will serve as a public proclamation of innocence that a business can use to clear its name. Conversely, there are many cases where consumers pursue litigation against big companies purely out of principle, getting a sense of vindication that would not be available with ADR.
Litigation also creates a precedent that will be followed in subsequent cases, and this may be significant where a party envisages that similar disputes may arise in the future. This explains why it is not unusual for big businesses to enforce their trademarks against smaller competitors, even where the financial compensation they receive is insignificant. For example, Amazon recently used previous judgments to force InfoHealth to back down from its claim to the ‘Amazon Pharmacy’ trademark, illustrating how litigation can be used strategically.
Crucially, the enforceability of a judgment may guide a party into the path of litigation. Arbitration decisions can be enforced similarly to court judgments, but this is not usually the case for the other ADR methods. In many jurisdictions, the result of mediation and conciliation can only be enforced as a contract, requiring evidence and the need to go through the court. Conversely, a judgment from a well reputable court, such as the courts of England and Wales, may be recognised and enforced in other jurisdictions, without the need to re-litigate the matter.
Some of the benefits of ADR are obvious from their very nature. The flexibility they provide means the parties can reach constructive solutions that work for both parties, rather than be forced into an antagonistic situation where there is a winner and a loser. The most likely outcome of litigation is the award of damages. These may not be of much practical help to parties seeking to find an amicable resolution that will allow them to continue working together in the future. In contrast, parties can be more creative with their solutions through ADR, working out arrangements that go beyond the provision of money.