ADR - what is it and what does a recent Justice Committee report say about it?

Alternative dispute resolution (ADR) is the collective name for a number of methods of resolving disputes that don't involve litigation.

Earlier this week the Justice Committee of the Scottish Parliament published a report entitled "I won't see you in court: alternative dispute resolution in Scotland." The report sets out the different types of ADR, why it considered these were not utilised enough at the moment and what could be done to change that.

Main types of ADR

The main types of ADR used by commercial organisations are:

1. Mediation - parties discuss their dispute and aim to negotiate a resolution, with the assistance of the mediator, a neutral independent third party. This is suitable for all commercial organisations and is attractive because the negotiation and any resulting agreement is entirely confidential, as opposed to a dispute in court which can be reported on by the press and may result in a published judgment. Sometimes dispute resolution clauses in commercial contracts include attendance at mediation as a necessary precursor to litigation. For more information, check out my colleague Fiona Chute's recent blog post on the benefits ofmediation here.
2. Arbitration - an arbitrator, an independent specialist third party, decides how the dispute should be resolved. Similar to a court action, most arbitrations involve the submission of written claims or defences which are drafted by lawyers with hearings thereafter, but the procedure is more flexible and is confidential. The decision of the arbitrator is final and binding and can be enforced readily in a number of countries around the world.
3. Expert determination - an expert, who is an independent specialist in the subject matter of the dispute, will decide how it should be resolved after hearing from both parties. This process is normally used to determine financial or technical aspects of disputes, such as deciding the value of shares in a corporate dispute or who is liable for the failure of a complex IT project. It is generally a very quick process, and the expert's determination is normally binding.
4. Adjudication - normally used in the construction industry, a "man of skill" makes a decision on the dispute. It is a useful process as it is quick and flexible and can be used to obtain an interim decision to allow the project to be completed, but it is not necessarily as final as the other ADR methods, as the decision can be overturned by subsequent litigation.

Justice Committee report

The Justice Committee report sets out that ADR is in general underused in Scotland, so more information on ADR should be publicly available. It did not consider that people should be compelled to participate in ADR, as that could undermine the benefits that come from its voluntary nature, and parties should be able to choose to go to court if that is what they want to do.

Instead, it recommended that there should be pilots of "mandatory dispute resolution information meetings" - being sessions which parties would require to attend prior to raising a court action, to decide how best to resolve their dispute - and proposed that it also might be useful to introduce ADR legislation.

The report concludes that these options "could help to encourage the cultural shift the Committee heard is necessary to ensure a step-change in the uptake of ADR in Scotland."

Commercial organisations

Commercial organisations in dispute should have a good awareness of ADR already. There may be mandatory ADR steps in the dispute resolution clauses in their contracts, as discussed above. Additionally, a court practice note sets out that commercial parties are required to carefully consider and discuss with the other party whether their dispute could be resolved by some form of ADR before raising a court action and throughout the course of the litigation.

If the changes suggested by the Justice Committee report are introduced, it will be interesting to see if they have an impact on the uptake of ADR by commercial organisations.

We can provide advice on the best method of dispute resolution for you, whether court action or ADR, at the point of entering into a contract or when a dispute arises. We offer a full ADR service across a variety of sectors - check out our webpage which includes more information on this, including a handy guide to ADR.