Alternative Dispute Resolution: Part 1 – Why ADR is Important

Regardless of how well-intentioned parties are at contract formation, there will also be the potential for matters to devolve into lengthy and arduous disputes that cannot be resolved at a project-level.

Litigious disputes are not only lengthy, but they have the potential to distract parties from their ultimate goal, successful project delivery.

Whilst there remains an ongoing push to align parties’ interests and shift towards collaborative contracting approaches (which often include a “no blame” style regime), the majority of contracts remain traditional adversarial contracts.

Given this, parties may seek to mitigate the risks around disputes by ensuring the contract specifically deals with how disputes are to be resolved. In doing so, parties can develop a tailored approach specifically suited for the project.

When developing a dispute resolution process, parties should take into consideration the likely disputes that could arise, specifically around potential quantum and if the issues will be overly complex or technical.

In this article, we explore some of the key benefits of alternative dispute resolution (ADR), before exploring the differences between common processes in future articles.

What is ADR? 

ADR broadly encompasses different processes which allow for parties to resolve disputes without having to commence proceedings before a court.

Whilst ADR processes will commonly include an impartial third party being involved, they present an alternative option to a judge deciding the outcome of the dispute.

Common ADR processes include:

1. Mediation;
2. Conciliation;
3. Expert Determination; and

Benefits of ADR

ADR offers a number of benefits to the parties, including:

1. Expedited Nature: ADR processes can, and often do, occur on an expedited basis whereby the process can be organised and scheduled within a number of weeks or months (as opposed to litigation which can take years in some instances);
2. Flexibility: The parties are in complete control of how the ADR process progresses (pending certain times when a third party is appointed and they have certain discretionary powers over the conduct of the matter). This flexibility can allow for a resolution to be agreed that extends outside of the typical bounds of a direction the court could give, tailoring it specifically to what the parties seek to achieve;
3. Cost: The cost of litigating can be considerable, especially given the time associated with each step the parties are required to follow. In contrast, certain ADR processes can allow for a quick resolution that avoids incurring significant costs over an extended time period; and
4. Confidentiality: ADR processes provides the parties a confidential forum within which to resolve the dispute. Where confidentiality is important to the parties, litigation may often be avoided for this reason.

Limitations of ADR Processes

Notwithstanding the above, the effectiveness of any ADR process will be limited if the parties do not engage in the process in good faith.

If parties merely seek to fall back to their already entrenched positions without engaging in meaningful negotiation and compromise, the utility of certain ADR processes (that are more facilitatory and not determinative) will be reflective of such.

Further, if the ADR process is unsuccessful, the parties will have expended costs in undertaking the process, without deriving any tangible benefit. To this end, parties should consider the benefit of prescribing that certain determinative ADR processes are binding on the parties, limiting the opportunity for appeal.

Whilst limiting the ability for appeals may seem sensible at the time of contracting, parties should consider the risks associated with such, given the potential to bar potential claims. In these circumstances, the ability to appeal for perceived “manifest errors” may preserve some rights, or alternatively imposing monetary limits that, if exceeded, do not result in a binding decision.

The content of this article is for information purposes only and does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.

Contact: Peter Lamont or Ryan Bryett

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