As your business scales, disputes are inevitable. It could be a dispute over IP, or claims you’ve breached a contract.
Getting caught up in a court case will cost your business time and money, and could put your reputation at risk. If you’re caught up in a dispute, what alternatives are there?
Alternative dispute resolution (ADR) can serve as a fairer, more efficient, and less confrontational way to solve disputes. Let’s look at mediation, arbitration, and other ADR methods that can help large businesses avoid costly legal proceedings.
What alternative dispute resolution (ADR) methods mean for large businesses
ADR has several advantages for large businesses over court cases. They can be more efficient, less costly, and more humane than taking both parties to court where every detail of the case will be made public. It’s an effective way to solve issues in areas such as civil disputes and contract law.
That said, there are cases where ADR isn’t going to be appropriate. These include cases where criminal law has been breached, where there’s an extreme imbalance of power. In these cases, a court case is unavoidable.
With that in mind, what does ADR mean for large businesses?
ADR often begins with initial talks to establish how the dispute will be resolved, and what terms both parties want to abide by. This can include defining roles and responsibilities, expected timelines and expectations, as well as a confidentiality agreement.
This is useful in any case where businesses don’t want their information leaking out into the public where competitors can see it.
Cost-efficiency and flexibility
ADR is often much cheaper than going through court. While arbitration costs can get high, the option to go through expedited hearings or controlled disclosure processes can save money compared to court proceedings.
This flexibility is how ADR has spread to areas such as employment, IP, and financial disputes. As a cheaper alternative to going to court, ADR can increase access to justice by giving people a more affordable way to have their issues resolved.
Preserving business partnerships
By focusing on a mutually beneficial outcome, ADR is less of a bitter, drawn-out conflict than most court settings.
This can help preserve business relationships between individuals or companies that might have to work together again in the future. Mediation is all about fostering dialogue and empathy, while arbitration gives both parties more of a say in what they want to happen.
This is another place where ADR’s flexibility is a strength. For example, many business cultures in Asia put an emphasis on preserving relationships and saving face where possible. By giving people more of a say in how situations are handled, ADR can help all parties handle issues discreetly and avoid having to convince a judge that the others are totally in the wrong.
Swift and efficient proceedings
ADR gives all parties a say in how long the proceedings could take, which is important when cases could slow down the day-to-day business. Many rules of the arbitration process are built to impose timelines on parts of the process, which might include sanctions and financial penalties for arbitrators who delay the process.
Article 30 of the ICC Arbitration Rules specifies that Expedited Procedure rules will take precedence over any terms in the arbitration agreement itself, unless all parties agree to overrule that. This change is intended to keep proceedings as swift as possible.
Autonomy in choosing procedures and regulations
One of the strengths of ADR is letting businesses and individuals choose the way they handle disputes. One of the most important parts of that is letting them choose the procedures and regulations they want to abide by.
Queen Mary University of London found that 90% of people surveyed preferred international arbitration as a way to solve disputes across borders, with 59% of them preferring to do that in conjunction with ADR.
The top five chosen “seats” for this, whose laws will be applied, were London, Singapore, Hong Kong, Paris, and Geneva. These are seen as countries with impartial, trustworthy legal systems with a good track record for enforcing arbitration awards.
Alternative dispute resolution methods for large businesses
As they scale, businesses enter an increasingly complex and high-stakes landscape. Potential disputes get bigger, and they have even more potential to disrupt your day-to-day operations at best, or put the whole business at risk.
Several ADR methods have been developed to serve all kinds of situations. Those include mediation and arbitration, as well as methods such as conciliation, adjudication, and collaborative law.
In the mediation process, both parties try to reach a mutually beneficial outcome with the help of an independent mediator.
There’s no fixed way of doing this, but it usually begins with an exchange of case summaries and any supporting documents. This is why it can be good to keep secure electronic records and use tools like order management software or ERP software to make sure that your supporting documents are always accessible.
The mediator then tries to find common ground and figure out a potential solution that gives everyone a little of what they want. If they reach an agreement, all parties will sign legally binding terms.
In some countries, such as England and Wales, courts will promote and support mediation processes, including penalties for unreasonable refusals to engage in the process.
The benefits of mediation include the privacy and non-confrontational nature of the process. This helps businesses keep matters private while preserving business relationships. While arbitration ends with someone being awarded compensation, mediation can end with any agreement that settles the dispute.
Early neutral evaluation
Early neutral evaluation (ENE) involves having a neutral party evaluate the potential success or failure of court proceedings.
This can be done in court, but both parties can save money if this is done outside of court. ENE is useful when parts of the dispute involve complicated legal or technical information. By consulting an expert early on, both parties can save time and money having lawyers pore over the details in court.
ENE gives both parties a better idea of what taking the dispute to court might mean for them. By doing that, it can increase the chance of a pre-trial settlement. B, if the evaluator decides that one party is in the right, this can cause them to dig into their existing position and reduce the chances of a compromise.
Arbitration is a “judicial” form of ADR where the outcome is decided by a third party, whether that’s one person or a panel. This outcome is called an “arbitration award” and the decision is usually irreversible.
Arbitration is often included as a condition of commercial contracts: if a dispute arises out of the contract, it specifies arbitration as the preferred route to solving it. This is because arbitration is quicker and more confidential than court proceedings.
Given that one or both parties can choose the arbitrator(s), they can select one or more qualified experts to make the decision. Because arbitration is a simple method which is legally recognized and enforceable in countries including the USA, Canada, the UK, and Australia, it’s also ideal for cross-border disputes.
Conciliation is an informal conflict resolution process similar to mediation.
A third party (the “conciliator”) will take the parties through a confidential process aimed at finding a compromise. The conciliator will try to find common ground, clarify any misconceptions, and figure out what both parties really want. At the end of the process, parties might sign a legally binding contract to enforce the terms of the settlement.
Adjudication is a mandatory form of ADR most commonly used in the construction industry, but it can be applied outside of construction if it’s stipulated in a contract. It begins with one party serving a Notice of Adjudication to the other, which details the specifics of the dispute and what compensation or relief they want. Then an adjudicator is chosen either manually, by both parties, or by an Adjudicator Nominating Body.
Once the adjudicator is chosen, they send a referral notice outlining the case that requires a response within seven days. The adjudicator will then usually reach a decision within 28 days, which is legally binding unless it’s overruled by a second arbitration process or court decision.
This process focuses on making decisions quickly and cheaply. This is important in construction where there’s potential for projects to go over time and over budget at great cost to many stakeholders.
In collaborative law, each party has an attorney but the shared goal is settling on a compromise out of court. Part of that is creating an environment of open communication and mutual respect, whatever the situation is.
For example, if a dispute arises over a delay in delivery, one party could bring data from their order management software to review all data around the delivery in question. Or if the dispute involves financial matters, accounts payable software could be used to make sure all parties can see that compensation is being paid out as agreed.
How ADR can help
In the complex world large businesses are operating in, disputes are inevitable. But expensive, damaging court battles are not. ADR gives businesses a variety of conflict resolution to handle disputes out of court.
These difficult situations can be handled entirely out of court, but there are options to get courts and legally binding contracts involved where it makes sense. ADR can adapt to all kinds of situations, helping everyone involved reach a compromise that works for both of them.