What is ADR?
What is Alternative Dispute Resolution “ADR”? Throughout the literature, ADR is described by the use of different procedures and processes for resolving disputes, and the main characteristic of ADR is to serve as an alternative to traditional court-based litigation. ADR is defined as:
a spectrum of voluntary, negotiation-based processes, in which representatives of the parties to a current or potential dispute meet together for collaborative problem solving and consensus-building, with the goal of achieving a mutually acceptable resolution(Andrew, 2001, p.168).
Let us get directly into business, this post covers the following:
For relevant articles on ADR check out; Arbitrability Concept, Restrictions, and the Applicable Law and What are the Main Types of Alternative Dispute Resolution – ADR
The characteristics of ADR
The main aspects of ADR include the following:
- ADR does not involve resorting to state-sanctioned litigation in court.
- ADR is carried out as per the agreed procedures laid out in private by the parties associated with the dispute prior to the start of the ADR process.
- ADR usually involves a third party which provides opinions and conveys information between the disputing parties .
- ADR’s approach is to facilitate settlement as opposed to the enforcement of rights; i.e. an impartial third party assists the disputing parties in reaching a resolution but does not dictate the terms of settlement (except for ombudsmen services and arbitration).
Alternative Dispute Resolution (ADR) Categories
Alternative Dispute Resolution can be categorized into:
Rule-based ADR relies heavily on official rules of procedure that are mandatory for all disputants, and are contingent upon deductive reasoning methods such as “if A occurs then B occurs”.
Non-rule-based methods do not utilize a specific set of rules, and disputes are settled by concerning published judicial outcomes for similar disputes that occurred in the past.
Non-rule-based methods include “case-based negotiation forms”.
Advantages of ADR
Cost Saving by ADR
For example, Dubai Courts require a fee of 6% of the claim value, provided that it is not less than AED 500 and not more than AED 40,000 for the first degree of litigation (1 USD = 3.67 AED).
Further fees are also required in cases of appeal, execution, and throughout the litigation and execution process (Dubai Courts – Government of Dubai, 2020).
In addition to these fees claimants still have to pay for lawyers, third-party experts if required, and any other expenses.
These costs are highly variable and differ in accordance with the value claimed and upon the agreement reached with lawyers.
On the other hand, ADR provides a chance for cost saving as no court fees are required and the ADR fees are usually determined prior to engagement in the process. Most ADR centers have a clear table of fees on their websites.
For example, DIAC provides a detailed “Table of Fees” and costs detailing the administrative fees and the minimum and maximum tribunal fees in accordance with the disputed amount (Dubai International Arbitration Centre, n.d.).
Hint: Our worldwide map for arbitration costs can assist you in estimating your arbitration fees.
Time saving by ADR
Furthermore and from an international perspective, a study of different dispute resolution methods in terms of their efficiency and economical benefits in U.S court proceedings (Weinstein et al., 2017) concluded that delays in civil justice affected both litigants and the economy.
The study showed that U.S district court cases typically required an additional 12 months to get to trial compared to cases settled by arbitration (24.2 months vs. 11.6 months). Additional analysis of the time needed for appeals revealed that U.S district and circuit court cases required at least 21 months longer than arbitration to resolve (33.6 months vs. 11.6 months).
A comparison of cost and average minimum estimated amounts between district court cases and arbitration cases showed that direct losses due to the additional time needed in trial for district court cases are estimated to be between the US $10.9 – $13.6 billion between 2011 and 2015 (i.e more than US$180 million per month.
The costs associated with the additional time to appeal rise up to US$20- $22.9 billion compared to arbitration over the same period of time. This increase can be estimated to be more than US$330 million per month.
The study also established that litigants are allowed to reduce delays and mitigate costs when arbitration is available for dispute resolution
ADR can result in significant cost reductions in comparison to litigating commercial transactions, which require third-party reviews and various experts’ input (Manevy, 2001).
For example, disputes involving patent infringement illustrate this point. The overall cost of a patent infringement lawsuit in 1995 through trial in the United States was between $500,000 and $1.9 million.
On the contrary, the overall cost through binding arbitration of a patent infringement claim was between about $99,000 and $500,000.
The introduction of ADR centers in Serbia, Bosnia and Herzegovina, and the former Yugoslav Republic of Macedonia were analyzed by a study performed by the International Finance Corporation (International Finance Corporation, 2006).
Over 1,000 cases resolved through mediation were assessed and showed that compared to similar court cases, direct mediation costs in Bosnia and Herzegovina averaged US$225, about 50% of the costs of litigation (about US$470).
Another fundamental advantage of the application of ADR is increased interaction with and control of the proceedings by the parties (Manevy, 2001).
For an in-depth comparison of ADR processes such as mediation and arbitration, please read What are the differences between arbitration and mediation? and on hybrid procedures such as Mid-arb.
Costs for arbitration in China are also summarized in Online Dispute Resolution in China: The Ultimate Guide of ODR Platforms.
Other advantages of ADR include:
Disputing parties can agree to arbitrate in private and hence maintain the confidentiality of sensitive information and commercial items. In litigation, there are public hearings and hence a public record exists.
In comparison to litigation ADR provides the disputing parties that are already involved in a long-term business relationship an opportunity to maintain and further develop their relations.
This is because long-term disputing parties have more control over the proceedings and to some extent maintain a non-adversarial tone throughout the proceedings.
Disadvantages of ADR
The drawbacks in ADR mainly arise due to the following:
- ADR mechanisms, according to various legal scholars, often show disadvantages when compared to litigation, namely on procedural fairness grounds.
- In some circumstances power imbalances might disadvantage one party as disputants do not always have identical power. Litigation assures that legal entitlements are asserted.
- The issue of confidentiality in ADR might further contribute to power imbalance and fairness issues in a dispute. It is argued that ADR focuses on settlement and not “Just settlement” as the main focus in problem solving,which raises concerns on access to justice. In comparison, civil courts promote social order and peaceful resolution of disputes by communication and reinforcing civic values and norms. Such clarity and security allows for strong support of economic activity as it becomes known that rights and investments are protected by a known legal framework.
- While it’s not a limitation of the process itself, rather an abuse of the process by the partcipants; ADR processes might be used a delaying tactic to gather more information and data on an opponent prior to proceeding to litigation.
Although ADR is expected to be less expensive than litigation, ADR failure (in case of mediation) to resolve the dispute will probably result in the disputing parties proceeding to litigation, which ultimately results in an even greater problem and additional costs.
For other types of disputes, such as family disputes, mediation might be more appropriate as an ADR method. Read more about it in Family Disputes Mediation: Resolving Inheritance, Business, Property Conflicts, and More.
On another note, the impact of Covid-19 on arbitration (ADR process) is discussed in The Impact of Coronavirus on Arbitration and ODR. This is important as the acceptance of ODR and “online” ADR increased significantly after 2019.