Glossary term
Alternative Dispute Resolution (ADR)
Subject: Legal, Tax and Reporting, Dispute and Investigation Management
Also known as: Out-of-court dispute resolution, Appropriate dispute resolution
Alternative Dispute Resolution covers ways of settling disputes without a full court trial, mainly negotiation, mediation, conciliation and arbitration, usually faster, cheaper and more private than litigation.
Explanation
The methods differ in who decides. In mediation and conciliation a neutral person helps the parties reach their own agreement, and nobody is forced to settle. In arbitration the parties hand the decision to one or more arbitrators, whose award is normally binding and, under international treaties, enforceable in many countries. Commercial contracts often include an ADR clause naming the method, the seat and the rules, and some laws require parties to try mediation before suing. ADR also appears in consumer complaints, employment disputes and financial services, where ombudsman schemes may handle customer claims. Its advantages are speed, confidentiality and keeping business relationships alive. Its limits include narrow appeal rights and the fact that some matters, such as criminal cases, cannot be settled this way. Legal and compliance teams draft and invoke these clauses when contracts are signed.
Example
A software supplier and a hospital group disagree over delayed delivery. Their contract requires mediation first. A mediator meets both sides over two days and they agree a revised timetable and a fee reduction. Had mediation failed, the same clause sent the dispute to a three-member arbitral panel.
Not to be confused with
- Litigation
- Litigation is decided by a court in public proceedings. ADR uses private processes chosen by the parties, and mediation leaves the outcome to them.