Leveraging ADRs for Effective Dispute Resolution: Exploring the Drawbacks of ADR Tools

The Nuances of ADR Tools when Addressing Recurrent Problems

[Revised Oct 24, 2024]

Alternative Dispute Resolution (ADR) refers to various methods of resolving disputes outside the judicial process, such as arbitration, mediation, conciliation, and negotiation. But what do you notice about certain conflicts or disagreements that do not precisely fit the ADR you have chosen to deal with the dispute? It might be a matter of the conflict's subject, the number of counterparts involved, the national versus international grounds, or the practitioners involved in such an idiosyncratic ADR technique that ultimately doesn't fit the purposes. While the ADR toolbox offers many advantages, such as time and cost savings, confidentiality, and flexibility, it also has several disadvantages. Still, they are not usually balanced if it pretends to choose the best for the parties in contrast to the best for the ADR institutions or practitioners engaged.

I realised some key disadvantages when using ADR tools in preventing, dealing with, and solving disputes, steering clear of litigation on environmental grounds. I found eight items listed below for a general approach to this subject of disadvantages; a first glance at this intriguing topic: do the parties always need an ADR tool? Or better yet, can you ask yourself if this specific ADR-selected tool works in your current dispute? My summary list is tick-tagged below.

Eight general drawbacks to consider in a contract, whether you are a practitioner at stake or one of the parties involved in the agreement:

1. Limited Appeal Options

If it were about Arbitration, one of the main drawbacks would be the limited ability to appeal an arbitrator’s decision. Unlike court judgments, which can be appealed to higher courts, arbitration awards are generally final and binding, with narrow grounds for appeal. If it were about Mediation and/or Conciliation, since these are not binding processes, if parties do not reach an agreement, they might end up in court anyway, leading to additional time and costs.

2. Potential Bias

If it is about Arbitration, the selection of arbitrators can lead to potential bias, especially if one party has more influence over the process. This could result in decisions that favour the more powerful party. While the mediator's neutrality is crucial to Mediation, but perceived or actual bias can undermine the process and the parties' trust.

3. Costs

If it is about Arbitration, although generally less expensive than litigation, arbitration can still be costly. Fees for arbitrators, administrative costs of arbitration institutions, and legal fees can add up, especially in complex cases. However, if it is about Mediation and/or Conciliation, while these processes can be less costly, if multiple sessions are required or if the process is prolonged, costs can become significant.

4. Confidentiality Concerns

There are two issues here: (i) Lack of Public Records: while confidentiality is often seen as an advantage, it can also be a disadvantage. The lack of a public record means that no precedent is set, which can be essential for developing legal standards and guiding future behaviour. This lack is a common issue that applies to any ADR tool and should be expanded upon in a different post. And (ii) Enforcement Issues: confidentiality can complicate enforcement if a party needs to go to court to enforce an agreement reached through ADR. Enforcement is also common ground in the context of ADR tools. Delving deeper into that also deserves a different post.

5. Imbalance of Power

If Arbitration were the case, there is a risk that parties with more resources or experience in arbitration could dominate the process, potentially leading to unfair outcomes. If Mediation were the case, power imbalances between the parties could affect the fairness of the mediated agreement. A weaker party may feel pressured to agree to terms not in their best interest.

6. Lack of Formal Discovery Process

If it was about the Arbitration process, the Discovery process in arbitration is typically more limited than that in court litigation. This can disadvantage parties who need extensive evidence to support their case. Though it is about Mediation and/or Conciliation, these processes rely heavily on voluntarily sharing information, which can be problematic if one party is not forthcoming.

7. Enforcement Challenges

While Arbitration awards are generally enforceable, challenges can arise, particularly in international disputes where different jurisdictions may have varying willingness to enforce foreign arbitration awards. In the meantime, agreements reached through Mediation and/or Conciliation may require court intervention for enforcement, which can be challenging and negate some of the benefits of ADR.

Finally,

8. Informality and Perceived Lack of Authority

If it concerns Arbitration, the informal nature of ADR can sometimes be seen as requiring more authority and rigour in court proceedings, potentially leading parties to view the outcome as less legitimate. However, if it is about Mediation and/or Conciliation, these processes are non-binding and rely heavily on the goodwill and cooperation of the parties, which may not always be present.

What can anyone grab as a reasonable and general conclusion for this first post in the series? While ADR offers many benefits and can effectively resolve disputes, parties should know its potential disadvantages, even beyond the good faith of practitioners. Both practitioners and parties should carefully consider these drawbacks when deciding whether to appoint or select ADR and choose the most appropriate method for their needs and the nature of their conflict. Closely connected to the above is the nature of the proper dispute resolution clause, which transcends being a template, even in the hands of the best institution in charge of ADR issues; it must be suitable and bespoke to truly fit and engage with the agreement that governs the controversies in question.

So, my advice for any party in the dispute is that a general, wide, and unspecific resolution clause is not a smart option, nor is it wise to leave everything in the hands of an international ADR institution. Dispute resolution clauses are a core component of the agreements drafted for the business; do not allow them to blur in the false scent of signing.

The next posts will be specific to Arbitration, Mediation, and other ADR tools.

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