Pick your battles: Is ADR right for you?
April 1, 2012 by Matthew Swanson and David Claassen
No party enters into a contract with the intention of getting embroiled in a lengthy legal dispute, but disputes happen, and they can be costly. In recent years, processes for resolving disputes without recourse to traditional litigation, (dubbed “alternative dispute resolution” or “ADR”) has become increasingly common.
Mediation and arbitration are the most common examples. For many, the perception is that ADR is more efficient than traditional litigation. It’s perceived as a better way to resolve disputes because it is confidential and less adversarial. While ADR is a valuable dispute resolution tool, the perceived benefits or promises are sometimes unfulfilled.
Is ADR really more efficient?
It is often suggested that ADR is faster and less expensive than litigation.
Proponents also note that outcomes in ADR can be more predictable because
the parties choose who decides their dispute—a person who is respected by both parties and that has experience in
the subject matter.
In many instances, ADR provisions require the parties to progress through a tiered dispute resolution process. This
can involve mandatory mediation and, if the matter does not settle, arbitration.
Mediation may be a valuable too, but it is not necessarily right for every case. Mediation requires participants who are willing to compromise their claims and if the parties are not willing to do so, mediation may simply slow down the dispute resolution process and add unnecessary cost.
If matters advance to arbitration, some participants proceed as if arbitration were a court proceeding. This happens because they adopt the same procedures and discovery mechanisms that are available and required in Superior Court litigation. In these situations, the parties effectively replace a publicly funded dispute resolution system with their own privately funded system where they pay for an arbitrator. In doing this, the parties can actually increase their costs.
Does ADR accommodate
third party claims?
Complicated disputes are seldom limited to two parties. Disputes often give rise to counterclaims and there may be a need to make claims against other parties. Despite this fact, ADR does not always present a viable option for making claims against third parties. This may force a multiplicity of proceedings and raises the potential for expenditures that would
not normally be required in traditional litigation.
Is ADR really confidential?
ADR may be well suited to resolving
disputes that the parties wish to keep
confidential. It is standard practice
for parties to mediations to hold all
information and discussions confidentially and, with respect to arbitrations, the parties generally assume that they are confidential. Unfortunately, this assumption is not always correct, and in order to achieve the desired level of confidentiality, the parties may need to negotiate a confidentiality agreement.
In addition, the parties must be aware that at any stage of ADR, one party may seek recourse to the courts for relief.
This could include adjudication over the appointment of an arbitrator, challenges
as to whether ADR is appropriate in the circumstances, and the recognition and enforcement of an arbitration award. These sorts of proceedings place confidentiality at risk because evidence will have to be placed before the courts.
Is ADR right for you?
At the contracting stage, the parties need to consider what types of disputes may arise and then decide whether traditional litigation or ADR will be favoured. ADR may be the preferred route for some or all of the disputes that arise, but this needs to be carefully considered along with how the process will unfold. When this is not done, the parties could later find that they have adopted an unworkable or impractical dispute resolution framework.
This article is for information purposes only and may not be relied on for legal advice.
Matthew Swanson and David Claassen are lawyers at Borden Ladner Gervais LLP. Matthew practices in the area of
commercial litigation with an emphasis on contract and construction disputes. David also practices in the area of commercial litigation. Send comments to firstname.lastname@example.org