Alternative Dispute Resolution (ADR) clauses are often inserted in to business contracts so disputing parties can resolve their disputes quickly, cost-effectively and in private.
Whilst the use of ADR is on the increase in the UK, many businesses feel that that litigation remains the best option. However, this choice is often made without a full understanding of the pitfalls of litigation and the advantages that ADR brings with it.
These benefits are explored in greater detail elsewhere, but, as an overview, they can be categorised as follows. ADR:
- Addresses balance of power issues between parties
- Resolves disputes in private
- Saves time
- Is cost-effective
- Is either legally enforceable or entered into by mutual agreement
- Is ideal for international disputes, where arbitration awards can be easily enforced across different jurisdictions, providing the country in question is one of the 130 + that are signed to the New York Convention.
It would be rare for two parties entering in to a contract to hope for a dispute to occur during the life of the contract. However, disputes do arise, and in today’s business environment they need to be dealt with as quickly as possible as they more often than not have an impact on the performance of the remainder of the contract and the relationship between the parties. This situation is made worse when the parties are tied in to long term relationships and so cannot simply walk away.
Therefore, by inserting an ADR clause in a contract, the parties make a conscious decision at the outset of their business relationship to avoid the costs and pitfalls of litigation should a dispute arise in the future. For example, 70-80 per cent of disputes that are referred to mediation are settled within 1-3 days. More often than not in these cases the business relationship has also been saved. Furthermore, the process is arranged at your convenience, in a location suitable to you, and there is minimum disruption to your business practices.
You will see to the the left a set of clauses which have been designed for use in any business contract. As they are generic models, they can be built upon and re-worded, but the fundamentals are there.