Alternative Dispute Resolution – options and considerations

Alternative Dispute Resolution (ADR) refers to a range of methods used to assist parties to resolve disputes without resorting to litigation. In some cases, ADR methods will be preferrable over litigation because they can be quicker, more flexible and less expensive than going to court. However, this depends on the nature of the dispute and the relationship between the parties.

The most common ADR methods that are used in Australia include:

• Mediation
• Arbitration
• Expert determination (binding and non-binding)
• Dispute boards

What these methods have in common is that they involve an independent third party being appointed to assist the parties to achieve a resolution to the dispute. The main difference is the scope of the role of the independent third party and their powers.

This article provides a summary of the most common ADR methods in Australia and includes some factors that parties should consider when deciding which method/s to adopt.

Mediation

Mediation is the most common ADR method in Australia. Mediations may occur during litigation, for example, where a court orders the parties to attend mediation before the matter proceeds to trial. Alternatively, in contractual disputes there may be a requirement that the parties attend mediation before taking further steps to enforce their rights.

The role of a mediator is to assist the parties to narrow the issues in dispute, consider alternatives and attempt to reach an agreement to resolve the matter. If the parties are unhappy with the proposed outcome, they can choose to pursue the dispute in court or via other ADR procedures.

A mediation can be a good option for parties to a dispute because they are generally:

• confidential;
• flexible and informal; and
• quicker and cheaper than other ADR methods.

Generally, the parties will contribute equally to the mediator’s fees and otherwise bear their own legal costs.

Arbitration

Arbitration is an alternative to litigation where the parties engage an arbitrator to make a binding determination to resolve the dispute.

While the process can be flexible, arbitrations generally proceed in a similar manner to litigation, for example, the parties may submit a claim / defence, exchange documents and evidence and then attend a hearing before the arbitrator. However, each stage of the arbitration can be tailored to the needs of the parties and the particular dispute.

The benefits of arbitration include:

• They can be confidential and take place in a neutral forum. This may suit parties to a dispute where they are located in different jurisdictions.
• The parties can agree to tailor the process to suit their particular needs and the nature of the dispute. For example, the parties may agree to a tailored document production, or that the matter be determined by the arbitrator on the papers without the need for a hearing.
• The parties can select their own arbitrator with specialist knowledge relevant to the dispute. If the parties are unable to agree on an arbitrator, the parties may agree to an independent body selecting the arbitrator, in which case an appropriate arbitrator will be allocated with the necessary skills and experience to determine the dispute.
• The arbitral award is binding and can be enforced through Australian courts.

The downside of arbitrations is that they can be expensive because the parties bear the costs of the arbitrator as well as their own legal costs. Arbitrations will also be more time-consuming than other ADR methods because they are more in-depth and rigorous. Depending on the jurisdiction, however, they may be faster than litigating a matter through the courts.

Expert determination

Expert determination refers to the process whereby parties to a dispute appoint an expert to make a determination to resolve the dispute.

The expert will generally assess the documents and information given by the parties and provide a decision based on that material. An expert will usually be at liberty to carry out their own investigations.

The decision can be non-binding (also known as an “expert evaluation” or “expert appraisal”), which can be useful to the parties in further negotiations regarding the matter.

Alternatively, the parties might agree in the contract that the expert determination will be binding. In this case, the expert determination may involve a more in-depth assessment of the matter.

Expert determinations (whether binding or non-binding) do not necessarily involve a lawyer/former judge/barrister being the decision-maker, and the parties may elect a subject matter expert instead.

Expert determinations are governed solely by the contract between the parties and unlike arbitration or litigation, there are no applicable rules or legislation. This means that the contract needs to be comprehensive in terms of the process for and scope of the expert determination, otherwise the clause may be found to be unenforceable for uncertainty. There are industry body rules which can be adopted by the parties (for example the Resolution Institute Expert Determination Rules 2024) in preference to preparing comprehensive contractual provisions.

The benefit of an expert determination is that it will be less costly and quicker than arbitration or litigation. In addition, having a subject-matter expert determine the dispute may be useful in certain contexts, for example in technical disputes. The disadvantage is that an expert determination is usually less rigorous than a court or arbitration and is often not well placed to undertake factual or credit disputes.

Dispute boards

Dispute Review Boards (DRBs) are often used in construction projects and involve an independent committee being established under the relevant construction contract. DRBs are commonly comprised of three individuals who are appointed by the parties to the contract. The DRBs are established at the commencement of the project and address disputes as they arise. Recommendations produced by the DRBs are non-binding.

Another review board procedure used in construction contracts is Dispute Adjudication Boards (DABs). The difference between DRBs and DABs is that determinations of a DAB are binding on the parties. As a result, the procedure for the DABs is generally more formal.

DRBs and DABs are generally used on large-scale and complex construction matters where there may be a large number of disputes for the project. In smaller-scale construction matters, this will generally be unnecessary.

Considerations when selecting an ADR process and drafting dispute resolution clauses

When considering whether to adopt an ADR process and drafting a dispute resolution clause in a contract, there are a number of relevant considerations. For example:

• ADR procedures can be compulsory or voluntary under contract. For example, the contract may require, or simply encourage, the parties to mediate a dispute before filing proceedings in a court.
• Parties can also adopt multiple ADR methods under a contract. For example, the contract might require that the parties attend mediation, failing which the matter proceeds to arbitration. It is also possible to segment disputes so that specific types of disputes are referred to specific resolution methods (for example, technical disputes are dealt with by an expert in that area whereas other disputes are dealt with by arbitration).
• There may be particular types of disputes that are more appropriate to be dealt with by an expert, for example a technical issue in a construction project. A contract can include an expert determination clause for technical issues, but not other disputes that might arise under the contract.

In general, when drafting a dispute resolution clause in a contract, the parties need to be clear and specific about what methods they are adopting, and the procedure to be followed.

Page Seager can assist with determining appropriate ADR procedures for your dispute and drafting dispute resolution clauses under a contract.