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How can ADR help your Small Business?

How can ADR help your Small Business?

As a small business, you don't want to spend all your resources on a lawyer and court proceedings should something go wrong. Implementing ADR into your business practices will lead to quicker, cheaper and flexible dispute resolution compared to traditional Court methods.

1st April 2019

What is ADR?

Alternative Dispute Resolution (ADR) is a process in which an independent and impartial third party assists in resolving a dispute between two parties. This third party does not necessarily assume the role of a judge, except in arbitration. The third-party mostly facilitate the discussion between the two parties so that they are able to find a win-win situation. The third party can have little control (i.e. mediation) or provide a binding judgment (i.e. arbitration) over the proceedings. It is up to the disputing parties to decide what type of ADR they prefer, and how involved the ADR practitioner will be in the proceedings.

Advantages

ADR is generally a voluntary process. Often, parties will enter into a contract that stipulates how parties are to resolve disputes, which usually involves some sort of ADR. However, there are instances when ADR can be mandatory. A Court or Statute, such as the Family Law Act, can order parties to go through ADR before proceeding in court. However, anything said or proposed during ADR is also confidential, meaning it cannot be held against you in court if ADR fails.

As ADR is an informal process, it does not always require lawyers to be present. Your lawyer will, however, inform you of your ADR options and prepare you for and assist you through the process. Therefore, very few people are present for the actual session and matters can be finalised in one sitting depending on the facts. These factors make ADR both a cost-effective and time-saving process.

ADR is a friendlier way to deal with disputes, especially smaller, simpler matters with straight-forward facts. It also helps save long-standing relationships between parties by allowing them to speak for themselves and hear the other side in a neutral environment. It is unlike a court where proceedings can turn bitter and the actual parties don’t have an opportunity to discuss their concerns.

Another major advantage of ADR is that it allows parties to get creative with their solutions. Unlike a court, ADR is not bound by precedents, statutes or rules of evidence. Emotions matter and relationships have value. ADR is not about proving you’re right and the other party is wrong. You engage in ADR because you want both parties to win and you can do that by tailoring your solutions to meet your needs, rather than being bound to a court judgment.

The different types of ADR

1. Negotiation

Negotiation is the process by which disputing parties discuss the issues at hand. Both parties lay out their boundaries and a middle ground is determined. They seek to preserve as many of their interests as possible and try and find a middle ground that best solves the problem. This a very passive style of ADR and depends on the parties taking the negotiation forward.

2. Dispute Advisor/Board

A Dispute Advisor or Advisory Board are most commonly used to facilitate dispute resolution in large projects (e.g. construction). They are independent individuals (sometimes experts in the field) and oversee the project for its duration. They provide informal, non-binding recommendations when there is a dispute between the parties to the contract.

3. Facilitation

Facilitation is a model of ADR that helps parties recognise what issues they need to resolve. They can also set a timeline for tackling the issues. The role of the facilitator is to ensure parties are working towards identifying their problems. They themselves do not comment on or try to solve the matter for them.

4. Mediation

Mediation goes one step further from Facilitation by allowing parties to try and resolve the issues they identify. The mediator again only controls the process by ensuring parties are working towards finding solutions for as many issues as possible. The parties are still responsible for generating their own solutions. They may wish to write up an agreement following a successful mediation and have the terms be binding.

5. Conciliation

Conciliation is similar to mediation in that its purpose is to find a solution for the party’s dispute. The main role of the conciliator is to guide the parties through the process and ensure they are cooperating. However, a conciliator can also advise the parties of the best solution and what a court would likely decide.

6. Collaborative law

Collaborative law is a type of dispute resolution for Family Law disputes. As the name suggests, collaborative law is a process in which experts from other fields are also involved in settling a family law matter. The experts parties may choose to include are child psychologists, financial advisors, and counselors. Lawyers role is to support their clients and guide them through the process. Electing collaborative law means parties give up their right to litigation. You can read more about whether collaborative law is correct for you here.

7. Expert appraisal

An expert appraisal is a type of ADR in which parties elect an Appraiser who is an expert in the field relevant to the dispute. The expert’s role is to investigate the matter and provide non-binding advice and recommendations on the best way to resolve the matter. Parties can choose to make the advice binding (e.g. if it is a term in a contract).

8. Early neutral evaluation

Early neutral evaluation is where disputing parties present their arguments and evidence to a neutral dispute resolution practitioner. The role of the practitioner is to identify the main issues in the dispute and suggest ways to resolve them.

9. Mini-trial

In a mini-trial, parties’ lawyers present an abbreviated version of their case and evidence to a panel. The panel’s role is to facilitate settlement between the parties based on the information they have. Parties can agree to the terms of settlement, but the advice they receive from the panel is non-binding. A mini-trial is useful when a case is stalled in court because allows parties to realize the strengths and weaknesses of the case as it stands. This could encourage parties to re-open negotiations and allow them to come to practical and unique solutions.

10. Arbitration

Arbitration is the most court-like ADR process parties can elect, or be ordered to attend by a Court. Parties present their case to an arbitrator who then makes a binding decision on the matter. Arbitration is a very structured process and requires parties to produce evidence and prove facts. If you disagree with an arbitrator’s decision, the only way to appeal that is to go to court. Therefore, it is important that parties who elect arbitration must also agree to be bound by the arbitrator’s decision.

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How can your business benefit?

Cheap, quick and flexible

ADR can help your business in many ways. Primarily, ADR is cheap, quick, and flexible meaning your business is not wasting its resources. You get to select your own judge (i.e. dispute resolution practitioner) and how much control they have over the decision. You also don’t need to waste time in court processes like discovery or have most of your evidence thrown out due to complex rules of evidence. Whereas ADR is focused on finding a solution for the problem, which is often the last step in a court proceeding.

Complex issues

ADR is more suited to complex or technical issues your business may be involved. This is because you can nominate a dispute resolution practitioner who has technical expertise in the field, as opposed to a judge who may not have any knowledge of the issue.

For example, the process for dealing with an environmental concern related to a construction contract in Court and through ADR are very different. It would require both parties to provide expert evidence which the court can accept or rule out and have its own independent expert to provide their opinion. The judges would have to educate themselves on the issue or oversimplify certain concepts. Then finally, when a decision is made, the only way you can contest it is to appeal it which is even more expensive and time-consuming.

However, if you were to implement an ADR process like appointing an advisory board or having an Expert appraisal, the process is quick and cheap. You would have a recommendation from an expert in the field and speak directly with the party (or their representative) and reach a conclusion.

Small-scale issues

ADR is particularly useful in dealing with small-scale issues. Running a business can be a complex task and it requires dealing with different parites who all have different concerns. Having to go to court to sort out all these concerns would be impossible to do. ADR is a much more appropriate forum to deal issues like customer complaints, administrative disparities, employment issues or contractual negotiations.

For an individual to take on a business, especially larger ones can be challenging and the payout may not be proportionate to the effort put in. If a business were to have an ADR policy in place to deal with customer complaints, it would be quicker and cheaper for the company and the individual’s concerns would be addressed more quickly.

Relationships

One of ADR’s advantages is that it saves the relationship between parties. Running a successful business means having longstanding relationships with employees, contractors, suppliers, etc. Court proceedings have a way of severing relationships between parties because one party will get what they want at the expense of the other.

Having to sue a supplier you’ve worked with for 10 years for a breach of contract would not salvage that relationship. However, if you both were to sit down for mediation or conciliation, your primary focus would be to find a way to move on from the situation. The parties aren’t there to accuse each other; they are there to rectify the situation by speaking for themselves and finding a solution collaboratively.

Final Thoughts

ADR is a great way for a business to deal with the issues it faces in the course of business. Other than its money and time-saving aspects, ADR benefits a business because of its flexibility and adaptability. There are no rules or barriers to entry for ADR and any business can adopt it for both internal dealings and external issues.

If you would like advice about whether ADR is right for your business, contact a business lawyer today.

Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Author
Naga Vamaraju

Naga Vamaraju is a legal intern at Lawpath as a part of the Content Writing team. She is in her final year of a Bachelor of Arts (Psychology) and Bachelor of Law Degree. She has a particular interest in the law surrounding starting and operating a business.