In the current economic climate debtors are becoming more litigious, causing creditors to ensure they make more informed decisions before deciding to litigate.

What are the advantages of ADR?

• Cheapness and speed - it can be significantly cheaper than both arbitration and litigation because it is quicker. Savings can be made in both legal costs and management time.
• Flexibility - the parties can choose one of several forms of ADR. They can choose the procedure to be followed. They do not have to comply with any statues or rules of court.
• Preserving a business relationship - ADR shares with arbitration the virtue of privacy. It is ideal for cases where the parties are going to have to continue to deal with each other. The fact they have chosen a non-confrontational method of solving their problem may make it much easier for them to continue their relationship since the solution is theirs and has not been imposed on them.
• Wider range of settlement solutions - there is more flexibility for the parties to settle on terms more suited to them. Litigation will generally only allow the recovery of damages.

ADR is not appropriate in all cases - it is not appropriate where the client needs an injunction, where there is no dispute or where the client needs ruling on a point of law.

Choosing ADR

Why use ADR?  It is not only endorsed but expected by the courts.  Solicitors are under more stringent obligations to discuss ADR with their clients.  The parties to a dispute are required to consider whether some form of ADR would be more suitable than litigation.  The courts consider that litigation should be the last resort and can require evidence that ADR was fully and properly considered.  The courts must consider the parties' conduct before litigation in deciding whether to vary the normal order that the loser pays the winner's costs.

Although the court's roll is to encourage rather than compel the use of ADR, they can deprive a successful party of some or all of its costs if it has acted unreasonably in refusing to agree to ADR.  The burden is on the unsuccessful party to demonstrate that the other party has been unreasonable.

The courts consider the following non-exhaustive list of factors:

• Nature of the dispute - some cases aren't suitable for ADR. For example if there is a question of law to be decided.
• Merits of the case - a party's reasonable belief that they have a strong case will be a relevant factor.
• Whether other settlement methods have been attempted.
• Whether the costs of ADR would be disproportionately high.
• Delay. If ADR is suggested late in the day it may simply serve to delay the trial.
• Whether ADR had a reasonable prospect of success. The unsuccessful party must demonstrate this. Whether the courts have encouraged the use of ADR will also be a relevant factor.

ADR has become increasingly popular over the last few years.  The clear message from the courts is that an unreasonable refusal to mediate or use some other suitable method of ADR is likely to lead to cost penalties.