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Commercial Litigation vs Alternative Dispute Resolution (ADR) Compared

Author: Nicola Sharp  27 March 2024
6 min read

Dispute resolution methods are either binding or facilitative. A binding process results in a decision that the parties must adhere to. A facilitative process is designed to help the parties reach a settlement.

Binding dispute resolution processes include;

  • Litigation.
  • Arbitration.
  • Adjudication.
  • Expert Determination (binding, unless the parties agree otherwise).

Facilitative dispute resolution processes include;

  • Mediation.
  • Early Neutral Evaluation (ENE).

These dispute resolution procedures are not mutually exclusive. Often negotiations for settlement run alongside litigation or arbitration and when to begin those discussions is a tactical decision.

Similarly, the binding procedures offer some scope for appeal. For example an adjudicator’s decision can be overturned by arbitration or litigation, and an arbitrator’s decision can be appealed to the courts (in limited circumstances). 

Commercial Litigation

Commercial litigation refers to the process of taking the dispute to court. There are set stages to the litigation which are broadly summarised as:

  • Pre-action.
  • Pleadings.
  • Disclosure.
  • Witness evidence.
  • Exert evidence (if required).
  • Trial.

Read about each stage in detail in our article ‘The Commercial Litigation Process Explained.’

In commercial disputes, it is usually necessary to begin a formal litigation process in order to get the other side to engage seriously with the dispute. There will be a period of correspondence in the pre-action stage, but until the claimant issues a Claim Form, there are few consequences for the defendant if they simply stick their head in the sand and ignore the complainant. 

Once litigation has begun, the parties have ‘skin in the game’ and there will be consequences if one party fails to engage. This makes it possible to explore facilitative processes in a meaningful way, alongside the litigation process.

Alternative Dispute Resolution (ADR)

Arbitration

The process of arbitration is very similar to the process of litigation. The main difference is that arbitration is a private forum, whereas judgments in litigation are available publicly. Read about the other differences between litigation and arbitration in our ‘In depth guide to international arbitration.’

The parties must agree to arbitration, either by an arbitration agreement clause in their contract, or by expressly agreeing in writing that arbitration will be the forum for the dispute. If there is no agreement to arbitrate, then the parties will defer to litigation. 

The decision of the arbitrator(s) is binding and appeals are only allowed on very limited grounds. A party can appeal to the courts if they believe that there has been;

  1. an error of law.
  2. a serious irregularity in the course or conduct of the arbitration.

Similar to the litigious process, parties can explore settlement options and facilitative forums alongside the arbitration. 

Adjudication

Adjudication is an expedited method of dispute resolution. It is typically used for straightforward disputes in the construction industry, but other industries have their own bespoke adjudication processes too (rail, for example). 

Adjudication is often referred to as a ‘quick and dirty’ method of resolving a dispute because it should receive a binding decision within 28 days of submission of the claim. 

While the decision is binding, it can be challenged by subsequent arbitration or litigation. If one party disagrees with the outcome of adjudication, the parties may find themselves in an arbitration or litigation procedure. In practice, this happens rarely, but is still a risk.

In some circumstances, adjudication processes evolve to look more akin to arbitration, which escalates the time and cost involved. Adjudication is best used for disputes that need a quick resolution, such as determining a pay dispute on a construction project so that the contractors continue the work. 

You can learn more about the differences between arbitration and adjudication in our informative article “Arbitration and adjudication: key differences and when to choose which process”.

Expert Determination

Expert determination is a relatively quick method of achieving a binding decision in a dispute. It is usually determined on paper, so the parties only submit written representations. There is no oral hearing.

The parties agree to appoint an independent technical expert to make the decision on the dispute. The expert is not necessarily legally trained, but it could be a barrister, solicitor or a retired judge. If the dispute hinges on a technical point, then it may be wise to appoint an expert in the field in contention. For example, an engineer, an accountant, or a medical practitioner. 

Expert determination can be effective, but it is not suitable for disputes that rely on a lot of oral evidence. It is only binding if the parties agree at the outset that it will be binding. Otherwise, it becomes a facilitative process and the expert’s decision is more of a steer.

The decision of the expert will be ‘without prejudice’ which means that if the dispute proceeds to litigation or arbitration, then the judge or arbitrator will be unaware of the expert’s decision, so they cannot be influenced by it.

Mediation

Mediation is always a facilitative process. The mediator does not make decisions about the dispute. Usually, the mediator does not even look at the strengths of each party’s case. 

Instead, the mediator focuses on the points in dispute and seeks to encourage the parties to find a sensible way forward. In mediation, the parties can find creative options for settlement that would be unavailable in the courts or arbitration. 

If the mediation is successful, then it will result in an agreed settlement, rather than an award or a judgment. The settlement is binding when both parties have finalised the terms of the agreement and signed the document. 

Parties to arbitration and litigation usually attempt a mediation at some point in the dispute. A party who refuses to mediate may be punished with cost sanctions, even if they are successful in the dispute.

The mediation is conducted without prejudice, so the parties can concede points for the sake of finding a settlement, without damaging their case in the litigation or the arbitration.

To learn more about arbitration and mediation, please read our article Arbitration vs Mediation - What’s the difference?

Early Neutral Evaluation

As the name suggests, Early Neutral Evaluation (ENE) is often deployed at an early stage in the dispute, usually with the primary aim of preserving the relationship between the parties.

In an ENE, an independent person expresses an opinion on the merits of the issues specified by the parties. They give an unbiased evaluation on the party’s respective positions.  

Similar to an expert determination, the evaluator will be somebody who the parties think is most qualified to understand the issues in dispute. It may be an accountant, architect, barrister, engineer, insurer, retired judge, solicitor, or surveyor for example.

It works well when the issues in dispute are particularly technical in nature. Or it can be helpful when one side is being unrealistic about their chances of success at trial.

The parties can agree to be bound by the decision, but usually parties will consider that a risky strategy at such an early stage of the dispute. More often, it’s used as a springboard to settlement. The parties will usually meet after the ENE to discuss the decision and use the decision as an objective ‘voice’ in the settlement negotiation.  

All ENE processes are without prejudice.

Commercial Litigation or Alternative Dispute Resolution?

The process for dispute resolution may be specified in the contract, so the first step is always to check the contract.

Some contracts include a mandatory ‘escalation’ procedure, whereby the parties must take certain steps in a certain order. For example, the clause may specify that the parties must first try ENE and expert determination before they issue a claim form. 

Where no such clauses exists, or the ‘Governing Law and Jurisdiction’ clause simply states that the dispute will be governed by the laws of England and Wales, then the default position is litigation. 

Beyond that, the decision is usually a tactical one. The parties will need to consider the extent to which they want to preserve their commercial relationship, and the costs of pursuing the dispute through various forums.

In circumstances where the claimant wants to preserve the commercial relationship with the other side, it’s worth considering the ‘softer’ options before hitting them with a claim form or notice of arbitration. This is when an ENE may be beneficial, or even a very early stage mediation.

However, it can be difficult to get the other side to engage meaningfully without the consequences imposed on them by the litigation or arbitration process. It may be the case that the other side will not negotiate until the full details of the dispute have been aired in pleadings. 

Costs are a consideration, but any dispute is unpredictable and involves an element of risk. While processes like ENE, adjudication or expert determination are relatively inexpensive in comparison to litigation, they will not necessarily reduce the cost of the overall dispute.

That’s because they are not necessarily binding on the parties. A party who is dissatisfied with the outcome can ignore the decision and continue arbitration or litigation anyway. In that sense, these processes can become an added cost to the litigation. But there may be legitimate tactical reasons to try them, and of course if they result in an early settlement of the dispute, then the parties will save costs in comparison to continuing a dispute to trial.

Rahman Ravelli - Expert Commercial Dispute Law Firm

With any dispute, you stand the best chance of success if you instruct lawyers at an early stage. At Rahman Ravelli, we have extensive experience of commercial disputes which we can draw upon to shape the tactics of your dispute. Every dispute is different, but with the benefit of experience, we can find the most efficient and effective method to resolve your dispute.

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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