Alternative dispute resolution (ADR) refers to a range of methods of resolving disputes without proceeding to a full court hearing. While ADR is often discussed in terms of speed and flexibility, for legal practitioners the real strategic question is this: what are the costs consequences?

Understanding the different types of ADR is essential not only to help parties reach an agreement, but also to protect recoverable costs, manage budgeting obligations, and mitigate adverse costs exposure.

 

What Is Alternative Dispute Resolution?

Alternative dispute resolution encompasses procedures used to resolve disputes outside traditional litigation. In many cases, parties are encouraged, and sometimes expected, to attempt ADR before a final court hearing takes place.

Courts increasingly view ADR as part of the overriding objective. A failure to engage may influence costs orders, even where a party ultimately succeeds at trial.

ADR can arise voluntarily, through a clause in your contract, or by judicial encouragement during proceedings.

 

The Main Types of ADR

There are several recognised types of ADR used within civil litigation. Each carries distinct procedural and costs implications.

Negotiation

The most informal method of resolving disputes, negotiation involves direct discussions between parties or their representatives.

From a costs perspective, negotiation is often ongoing alongside litigation. Offers made during negotiation, including formal Part 36 offers, can have significant costs consequences if not properly evaluated.

Negotiation costs may not always be separately recoverable, but failure to engage reasonably can affect costs at assessment.

Mediation

Mediation is one of the most widely used types of ADR. A neutral mediator facilitates discussions to help parties reach an agreement.

Although mediation costs are usually shared, they are frequently recoverable as part of litigation costs if proportionate and reasonably incurred.

The court may penalise an unreasonable refusal to mediate. Case law has confirmed that a successful party can still face adverse costs consequences for declining mediation without proper justification. For costs practitioners, this makes mediation analysis part of risk management rather than simply dispute resolution.

Arbitration

Arbitration is a more formal ADR mechanism where an arbitrator issues a binding decision. It is common where a clause in your contract mandates arbitration instead of litigation.

Arbitration can mirror court proceedings in complexity and cost. However, cost recovery is governed by the arbitration framework rather than the Civil Procedure Rules.

This distinction is critical. Costs budgeting under CPR Part 3 does not apply in the same way, and parties must understand the cost regime before commencing proceedings.

 

Expert Determination

Expert determination is typically used for technical disputes, such as valuation or construction matters. An independent expert determination results in a binding decision on specific issues.

This form of ADR is often narrower in scope and more cost-effective than full litigation. However, recoverability depends heavily on the contractual framework governing the process. Where expert determination resolves part of a dispute, the costs implications for any remaining litigation must be carefully managed.

 

Early Neutral Evaluation

Early neutral evaluation involves an independent third party providing a non-binding assessment of the merits.

While less common than mediation, it can narrow issues and promote settlement. From a costs perspective, participation may demonstrate reasonableness, particularly where the court has suggested the process.

 

Costs Consequences of ADR

Courts expect parties to seriously consider ADR. Refusal may influence:

• Liability for costs
• The basis of assessment
• Interest awards
• Conduct findings at detailed assessment

Even where ADR does not result in settlement, reasonable engagement can protect a party’s position.

For costs draftsmen, ADR is not simply a procedural alternative. It affects:

• Proportionality analysis
• Budget forecasting
• Settlement leverage
• Recovery on the standard basis

ADR and Costs Budgeting

Where litigation is ongoing, ADR should be factored into any costs budget.

The possibility of mediation or expert determination can alter anticipated phases, particularly trial preparation. A realistic assessment of ADR prospects strengthens budgeting credibility at the case management stage.

Conversely, a failure to consider ADR may expose a party to criticism when costs are assessed.

 

Strategic Considerations for Practitioners

When advising clients, practitioners should consider:

• Whether ADR is mandated by a clause in your contract
• Whether refusal could result in adverse costs consequences
• The proportionality of proposed ADR methods
• The likely recoverability of ADR expenditure

ADR should not be viewed solely as a means to avoid a court hearing. It is a strategic tool that interacts directly with cost recovery.

 

FAQs

What are the different types of alternative dispute resolution?
The main types of ADR are negotiation, mediation, arbitration, expert determination, and early neutral evaluation. Each provides an alternative to a full court hearing and carries distinct procedural and costs implications.

Is ADR compulsory in civil litigation?
ADR is not automatically compulsory, but courts expect parties to consider it seriously. A contractual clause may require arbitration or mediation, and refusal without good reason can influence a subsequent costs order.

Can refusing ADR affect recoverable costs?
Yes. A party that unreasonably declines ADR may face adverse costs consequences, even if successful at trial. Courts assess conduct when determining liability for costs and the basis of assessment.

Are mediation costs recoverable?
Mediation costs are often recoverable if reasonably and proportionately incurred. Recovery depends on the circumstances of the case and the approach taken at costs assessment.

What is expert determination?
Expert determination is a process where a specialist decides a specific technical issue, often under a contractual mechanism. It can limit the scope of litigation and reduce overall costs exposure.

Does ADR impact costs budgeting?
Yes. Where litigation is ongoing, potential ADR should be reflected in the costs budget. Failure to account for it may affect proportionality arguments and the court’s view of reasonableness.

 

How Greener Costs Can Assist

Engaging in alternative dispute resolution is no longer simply a procedural option, it is a strategic costs decision. Whether advising on mediation, analyzing the impact of expert determination, or assessing the risks of refusing ADR, the costs implications must be carefully considered at every stage.

Greener Costs supports litigators in evaluating how the different types of ADR may affect budgeting, proportionality, settlement leverage, and recoverability. From advising on the inclusion of ADR phases within a costs budget to analysing conduct arguments at detailed assessment, our team ensures that cost positions remain protected and defensible.

We work alongside practitioners to provide clear, strategic guidance where ADR intersects with cost recovery, helping clients navigate both the procedural and financial dimensions of dispute resolution with confidence.

If you would like to discuss how ADR may affect recoverable costs in your matter, please contact Greener Costs via info@greenercosts.co.uk or by filling out our contact form to arrange a confidential consultation.