An Analysis of the Strengths and Weaknesses of ADR in Commercial Disputes .

BY

VESTRAL OGHENEVWOGAGA OBAKPOLOR.

 “The practice of arbitration therefore, comes, so to speak, naturally to primitive bodies of
law; and after courts have been established by the state and a recourse to them has become the
natural method of settling disputes, the practice continues because the parties to a dispute want
to settle them with less formality and expense than is involved in a recourse to the courts”1

In today’s fast-paced commercial environment, disputes between businesses are inevitable, often
requiring a resolution mechanism that is efficient, cost-effective, and flexible. The privacy of
Alternative Dispute Resolution (ADR) processes also adds to it’s appeal and it has emerged as a
popular alternative to traditional litigation, providing methods like mediation, arbitration, and
negotiation to settle disputes without the formalities of a courtroom. While ADR presents clear
advantages, it also has limitations that can impact its suitability depending on the nature of the
dispute. This essay explores the strengths and weaknesses of ADR in resolving commercial
disputes. It explores how ADR functions as an effective tool for resolving such disputes, while
also identifying the potential drawbacks.
Alternative Dispute Resolution (ADR) encompasses several methods used to resolve disputes
outside traditional court litigation, the most common being arbitration, mediation, and
negotiation. Arbitration involves a neutral third party, called an arbitrator, who hears both sides
of the dispute and makes a binding decision. Mediation, on the other hand, is a collaborative
process where a neutral mediator helps the parties reach a mutually acceptable solution, but the
mediator does not impose a decision. It focuses on preserving relationships and finding a
compromise while Negotiation, is the simplest form, where parties directly communicate to
resolve their dispute without the involvement of third parties. Other forms of ADR include
Conciliation, which is similar to mediation but with a more active role from the conciliator, and
expert determination, where an expert in the subject matter of the dispute provides a binding
resolution. Each method offers different levels of formality, control, and enforceability,
depending on the needs of the parties involved. For all types of ADR, each of them,
sometime, can work Independently without any further assistance from other types.
Nevertheless, in case of the best result, some of them might need some other types to
facilitate the proceeding. This is because each type of ADR has strengths and
weakness.2

1
Redfern & Hunter, “Law and Practice of International Commercial Arbitration, 2 nd Ed.
(1991), p.22
2
Suherman, S. (2019). Arbitration and Other Alternative Dispute Resolution for Commercial
Dispute (Reviewed from the Strengths of ADR and Decision of Arbitration). Brawijaya Law
Journal, 6(1), 104–114. https://doi.org/10.21776/ub.blj.2019.006.01.08
One of the most significant strengths of ADR is its cost-effectiveness.3 Litigation, especially in
commercial cases, can be expensive. Legal fees, court costs, and prolonged procedural
requirements can drain a company’s resources over time. ADR, however, typically involves
lower costs, as the procedures are less formal and discovery processes are limited. This can save
businesses a substantial amount of money, particularly when compared to the drawn-out nature
of court cases, making ADR an attractive option for resolving commercial disputes.

In addition to being cost-effective, ADR is known for its speed and efficiency. Commercial
disputes in court can take months or even years to resolve, which can be detrimental to
businesses that rely on timely decisions to maintain operations. In contrast, ADR processes like
mediation and arbitration can be resolved in a matter of weeks. This quick resolution allows
businesses to move forward without the uncertainty that often accompanies protracted litigation.
Another important advantage of ADR is the confidentiality it offers. Court proceedings are
typically public, and any information disclosed during litigation may become part of the public
record. For businesses, this exposure can be damaging, especially if it involves sensitive trade
secrets, intellectual property, or internal strategies. In contrast, ADR proceedings are usually
confidential, allowing parties to resolve disputes privately without fear of reputational damage or
the loss of competitive information. This confidentiality makes ADR a preferred option for
companies seeking to protect their business interests during a dispute.4
ADR also fosters the preservation of business relationships, a key advantage over litigation.
Court battles are inherently adversarial, often pitting parties against each other and causing
irreparable damage to business relationships. In contrast, ADR methods like mediation
emphasize collaboration and compromise, encouraging the parties to work together to find
mutually acceptable solutions. This focus on finding a resolution that works for both parties can
help maintain or even strengthen commercial relationships, which is especially important for
businesses that wish to continue working together after a dispute.5
The flexibility offered by ADR is another major strength. In litigation, the process is governed by
strict legal procedures and formalities, leaving little room for creative or flexible solutions. ADR,
on the other hand, allows parties to design their own processes, including choosing the mediator
or arbitrator, setting timelines, and deciding the rules that will govern the dispute. The outcomes
in ADR are also more flexible, particularly in mediation, where parties can agree to innovative
solutions that a court might not be able to impose. This flexibility is invaluable in commercial

3
https://www.linkedin.com/pulse/resolving-commercial-disputes-nigeria-exploring-dispute-
oyebo/
4
https://mediationblog.kluwerarbitration.com/2023/06/14/mediation-vs-litigation-the-
advantages-of-settling-out-of-court/
5
https://www.willans.co.uk/knowledge/preserving-commercial-relationships-an-advantage-of-
mediation/
disputes where the parties may need tailored solutions that take into account their specific
business needs.
Furthermore, ADR offers the advantage of expertise and specialization. In arbitration, parties can
choose arbitrators with relevant experience, ensuring that the person deciding the case has a deep
understanding of the issues involved. This expertise is especially beneficial in technical areas
such as intellectual property or complex financial matters, where a generalist judge may not have
the necessary background to make an informed decision. Also, Under the Arbitration and
Conciliation Act, arbitral awards in Nigeria are recognized and enforceable by the courts, similar
to a court judgment.6
However, despite its strengths, ADR is not without its weaknesses. One major drawback is the
lack of legal precedent. Court rulings set legal precedents that help guide future cases and
provide businesses with a sense of predictability. In ADR, especially arbitration, decisions are
usually confidential and are not published. This means they do not contribute to the development
of legal standards or precedents. As a result, businesses may find it harder to anticipate the
outcome of similar disputes in the future, leading to uncertainty in legal planning and business
decision-making.
Another limitation of ADR, particularly in mediation, is enforceability. While arbitration awards
are typically binding and enforceable under international conventions such as the New York
Convention, mediated agreements are not always legally binding unless the parties formalize
them through a consent judgment. This can become an issue if one party refuses to comply with
the terms of the mediation agreement, leaving the other party with limited options for
enforcement. In commercial disputes, where enforceability is crucial, this can be a significant
drawback.
ADR’s limited appeal options also present a potential weakness. Arbitration awards are generally
final and binding, with very few grounds for appeal. While this finality is advantageous in terms
of efficiency, it can be problematic if the arbitrator makes a mistake or if the outcome is
perceived as unfair. In litigation, parties have the right to appeal a court decision, providing a
safeguard against judicial errors. In arbitration, the lack of appeal options means that businesses
may have to accept an unfavorable decision without recourse, which can be particularly risky in
high-stakes commercial disputes.7 Also, If the dispute cannot be resolved in mediation the cost
of mediation will have been wasted and parties would have wasted precious time. Businesses,
which often depend on quick dispute resolution to maintain operations or protect assets, may
experience negative financial and operational impacts due to the extended timeframe required to
resolve the dispute.

6
Section 57(1) of the Arbitration and Mediation Act (AMA), 2023
7
Heath Law, The Advantages and Disadvantages of Arbitration Clauses,
https://www.nanaimolaw.com/the-advantages-and-disadvantages-of-arbitration-clauses/
#:~:text=Arbitration%20offers%20several%20advantages%20that,and%20the%20finality
%20of%20decisions.
Lastly , the limited discovery process in ADR can be a disadvantage. In litigation, the discovery
phase allows parties to gather extensive evidence before trial, ensuring that both sides have
access to all relevant information. In ADR, particularly in arbitration, discovery is often limited,
which can disadvantage one party if critical evidence is withheld. While this limitation speeds up
the process, it can also result in an unfair resolution if one party has more access to relevant
information than the other.8
Conclusion.
ADR offers a range of strengths for resolving commercial disputes, including cost-effectiveness,
speed, confidentiality, flexibility, and the preservation of business relationships. Its ability to
adapt to the specific needs of businesses and industries makes it an attractive alternative to
litigation. However, it also has significant limitations, such as the lack of legal precedent,
enforceability issues, limited appeal options, power imbalances, and inconsistent standards.
Ultimately, the decision to use ADR in commercial disputes should be based on the specific
needs of the parties involved, the nature of the dispute, and the desired outcome.

8
Michael Coyle, What are the disadvantages of ADR?,https://lawdit.co.uk/readingroom/adr-
disadvantages.