In complex commercial disputes where insurance or surety companies are involved, the effectiveness of alternative dispute resolution processes (ADR) is directly related to the ability to require all the necessary parties to participate in the ADR process or be bound by the result. Many complex transactions impose ADR on the contracting parties, but the utility of ADR is often frustrated because not all interested parties are bound by contract or compelled by statute to participate in the process. Once a dispute arises, interested parties often agree to mediate, but refuse to arbitrate. In a common scenario, a surety will contend that it is not bound by the underlying contract arbitration provisions, and then, after its principal suffers an adverse arbitration result, contend the surety can re-litigate the entire matter because it was not bound by the arbitration award.
For purposes of this article, the reference to ADR includes mediation and arbitration. Mediation is the effort to resolve a dispute with a structured negotiation, managed by a neutral who is usually chosen by the parties to the dispute. The process is purely voluntary and not binding. Arbitration is a more formal process during which one or more arbitrators selected by parties hear evidence and render a binding award resolving their dispute. In many industries, ADR is governed by standard forms that prescribe the arbitration process either in detail or by reference to existing procedures administered by a recognized ADR service provider.