Some contracts or areas of law require the parties to first attempt ADR, and it is general court policy to encourage parties to attempt ADR. There can be significant cost penalties if parties refuse ADR, even if they go on to win their case in court.
Generally ADR is cheaper than going to court and courts do encourage this due to its ability to keep disputes out of the court system, which are overbooked and therefore making delays in individual cases almost inevitable.
One of the primary reasons parties may prefer ADR proceedings is that, unlike adversarial litigation, ADR procedures are often collaborative and allow the parties to understand each other's positions. ADR also allows the parties to come up with more creative solutions that a court may not be legally allowed to impose.
For example, in a dispute over breach of contract, such as a debt, the courts can only order one party to pay the other some money. However, if the parties go through ADR then through agreement, they could come up with any number of different solutions that might solve the current dispute and allow them to continue working together if they have a business relationship that they wish to preserve.
Generally, ADR will only work if both parties are willing to compromise and agree to work together to find a solution. However, some types of ADR involve a decision being imposed on the parties, which is therefore similar to a court. This is particularly true for arbitration, which is typically used for high value specialist cases, such as shipping claims.
Many construction claims will require the parties to attempt another form of ADR, known as adjudication. This is a specialist area in itself with its own procedures and adjudicators are usually qualified surveyors or architects. Parties are not legally required to accept the decision of the adjudicator, but if the matter subsequently went to court, then the court is highly likely to follow the decision of the specialist adjudicator.
For most claims, the court or the institution you are dealing with, typically as a consumer, will have a mechanism for dealing with disputes via mediation. Mediation involves an agreement by the parties to involve a third party, the mediator, who will help them to find a solution to their dispute.
If the parties reach a solution then, with the mediators help, they will prepare a document setting out the details of their agreement and all the parties will sign it. The agreement then has more or less the same legal effect as a contract and if either party does not comply then the other can go to court based on the agreement alone.