When your business is faced with a dispute, the first thought that may come to mind to reach a resolution is taking Court action.
Whilst in some instances Court action cannot be avoided, it is important for a business to understand commercial alternatives it may have to litigation, known as alternative dispute resolution (ADR).
The rules that govern litigation provide that parties should consider settling disputes at all stages of proceedings, including pre-action. If Court proceedings are ultimately issued, an unreasonable failure to engage in ADR can have costs consequences for the party which is successful in litigation. Contractual terms may also obligate parties to consider ADR prior to the issue of any proceedings.
Alongside any obligations you may have pursuant to the contract, it is key to consider whether to approach settlement discussions at an early stage, to minimise disruption to your business. In weighing up whether to consider settling a claim versus taking Court action, there are some points to consider.
A primary consideration should be in respect of costs, which can often be significant, which you will incur in pursuing litigation. Even in the event of a successful outcome at trial, usually, you must be comfortable in funding litigation to trial, prior to any costs award being made in your favour in the recovery of costs from your opponent.
Further, if your claim falls within the remit of fixed recoverable costs (FRC) as set out in the Civil Procedure Rules, there is usually a limit on the fixed costs you can recover, subject to any indemnity principle as to costs which may be set out in your contract. Even in the event your claim is not subject to the FRC regime, there are usually limits on the costs you will recover from your opponent if successful at trial; it is unlikely that you will recover 100% of the costs you have incurred.
Issuing proceedings and going through the process of complying with directions to trial takes time and you are subject to the Court processing times, which can often be lengthy and take your time away from the day-to-day running of your business. Consideration should be taken as to whether you would be better served in potentially accepting a shorter settlement at an early stage, as opposed to spending time and money on pursuing litigation.
ADR methods to settle disputes
There are different methods available to assist in settling disputes, which include:
- Negotiation – whilst not a formal method of ADR, early negotiations and the exchange of correspondence can assist to resolve disputes at an early stage if parties can find common ground to settle the dispute or reach a binding compromise.
- Mediation – perhaps the most recognised form of ADR, involving an independent third-party mediator who assists both sides to try to reach agreement to resolve their dispute. This is a non-binding process which means parties are not obliged to settle at mediation but if a settlement is reached, the terms can be recorded in a binding agreement.
- Early neutral evaluation – this involves the parties inviting a third party to give an opinion on the merits of their respective case or a particular aspect of their case. This does not result in a settlement itself but can assist the parties to understand any strengths and weaknesses of their own and their opponent’s case prior to the issue of proceedings.
- Expert determination – often used for resolving technical disputes, this involves the parties submitting details of the dispute to an independent technical expert who will provide a binding decision on the case.
- Arbitration – this is a form of final and binding ADR whereby the parties submit information surrounding the dispute to an arbitrator who will make a decision on the dispute, which is enforceable.
- Adjudication – a method of ADR usually used in construction disputes whereby a party to a construction contract has the right to refer the dispute to an adjudicator who will make a decision on the dispute. The adjudicator’s decision is binding unless a party commences Court of arbitration proceedings.
How can we help?
If you have any questions in relation to the subjects discussed in this article, please get in touch with our expert Dispute Resolution team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.
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