When faced with a civil business dispute, whether that be relating to a breach of contract, negligence claim, or if you are owed money from a third party, it can become a stressful and costly experience trying to resolve that dispute or recoup money owed to your business. It is often presumed that the issue of Court proceedings will provide a quick resolution, which is regularly not the case.
Whilst it may seem like the appropriate answer to jump to the issue of a claim to resolve a dispute, new rules which are likely to be introduced in October 2023 may discourage this action from being taken in haste.
Part 45 of the Civil Procedure Rules governs under what circumstances fixed costs are payable in civil claims in England and Wales. Under new rules proposed by the Government, there is likely to be an extension to this fixed costs regime.
In a consultation paper published by the Ministry of Justice in September 2021, it was agreed, in line with recommendations, that the fixed costs regime should be extended to include all civil cases allocated to the Fast Track. This would likely include claims between £10,000 and £25,000.
The proposals are to implement a grid with four bands of complexity with the rules providing guidance on how cases should be allocated to each band. A certain level of fixed costs will then apply to cases in each respective band.
So what do the new proposed fixed costs rules mean for me and do I have any alternatives to litigation?
In summary, if part 45 is extended to include the new rules, this would mean only fixed costs would be recoverable for different stages of the litigation process. Any costs incurred above this fixed amount are unlikely to be recoverable from your opponent. The result is you could be left having to pay the difference between the fixed costs recovered from your opponent and the actual incurred legal fees meaning litigation could be a less attractive prospect.
There are, however, many considerations in settling a dispute, steps that can be taken, and issues that should be considered prior to the issue of proceedings. Some of which include:
1. Letter of claim
The Civil Procedure Rules require that you set out the nature of any claim in full and provide any documents on which you intend to rely in support of your case to your opponent. You should then provide them with a specific period to respond.
In sending a letter of claim and setting out your claim in the clearest and strongest possible terms, can often resolve disputes if parties are willing to work amicably to reach a resolution. It can also highlight the strengths of any claim to your opponent, which often results in encouraging resolution or payment.
2. ADR
Under the Civil Procedure Rules and the relevant Pre-Action Protocols, parties are encouraged to make attempts to settle disputes at all stages of proceedings. That duty continues once proceedings are issued. Contractual terms can also include an express clause requiring parties to engage in ADR and will often specify a method. The benefit of ADR is it can result in the settlement of disputes at an early stage, in a private forum.
There are numerous forms of ADR which include:
1. Mediation
This is where a third-party mediator goes between the parties to facilitate a resolution. If an agreement is reached pre-action, the terms can be put into a settlement agreement which can form the basis of any breach of contract claim if the terms are not adhered to. If an agreement is reached post-issue, the settlement can be put into the terms of an order which has the same enforceability as a judgment.
2. Arbitration
This involves a third party deciding the dispute. Both parties will present their case, the arbitrator will look at the evidence from both sides and a decision will be reached by the arbitrator. Any award is legally binding.
3. Adjudication
This is a type of mediation usually used in construction disputes. The decision is binding until final determination by litigation, arbitration or agreement of the parties.
4. Early neutral evaluation
This is a third party giving an informed opinion on the dispute which includes the individual giving their opinion on the merits of a case and can encourage settlement based on that opinion.
Consider your position and the likely recovery in the event that a claim is issued
Before the issue of proceedings, it is very important to consider the strengths and weaknesses of your own and your opponent’s position. That is to minimise any cost and litigation risk you may face in issuing proceedings.
If you issue a claim for a sum above £10,000 and you are unsuccessful in your claim, you will secure nothing in judgment and it is likely you will also have a costs order made against you. You will have your own and the majority of your opponent’s legal costs to pay. You will also be liable to pay disbursements.
Likewise, claims are often issued and due to the time and cost risks that are associated with litigation, parties often end up agreeing to mediation at a point when substantial costs have already been incurred. Whilst it is for you to determine on what basis you settle a claim (if at all), it is preferable to avoid a situation whereby a shorter settlement is agreed under circumstances where a better deal could have been done pre-action, had parties shown a willingness to engage in ADR at an earlier time.
The importance, therefore, is ensuring a commercial approach is taken to the resolution of disputes at all stages.
How can we help
If you have any questions in relation to the subjects discussed in this article, please get in touch with a member of our expert Dispute Resolution team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.
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