When they arise, commercial disputes can quickly become a drain on resources, key personnel become diverted from their normal roles, and valuable commercial relationships are threatened.
However, taking steps before a dispute arises can mitigate the disruption and financial cost incurred when it happens; the benefit of Alternative Dispute Resolution (ADR) advice both before, and during a dispute, cannot be overstated.
The importance of attempting ADR has also been highlighted in the recent case of Churchill v Merthyr Tydfil County Council, which confirmed that the courts have the power to actually order parties to engage in ADR (previously there was only a risk of potential costs sanction if they failed to attempt ADR).
In this article, our dispute resolution partner Will Charlesworth looks at the benefits of ADR, the most common forms of ADR, and the steps to consider before and after a dispute has arisen, in seeking to minimize financial and business disruption.
What is ADR?
This is not an exhaustive list of the forms of ADR available; however, those set out below are the forms generally applicable to most general commercial disputes.
Each dispute is different, and some forms may be more appropriate or effective than others depending upon the circumstances, so it is recommended that legal advice is sought when considering which form of ADR to attempt.
- Mediation
A mediator is appointed, who is an independent and impartial person, to help the parties discuss the issues in dispute, negotiate, and come to a mutually agreeable solution. The overall success rate of mediation remains very high, with an aggregate settlement rate of 92%, according to the 2023 CEDR annual mediation audit results.
- Without Prejudice negotiations
These typically involve the parties exchanging settlement offers on a ‘Without Prejudice’ basis – meaning it cannot be used in evidence in legal proceedings.
- Early neutral evaluation
A judge, retired judge or senior barrister will hear each party’s submissions and then give an evaluation on the likely outcome at trial, which is without prejudice and generally has no binding effect.
- Arbitration
If both parties agree to arbitration, an independent and neutral arbitrator is appointed and the arbitrator gives a decision on the dispute. The arbitrator’s decision is binding on the parties.
Why use ADR?
The advantages of using ADR are quite well established, and include:
- Confidentiality – civil court proceedings in England and Wales are open to the public; however, ADR is confidential, saving potential competitor scrutiny and reputational damage.
- Certainty of outcome – one of the risks in litigation is that the outcome is always uncertain, regardless of how ‘strong’ a case is considered to be. ADR allows the parties to reach a clear and defined settlement between themselves, at an early stage.
- Preserving commercial relationships – litigation can easily destroy a commercial relationship; however, under ADR, negotiations can be less adversarial and the parties have the flexibility to agree more creative and commercial settlement terms, potentially preserving a valuable commercial relationship.
- Minimizing legal costs – the legal costs in court proceedings can quickly exceed the amount in dispute and ‘winning’ at trial can be Pyrrhic victory when the legal costs of reaching judgment are taken into account. However, ADR allows a more cost-controlled approach to settlement, with greater certainty at each stage.
- Recovery of loss – success at trial does not guarantee recovery of the funds awarded in the court’s judgment; there is no certainty that the judgment debtor has sufficient funds to pay an amount awarded by the court, and it is very late in the day to discover that after a year or more’s expensive litigation.
- Business disruption – the average time taken for a case to reach trial is over one year, and it is not uncommon for it to take far longer to reach a conclusion. In this time, parties on both sides will likely suffer stress and anxiety, and be diverted from their normal work to deal with the litigation.
What can be done before a dispute arises?
There are some proactive measures which can be taken before a dispute arises to better prepare:
- Clauses can be included in terms of business (T&Cs) and other commercial contracts, compelling parties to explore ADR in the event of a dispute, before commencing legal proceedings.
- It may also be beneficial to have an internal contingency plan in place, to manage disputes when they arise, and prevent them from escalating.
Steps to take when a dispute arises
- Time is of the essence when seeking to resolve a commercial dispute and so there should therefore be no delay in obtaining objective and expert legal advice. A critical analysis of the available evidence assists in identifying the strengths and weaknesses of the parties’ respective positions, which then informs and assists in creating a more bespoke and effective ADR strategy.
- An ADR strategy can include:
- taking further steps to gather additional supporting evidence to allow the case to be presented in a clearer form, in a letter, or position statement, for example. This can help to address any misunderstandings and narrow the points of dispute.
- if it is not already prescribed contractually, agreeing the logistics of a specific form of ADR between the parties.
- pursuing settlement negotiations, with proposed settlement terms. These negotiations may be solicitor- or party-led (with a solicitor advising in the background), depending on the state of the relationship between the parties
Disputes can escalate quickly; however, the risk of prolonged business disruption can be mitigated by taking steps before a dispute has even arisen. When a dispute does arise, it is recommended that legal advice is sought sooner rather than later, before the parties become too entrenched and it becomes more difficult and more expensive to reach an acceptable resolution.
Author: Will Charlesworth – Keystone Law
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