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How to Resolve Business Disputes out of Court
6
Jan
How to Resolve Business Disputes out of Court
News

This article explains the vast majority of civil cases are in fact settled long before being listed for a final court hearing.

Out of Court Settlement

Users of the civil courts in England and Wales are often surprised to learn that civil disputes are often not resolved through final court hearings. Many users believe that once a claim is issued and a defence is filed, the matter is in the hands of a judge for determination. However, the vast majority of civil cases are settled long before being listed for a final hearing.
There are several reasons for this:
  • The Court has a positive obligation to encourage the parties to settle. Under the Civil Procedure Rules (CPR), the Court is required to undertake case management which encourages parties to settle or to resolve the dispute through alternative dispute resolution (ADR). (CPR 1.4(2)(e & f). To help achieve settlements, the Court has the power to grant a ‘stay’ in proceedings to allow time for settlement via negotiation or through ADR (CPR 26.4). Finally, the Court actively encourages parties to settle and use ADR methods and can penalise those who don’t through adverse costs orders (CPR 44.5).
  • The court process is time consuming. According to HM Court and Tribunal Services, the average time (prior to the COVID-19 pandemic) for a matter to proceed through the Small Claims track was 37 weeks from the date of issue. For Fast Track and Multi-Track claims, the average time from the claim being issued to trial was 59 weeks. These timescales have been adversely impacted by the COVID-19 pandemic.
  • The court process is expensive. Once a claim has been issued and a defence filed (which is an expensive process in its own right), there are a number of steps which occur before trial including the writing of witness statements, the engagement of experts, disclosure and inspection of relevant documents and pre-trial hearings. These steps generally require significant work which is undertaken by solicitors and barristers who will generally charge for their time at an hourly rate. Finally, in Fast and Multi track cases, the general rule is that the winner pays the losers costs (subject to the Court’s discretion) meaning if you proceed to trial and lose, you are liable for your own fees as well as the other parties.
  • The court process is public and inherently adversarial. The majority of hearings are public which can be undesirable, particularly in commercial disputers. The parties may very well not want their financial position, business operations or dirty laundry openly aired at a trial. Furthermore, as the court system of England and Wales is inherently adversarial, court hearings will result in a winner and a loser. This can cause breakdowns in commercial and personal relations. Because of this reality, lawyers will often tell you that the court system is best suited for strangers who are happy to remain so.

Settlement Negotiations and Alternative Dispute Resolution (ADR)

For the reasons above—and many others—claimants and defendants often elect to settle the matter themselves or use ADR. This primarily occurs in three ways:
  • Settlement negotiations: Settlement negotiations often take place between the parties and their solicitors prior to the issuing of claim, after the filing of a claim and defence or after the disclosure of documents and drafting of witness statements. Settlement often occurs at these times because the parties will have a better understanding of the strength and weaknesses of not only their own case but also that of their opponents. If an agreement can be reached it is best practice to document the terms of settlement in an agreement. This agreement can be confidential between the parties. The agreement can also include mechanisms to end the court proceedings without adverse costs orders.
  • Arbitration: In arbitration, the parties refer the dispute to a neutral third party to decide. This third party might be an expert in the industry in which the dispute arose or a lawyer. The arbitrator will make decide the matter according to the law. The decision is also legally binding. There are several forms of arbitration including commercial arbitration providers as well various trade association arbitrations schemes. Arbitration fees can be high, but the matter is often resolved quicker than proceedings and remains private.
  • Mediation: The parties can also appoint a mediator to assist the parties in reaching a settlement agreement. Generally, mediation is either ‘evaluative’ where a mediator takes a view on the merits of a case or ‘facilitative’ where the mediator attempts to reach a mutually beneficial settlement. Agreed settlements are written in legally binding contracts. Mediation services are offered by many law firms. The Small Claims track also offers a telephone mediation service to litigants in issued claims.
Settling a matter through negotiation or via an ADR mechanism can be less costly and quicker than civil proceedings. The parties are also more in control of the process and can tailor the process to be conciliatory to preserve relationships. However, depending on the dispute, ADR might not be in a litigants best interest. There is often an imbalance of power between the parties and ADR mechanisms can often be used more effectively by the stronger party.

Expert Legal Advice

If you are in a dispute, it is best to get advice early and often. When a dispute arises or after certain steps in proceedings, a solicitor can assist in identifying the strengths and weaknesses of a case and highlight potential paths to settlement. A solicitor can also provide advice as to whether one of the ADR mechanisms would be an appropriate and cost effective route to reaching a settlement.

If you need further advice on this issue or on a specific dispute, please contact a member of our Dispute Resolution team. Girlings has offices in Ashford, Canterbury and Herne Bay.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.

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