Could alternative dispute resolution help settle a commercial dispute promptly?
It is no secret that the courts are struggling to clear the backlog of commercial cases which have built up as a result of the coronavirus, or that this backlog is continuing to grow.
This presents a problem for businesses who are embroiled in a commercial dispute and who need support in order to find a way forward soon, not in several months’ time when the courts will hopefully be in a position to start getting back up to speed.
‘Fortunately, there are alternatives to the instigation of court proceedings which can be just as effective in bringing a dispute to an end and which may be quicker, cheaper and more commercially sensible to pursue,’ says Richard Millard, Managing Partner of Geoffrey Leaver Solicitors in Milton Keynes.
These alternatives, referred to formally as alternative dispute resolution methods (or ADR for short) include mediation, expert determination, early neutral evaluation, judicial appraisal and lawyer supported negotiation. In construction disputes there is also adjudication. He explores the options.
With mediation, you and your opponent agree to appoint an independent specialist who has been trained to help commercial parties resolve their differences. The mediator will work with you to try to find an acceptable way forward and to make suggestions for compromise that you may not have previously considered.
The process is consensual and will only lead to a binding settlement where terms for resolution are agreed. If the process fails, you are free to issue court proceedings in the usual way or to explore another approach if you wish to do so.
Mediation has a high success rate and, even where it fails, it can be useful in helping to narrow down the points in dispute so that you can concentrate on the issues that matter rather than those which are not deal-breakers.
Early neutral evaluation
With this approach, you and your opponent agree to submit your dispute to an impartial evaluator who will give you a non-binding opinion on who they think is likely to emerge victorious if the matter goes to court. The evaluator can be anyone you choose, but he or she will usually be a judge who specialises in the sort of dispute that has arisen.
Early neutral evaluation is growing in popularity and is being increasingly endorsed by the courts, particularly in complex commercial property disputes and contract claims.
Under this method, you and your opponent agree to appoint an independent specialist with acknowledged expertise in a particular area and who you trust to make a binding determination of who is in the right and who is in the wrong.
This type of alternative dispute resolution tends to be most suited to disputes in which the facts of the case are agreed and where everything turns on a single technical point, such as whether a clause in a contract can be invoked or whether an agreed specification has been met.
This route involves you and your opponent submitting your dispute to a former judge or senior barrister, usually during the early stages of a case, in order for them to give you a preliminary view on where they think you stand and on the relative strengths and weaknesses of your position. You can then use their view to help you decide what to do next or to set the parameters for subsequent settlement discussions
Lawyer supported negotiation
This is the quickest and easiest to access as a method of alternative dispute resolution. As the name suggests, it involves you and your opponent working with your lawyers to try to come up with commercially sensible solutions for how your dispute might be resolved or, at the very least, to narrow down the issues on which you disagree.
Lawyer supported negotiation can be an effective way of bringing a commercial dispute to an end, particularly where lawyers are instructed at an early stage.
Adjudication in the construction industry is a dispute resolution process which provides a speedy mechanism for parties to resolve disputes. Most construction contracts will contain a right to adjudicate either as a result of an express term of the contract or due to the statutory right to adjudicate under the Housing Grants, Construction and Regeneration Act 1996.
The Referring Party gives notice of its intention to refer a dispute to adjudication, applies for the nomination of an adjudicator and within 7 days it must then serve a Referral Notice, a statement setting out what the dispute is, all relevant legal and factual submissions and the evidence to prove the claim and the relief being sought.
The adjudicator has 28 days from the date of service of the Referral Notice in which to reach and issue a decision. The adjudicator will issue directions for the Responding Party to submit its defence together with the evidence it wishes to rely on and the parties are often given the opportunity to comment on any submissions made.
The short timescale means that a decision can be obtained quickly, and if necessary enforced with a summary judgment in the Technology and Construction Court (TCC). By comparison, the pre-action protocol process and court proceedings could take 12 to 24 months.
The speed with which an adjudication can be completed has several benefits:
- the referring party can recover money (or determine its other rights) quickly. The importance of maintaining good cashflow often makes this the decisive factor
- the dispute can be resolved without undue disruption to the works. Given the short timescale and relatively limited evidence, adjudication can run in parallel with an ongoing project. This can also be helpful if the outcome will affect the performance of the works—it allows the parties to adopt/implement the decision for the remainder of the project
- costs are likely to be lower than if the same dispute were resolved in court. Court proceedings take longer, involve more steps, and often require a more thorough consideration of the evidence.
The adjudicator’s decision is only temporarily binding until such a final resolution, but often it is sufficient such that further litigation is not necessary.
The winning party in an adjudication is generally not entitled to recover its costs, unlike in litigation. This reduces the overall risk, since there is no danger of having to pay the other side’s costs following a loss.
However, for a strong claim, the inability to recover legal costs can reduce the net total amount recovered. A party’s irrecoverable costs in a small claim could be a significant portion of the overall claim
Advantages of alternative dispute resolution
As well as keeping your dispute out of the court system, alternative dispute resolution offers a number of advantages over traditional litigation which go far beyond speed and price.
Depending on the type of ADR adopted, these include:
- privacy of process as, unlike most court proceedings, discussions take place behind closed doors and will usually be subject to a confidentiality agreement;
- flexibility of outcome given that, unlike a judge who has restricted powers, you are not limited in what you can agree to do in order to achieve an acceptable resolution;
- preservation of position because, unlike when you are involved in litigation, it is usually the case that anything you say or do during the course of an alternative dispute resolution process is ‘without prejudice’ and therefore cannot be used against you if your attempts to settle fail and your dispute still ends up in court; and
- convenience and control given that, unlike court proceedings, it is up to you to decide where and when an alternative dispute resolution process will take place and the degree of formality required, i.e. in collating and presenting your evidence.
It is also worth bearing in mind that, by engaging in alternative dispute resolution or at least giving serious consideration to its use, you will be helping to protect your position on costs should the matter eventually end up in court. This is because, under the rules that apply to legal proceedings in England and Wales, warring commercial parties who fail to give proper thought to alternative dispute resolution (or who unreasonably refuse to engage in an ADR process) can be punished by the courts via an adverse costs order.
Disadvantages of alternative dispute resolution
The main drawback with alternative dispute resolution is that it does not work in every case. There are some cases where the approach is not appropriate, including those which:
- raise an important or novel legal argument which requires judicial scrutiny and the setting of a legal precedent;
- involve claims of fraud or dishonesty or other commercially unsavoury conduct; or
- require an emergency injunction, although there is no reason why an alternative approach cannot be used to resolve the underlying dispute once an injunction is in place.
Like most organisations, the court system has been badly hit by the Covid-19 pandemic and is still trying to find a way to adjust to what is a constantly changing and challenging situation. In view of this, while disputes requiring court determination should continue to be issued in the normal way, for those that might just as effectively be dealt with via some other means, it is now even more imperative that the use of alternative dispute resolution be considered and indeed actively attempted where there is a real chance it might help.
For more information on how our litigation team can assist you with the resolution of a commercial or construction dispute, please contact Ken Stangoe on 01908 689307 email firstname.lastname@example.org or Richard Millard on 01908 689382 email email@example.com.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.