Alternative Dispute Resolution – the new normal

In 2006, 2.1m civil claims were issued. By 2014 that figure had fallen to 1.6m. Of those claims, approximately 97 per cent were resolved without a trial, either because they were undefended or settled.

The most frequently cited reasons for finding an alternative to litigation are:

Costs: Added to the party’s own legal costs, expert costs, management time and the prospect of having to pay the successful party’s costs, the cost of issuing proceedings has significantly increased since March 2015 e.g. the court issue fee for a £50,000 claim rose from £640 to £2,500. 

Publicity: A party may wish to avoid its dispute becoming a matter of public record as it may damage its reputation or open the floodgates to further claims. 

Time: On average, a claimant will have to wait a year for a final hearing in court, larger claims may take significantly longer. 

Risk: Even a seemingly “water tight” claim can falter by disclosure of documentation that weakens a party’s position, an unhelpful witness, or the court’s unexpected interpretation of the law. 

Court: A party that does not consider ADR does so at its own peril and the court will penalise unreceptive parties with adverse costs orders or punitive interest rates on awards.

Read more about handling ADR:

So what does Alternative Dispute Resolution mean for businesses in practice? The most common ADR formats, together with advantages and disadvantages are set out below.

Mediation

Mediation is a voluntary, confidential, non-binding process whereby an independent mediator facilitates a discussion between the parties to reach a mutually agreeable settlement. It can be formalised into a legally binding contract. Mediation normally involves a mixture of “joint sessions,” where each party can put forward its view, followed by private meetings with the mediator during which the issues in dispute are explored. The parties are encouraged to take an objective view of their case in order to resolve the matter.

Mediation can offer a swift, flexible solution at any stage of the dispute. The parties are not limited to remedies the court can award and the process is collaborative rather than adversarial. To be successful the parties must be genuinely willing to find a solution, otherwise the mediation may only serve to increase costs.

Arbitration

Unlike mediation, arbitration is a formal and binding process where disputes are resolved by a final award made by one or more independent arbitrators. It can be particularly useful in cross-border disputes as the parties have the freedom of choice over the arbitrator, their powers, the venue, and the applicable law.

In addition to being confidential, the process is relatively informal compared to the court process and the awards are more easily enforced overseas. However, arbitration is typically more costly than mediation, and is a more adversarial procedure whereby the unsuccessful party will be liable to pay an award in damages together with costs.

Early neutral evaluation

In Early neutral evaluation, an independent evaluator will give the parties an assessment of the merits of their case. It can be used at any stage in a dispute but may be most useful before significant costs have been incurred. The process is confidential, non-binding, and the objective view may steer the parties towards settlement negotiations. 

It does, however, carry the risk that one party may become more entrenched in its position if it receives a favourable view and may not be suitable where there is a substantial dispute on the facts, as the evaluator will not have the benefit of testing the witness evidence. 

From 1 October 2015, the court can undertake an early neutral evaluation with the aim of helping parties to settle cases, this can be a good use of judicial experience particularly where the dispute concerns a point of law or the interpretation of a contractual provision.

Summary

Consumers have long had access to ADR as a means of low-cost dispute resolution, availing themselves of Ombudsmen services in the banking, insurance and utilities sector. This year introduces new requirements for consumer-facing businesses to provide access to ADR for contractual disputes with the creation of the Online Dispute Resolution Portal, and the Department for Business, Innovation and Skills is proposing to create a small business commissioner to refer disputes between businesses to ADR. As such, the emphasis will be on industry to consider ADR by default.

Considering alternatives to litigation as soon as possible can prevent an escalation in costs, may preserve the trading relationship and reduce reputational damage. By including an ADR clause in your terms of business could assist in avoiding litigation altogether and provides an opportunity for a party to begin a genuine dialogue about resolution without concern that their approach may be construed as a sign of weakness.

Carole Spiller and Angela Cahill are part of Weightmans.

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