Business Law & Compliance

Handling a commercial dispute claim

6 min read

19 November 2018

Hilary Messer, a senior associate and specialist in dispute resolution, discusses ways to prevent a commercial dispute claim from going to court.

It’s apparently all doom and gloom for businesses. What will happen if we crash out of the EU without a trade deal? Will deals brokered pre-Brexit be so appealing, or even profitable if trade talks stall and currency exchange rates fluctuate wildly?

Some wider business matters are simply beyond our day to day control. Others are more within our control if we both plan and properly prepare. How you handle a commercial dispute is one such matter.

All manner of disagreements involving your business can become a commercial dispute and if not resolved, can escalate into a claim.

Here’s how to stay clear of court.

The claim

If you receive notification of a claim, don’t panic and don’t ignore it. Acknowledge the notification. The rules governing litigation (the CPR) set out a code on pre-action conduct.

Some specific claim types have prescribed pre-action protocols (PAP) which parties should follow. Different protocols have different timescales for a substantive response.

Check when your response is due. Take advice: if you don’t know what you are doing, get help from someone who does. The same applies if you want to make a claim. Don’t leap blindly without research.

The purpose of the PAP is to identify and narrow issues in dispute and hopefully avoid proceedings. Those proceedings are adversarial. They can and will start with or without your participation in the process.

You are better in than out. Only if you respond can you hope to save costs and minimise financial damage to your business, and preferably by brokering an early settlement.

Failure to follow the pre-action protocol, engage in alternative dispute resolution (ADR) or even reply to an overture for ADR – alternative dispute resolution – all sounds in costs.

The winning party can find itself with a pyrrhic victory when it has to bear its own costs, and all because it ignored the rules designed to avoid litigation.

Avoiding court action

Litigation is a last resort: it’s costly, it’s public and may not provide the best commercial solution for your business.

ADR is a must. Consider negotiation, mediation and arbitration as alternatives to achieve a settlement. Not only are they cheaper in the long run, but they are also considerably quicker than suing.

Mediation is a consensual private process: a neutral third party helps find that cross-over of needs and wants so parties reach their own solution. It removes parties from the adversarial arena and encourages focus on resolution.

Whilst voluntary, if a party refuses to mediate the court may order it to file witness evidence explaining why, and could penalise that party in costs.

Once begun, either party can withdraw at any time. Neither is bound to accept any proposed solution but for mediation to succeed parties need both an open mind and the spirit of co-operation.

If a settlement is reached it is recorded in writing and is enforceable as a binding contract.

In contrast, arbitration is an adjudicative process, more like litigation but still private like mediation. Essentially parties buy a body (the arbitrator) to decide the claim. Parties may voluntarily refer a dispute to such arbitrator or may have contractually agreed to do so in the event of any dispute.

By agreement an arbitration award is enforced as if it were a court judgement.

Many commercial agreements contain ‘dispute resolution’ clauses specifying a particular method of ADR to be used: always check your documents for any contractual procedure for dispute resolution.

Navigating court proceedings

If the claim must go to court, it will be allocated to track if defended. Generally a claim worth less than £10,ooo goes to ‘small claims track’, £10,000–£25,000 with a time estimate of one day only to ‘fast track’ and £25,000+ to ‘multi-track’.

Multi-track claims tend to be more legally and factually complex and are correspondingly more costly to run to trial. Different procedures apply to different tracks which have different costs’ regimes.

No costs are recoverable even by the winner in the small claims track.

To ready the claim for trial, the Court will give directions. These include disclosing documents to the other side and exchanging written witness evidence all in accordance with a strict timetable.

Breach that timetable and your claim or defence could be struck out – with costs! Court orders are there to be obeyed.

Appealing a decision

Neither party can appeal a judgment just because they don’t like the decision. There are set criteria for appeals and if met, permission to appeal may be granted.

The effect of winning an appeal outright is usually to reverse the original decision in its entirety. That includes costs. The triumph of winning in the first instance can be short-lived.

Never forget that there are no answers in law, just different levels of opinion and a judgment is binding on the parties unless and until overturned by a higher court.

Hilary Messer is a senior associate in Gardner Leader solicitor’s dispute resolution team.