Commercial disputes are one of the main risks facing any business. They have the potential to be time consuming, stressful and extremely costly.
Commercial dispute resolution is an area of law that attempts to help parties resolve commercial disputes that have arisen.
If a dispute arises between yourself and a third party such as a supplier, client or even a competitor, it will be important to take early legal advice on your commercial dispute resolution options to mitigate your business’ exposure to the potentially significant financial and operational consequences and negative publicity.
Fundamentally, the aim of this area of law is to avoid parties coming before the courts by providing various procedures to encourage and facilitate resolution at as early a stage in the dispute as possible.
Commercial disputes are invariably complex, and it is recommended to take legal advice at an early stage to appraise the merits of your case, and ensure you consider all available options and associated costs and risks.
Commercial dispute resolution: Alternative Dispute Resolution
The first step in dispute resolution would generally be to negotiate informally with the other party to try to resolve the issue at an early stage.
Go back to the basics. Commercial disputes can arise for a broad range of reasons such as a breach of contract or professional negligence, and you need to be clear on the legal basis of your argument. What was originally agreed? Is this in writing and enforceable? Why has the dispute arisen? What are the losses that have resulted? Can the other party pay any potential award?
If you are unable to resolve the matter informally, what are your options? There is increasing expectation by the courts that parties in dispute have exhausted alternative forms of resolution before proceeding with litigation.
Alternative dispute resolution (ADR) is a term that is given to cover a variety of procedures that aim to resolve disputes without using the services of a court.
The most commonly used forms of ADR are mediation and arbitration.
Commercial dispute resolution: Mediation
Some commercial agreements make specific reference to the use of mediation in the event of a dispute.
Mediation is typically a voluntary process used to resolve a dispute. In order for mediation to proceed, all parties involved in the dispute must agree to it. This also means that all parties are free to walk away at any stage in the mediation. However, where a case does proceed to litigation, courts can financially penalise parties that refused mediation through costs awards.
Mediation works by appointing an impartial third party, also known as a mediator. All parties will need to agree to the choice of mediator.
The role of the mediator is to move discussions away from the nature of the dispute and to focus parties on agreeing a settlement. They cannot impose a resolution. Control over the choice and terms of any resolution remains with the parties.
The high degree of flexibility in resolution terms means mediation can offer resolution in a shorter period of time compared to other methods of dispute resolution. Mediations can also help produce a ‘win/win’ outcome, perceived as favourable by all parties and potentially enabling parties to continue with future commercial dealings, since the agreement is not limited as a court would be in its solution.
Mediation negotiations are also confidential – unlike court proceedings – and ‘without prejudice’, and as such cannot be used if the matter progresses to litigation.
Mediation may not however be suitable in all circumstances, for example where one of the parties is unwavering in wanting the case to be heard in public before the court or where the matter involves a legal precedent.
Any resolution that comes out of mediation will not be legally binding unless it has been committed to writing and signed by all parties. Until this point, any agreement remains unenforceable.
Commercial dispute resolution: Arbitration
Arbitration is considered a more traditional form of alternative dispute resolution to mediation.
Arbitration works in a similar way to mediation, where a third party is involved in the resolution of a dispute. The third party, in this case, is referred to as an arbitrator.
The main differences between arbitration and mediation, is that arbitration is a formal process and the decision made is legally binding.
The identity of the parties involved in the arbitration process is protected, as well as the detail of the proceedings and the award. This is a major benefit to commercial businesses who wish to protect their reputation.
Those who are involved in the arbitration process can choose who they want to act as the arbitrator. In comparison to a traditional court, where there is no ‘choice’ of judge, this can be extremely beneficial, particularly if the case involves specialist or complex issues and the knowledge of an expert is required to come to a fair agreement to resolve the dispute.
Some contracts state that commercial disputes have to be resolved by arbitration. If the contract doesn’t state this, a party involved in the dispute can request that arbitration is used, by sending a written demand to the other party. If the other party agrees to arbitration, the process can start immediately.
Arbitration is generally less costly and quicker than going through the courts to resolve the dispute.
Commercial dispute resolution: Litigation
Going to court is increasingly being seen as the option of last resort, for both small claims and larger, more complex.
Parties must evidence and present their respective cases on the balance of probabilities, meaning there can be considerable uncertainty with the outcome, Additional factors such as willingness to negotiate or refusal to mediate also impact on awards for costs.
As such, even during court proceedings, you can continue the negotiations with a view to reaching an agreement before the court judgment.
To take a matter to court – provided you have satisfied any requirement to attempt alternative dispute resolution – you will need to follow the Civil Procedure Rules and pre-action protocols as well as any other relevant, prevailing guidance given the type of dispute. Legal advice will be essential to ensure you follow the correct procedure.
Seek professional advice
Given that disputes can be highly disruptive and damaging to a business, seeking professional legal advice on your commercial dispute resolution options as early as possible can help to reduce the impact of a dispute to you and your business.
By using the services of a legal professional with experience in this area, they can take an impartial approach to help you settle the dispute in a way that protects your commercial interests.