Any SME that’s been involved in litigation large or small should be familiar with the importance courts place on considering alternative dispute resolution (ADR) as well as attempts to resolve disputes both before and after proceedings have been commenced generally.
Courts at all levels have had the power to penalise a party’s unreasonable refusal to mediate for many years. A good example of that in action is a May 2024 judgment in which a judge reduced a successful defendant’s costs by 25% after it had ignored a pre-action offer to mediate, unreasonably rejected a further offer to mediate and then gone on to effectively ignore strong judicial encouragement to try to settle given on the first day of the trial.
Despite those powers, and judges frequently indicating that they think parties should try to settle, a big question remained around whether courts could go further than encouraging mediation and compel parties to attempt settlement.
That question was answered with a resounding ‘yes’ in late 2023, when the Court of Appeal held that a court can order parties to engage in non-court resolution processes provided that doing so will not impair either side’s right to proceed to a judicial hearing, and the process ordered is proportionate to the legitimate aim of settling the dispute fairly, quickly and at a reasonable cost.
Changes to the court’s rules to reflect this across the board are now in train.
Small claims
All defended claims for under £10,000 in the county court (with some exceptions) are now referred to mediation.
These referrals are likely to catch many of the lower value debt recovery claims SMEs typically issue as part of their credit control process so it makes sense to pre-empt what will follow and take a constructive view on pre-issue attempts to settle claims where defences are expected given the time and costs that could save, particularly as it’s currently taking about 50 weeks for small claims to get to trial.
In addition to the potential for saving time and costs, ADR (which can include straightforward negotiations without the need for mediators or lawyers) has a history or preserving, and sometimes recovering, commercial relationships – particularly where discussions are conducted by senior staff who are not directly involved in the minutiae of the issues and can bring some commercial detachment to them.
Pre-action settlement discussions are also useful in long term supply arrangements and projects where thought should be given to including contractual dispute resolution provisions which set out and mandate agreed pre-action steps that have to be taken before one side can sue the other.
Small claims mediations are referred to Small Claims Mediation Service which uses trained mediators to provide a free mediation conducted by telephone that usually takes an hour. Businesses will need to take a view on whether that will be suitable for specific cases and bear in mind that the court has the power to impose sanctions for a failure to attend a mediation appointment as well as to penalise unreasonable conduct in relation to the mediation itself. They should also think about training staff to deal with mediations if they are likely to get involved in them regularly.
Other claims
All claims over £10,000 (and those for less than that) will be caught by changes to the court’s rules that will become effective on 1 October 2024.
The changes modify the rules’ overriding objective (that the court and litigants have to follow) in two ways. First, by including “promoting or using alternative dispute resolution” as a way for the court to deal with cases “justly and at proportionate cost”. Second, and significantly, by putting the question of what a court can order beyond doubt by augmenting the current power to encourage the use of ADR and with an express power to order them to use it.
