Most businesses will become involved in a commercial dispute of some kind in their lifetime, often inadvertently. This may be with a supplier, a customer, or internally. How a business deals with a dispute can say a lot about the business and its culture, as well as impact upon the reputation of those involved.

Paul Kite, head of commercial dispute resolution and mediator at leading Thames Valley law firm IBB Solicitors shares some thoughts on dispute resolution processes and strategies.

No ‘one size fits all’ approach

The resolution of commercial disputes is not a ‘one size fits all’ process. It is important to remain flexible in terms of approach and the range of possible outcomes that will meet the commercial and financial objectives of the organisation. These objectives may change, depending upon the nature and stage of the resolution process. 

Disputes arise in a number of different contexts:

• A supplier refusing to pay for goods
• A customer disputing the nature, extent or cost of services
• And arguably the worst, a falling out amongst owners, affecting the stability of the business

In all these scenarios, one thing is for sure. The dispute has the potential to absorb a significant amount of management time, in addition to any professional costs incurred.

Could parties resolve the issues themselves?

In recent years we have seen the courts try to encourage parties to take active steps to resolve disputes themselves. The court remains the ultimate arbiter and there will be cases where a party needs to obtain a formal ruling, perhaps on a point of law. But given that the outcome of a legal case is never 100% certain, can you afford not to consider alternatives to litigation?

As early as possible, consider all options for trying to resolve a dispute. Is there a mechanism set out in the contract? If not, is this something that you need to consider for the future? There may be an obligation on the parties to use a particular form of dispute resolution as a result of membership of a particular organisation. It is becoming increasingly common to see dispute resolution clauses in commercial contracts requiring the parties to follow a previously agreed process. Escalation clauses  start, perhaps, with the key relationship personnel meeting, moving up to the CEOs and thereafter mediation, followed by arbitration or litigation. The theory is that any escalation of the dispute is incremental and helps to preserve the relationship.

Alternative Dispute Resolution

Each stage is a form of alternative dispute resolution (ADR). The Courts have the ability to impose costs sanctions on a party who unreasonably refuses to participate in ADR. Expert determination is another form of ADR, under-used in my experience. It can be a quicker, cheaper and effective mechanism for resolution by third party determination. It has a prevalence in disputes relating to business valuations or property, but need not be confined to such. A technical or sector expert could be called upon to decide a dispute relating to work undertaken or goods supplied. As long as the parties agree to be bound by the decision the risk is the same for both parties and probably no more so than a judicial decision. 

Mediation

Mediation has a high settlement rate. The benefits of mediation are well known and include confidentiality and flexibility, for both the process and outcome. A Judge or Arbitrator will often be constrained in what he or she can award. Because the parties at mediation control the outcome, this can include non-financial elements: an apology, a credit note, the promise of future business, for example. Perversely, the process may help to strengthen relationships and provide a bolder, better long-term platform for future business.

Settlement offers

A question that often comes up is when a party should make a settlement offer. There is no absolute answer to this question: at any point that it feels right is a good starting point. The making of strategic offers to settle and the conduct of the parties are relevant factors which the court can and will take into account when deciding who should pay the costs of any legal proceedings. The Court Rules contain a mechanism for making offers to settle in a particular form so as not to amount to an admission or be admissible before the court on the determination of the substantive issues. The rules also contain protocols for pre-action conduct.  Not making an offer or not following protocol is likely to create financial risk. 

Finally, try to understand how and why the dispute has got to where it has. Is it a personality clash, or is there some substance to the complaints being made?  An objective appreciation of the obstacles to settlement on both sides should help to maximise the prospects of settlement and promote a solutions focussed approach.