Business Debt Recovery - Alternative Dispute Resolution

Alternative Dispute Resolution

As we set out in our previous debt recovery blog, businesses that are trying to recover debts must comply with the Practice Direction on Pre-Action Conduct and Protocols, which is contained in the Civil Procedure Rules (CPR). 

The Practice Direction sets out that litigation should be a last resort and that the parties should consider whether negotiation or some other form of alternative dispute resolution (ADR) might enable them to settle their dispute without commencing court proceedings. Even if court proceedings do have to be commenced to recover the outstanding debt, the parties should continue to consider the possibility of reaching a settlement at all times, including after court proceedings have been started.

The time period from commencing court proceedings to actually reaching a courtroom for a trial can take many months, if not years, and during this time, anything can happen, and it often does. Therefore, while at the start of court proceedings, a party may not be interested in settlement, the disclosure of just one document has the capability to turn a party’s case upside down, so the prospects of settlement must always be borne in mind, regardless of the stage of proceedings which the parties are at.

If court proceedings are issued, the court may require the parties to provide evidence that ADR has been considered. A party’s silence in response to an invitation to participate or a refusal to participate in ADR might be considered unreasonable by the court and could lead to the court ordering that party to pay additional court costs. 

There are a number of ADR methods that can be utilised to try and resolve a business debt recovery claim as follows.

Mediation

Mediation is a widely used form of ADR that can either be used on its own or used while litigation remains ongoing.  

Mediation involves introducing an independent and neutral third-party mediator, who will work with the parties and their legal representatives to settle the dispute and reach a deal or settlement, or if this is not possible, narrow the issues in dispute between the parties.

Mediation is voluntary, and neither party can be forced to settle the dispute through mediation if it does not want to.

Mediation provides a forum outside of the formal atmosphere of the courts by which the parties can discuss and understand the other’s position and work together towards a resolution.

During the mediation itself, the mediator will meet privately with the parties to discuss the strengths and/or weaknesses of each party’s case and try to establish common ground or sticking points, which can then be examined and discussed in further detail.

As a party’s discussions with the mediator take place in private without the other party being there, this provides comfort to the parties to consider their case realistically, knowing that any damaging or harmful information provided to the mediator will not be divulged to the other side, unless they agree to do so.

Not all cases settle at mediation, and it is important to note that all parties have to want to settle the dispute in order for a settlement to be reached. That being said, mediation has a high success rate, and it is now the most commonly used method of ADR.

It is not compulsory to mediate, but the courts take a very dim view of parties who unreasonably refuse to mediate and may impose costs penalties if you do not have a good reason for saying no to mediation.  

While mediation is a generally successful form of ADR, unfortunately, it does not always work. Mediations are almost always confidential and carried out on a “without prejudice” basis. This means that nothing that is said at the mediation can be disclosed to the court if the mediation does not successfully settle the dispute. This has to be the case to encourage the parties to make a really genuine attempt to settle the dispute without the fear that any concessions or offers made at the mediation might make their way to the judge at trial, just in case the mediation does not work.

Arbitration

As opposed to mediation, arbitration is a binding form of ADR. Either a sole arbitrator or a panel of arbitrators will make a decision that is binding on all the parties, from which there are only limited avenues to challenge the arbitrator’s decision.

The parties may determine the rules they are to abide by in the arbitration. Where relevant, the arbitration will be conducted according to the rules of an arbitral organisation, such as the International Chamber of Commerce.

This kind of arbitration often results from a specific clause in a contract requiring parties to resolve any disputes which might arise through the process of arbitration.

Adjudication

An adjudication is a form of ADR which is specific to construction disputes. The purpose behind adjudication is to resolve disputes quickly and provide a cash-flow remedy while keeping intact working relationships in order that construction projects can continue without delay, fallout or great cost.

Adjudication is often described as “pay first, argue later” or “quick and dirty” and has the effect of resolving disputes quickly to keep construction projects on track without the need for lengthy court proceedings.

Part 36

Part 36 refers to Part 36 of the CPR. Part 36 deals with offers of settlement that must meet very technical rules and carry potentially very beneficial or punitive consequences in relation to damages and costs.

The purpose of Part 36 is to provide a real incentive to parties to focus their minds on settlement. For example, if a Claimant makes a Part 36 offer to settle a dispute, which is not accepted by the other side, and the Claimant goes on to beat its Part 36 offer at trial, it will receive a number of benefits, including a 10% uplift on the amount of damages awarded as well as beneficial costs consequences. As a result, rejecting or accepting a Part 36 offer is a very serious decision to be made.

Making a Part 36 offer is, therefore, a very tactical way of putting pressure on the other side to accept the offer of settlement or risk being faced with punitive consequences.

Here to help

If you would like further information about how we can help your company recover its business debts, please do not hesitate to contact a member of our Business Debt Recovery Team on 0161 941 4000 or email the Business Debt Recovery Team.