A dispute with a customer, supplier, business partner or contractor can take up a surprising amount of time and attention. It is natural to want it resolved quickly and on your terms. Court proceedings are sometimes necessary, but they are rarely the first or the only option, and most commercial disputes are settled long before a trial.

Resolving things without court is not the same as giving in. It usually means choosing the process that gives you the best chance of a sensible outcome, at a proportionate cost, while protecting your position if the matter does go further.

First steps: the contract, the facts and the timing

Before deciding on a strategy, it helps to be clear about three things.

  • What the contract says. Many commercial contracts include a dispute resolution clause. It might require senior management to meet, set out an escalation process, refer certain disputes to an expert, or require arbitration. It may also contain notice requirements or limits on liability. Following the agreed process is usually important.
  • What the documents show. Gather the contract, correspondence, invoices and any records of what was agreed. Keep them safe and avoid creating new internal documents that comment on the dispute unnecessarily.
  • Time limits. Claims must be brought within limitation periods. For many contract claims this is six years from the breach, but the period can differ depending on the type of claim and the contract terms. Negotiations do not stop time running, so if a deadline is approaching, advice should be taken promptly.

It is also worth asking a practical question early on: if you were to win, could the other side pay? A strong claim against a business with no assets may be worth less than it appears.

Negotiation

Many disputes are resolved through direct negotiation, either between the businesses themselves or through their lawyers. A clear, measured letter setting out the issue and what you want is often a good start.

Settlement discussions are usually conducted on a without prejudice basis. In broad terms, this means that genuine attempts to settle cannot generally be shown to the court later as evidence of an admission. It allows both sides to explore compromise openly. There are limits and exceptions, so it is sensible to take advice before relying on it.

Negotiation works best when you understand your own strengths and weaknesses honestly. We will usually give you a frank view of the risks on both sides, so any offer you make or accept is an informed one.

The pre-action protocols

If a dispute may go to court, the parties are expected to follow the pre-action rules in the Civil Procedure Rules. There is a general Practice Direction on Pre-Action Conduct and Protocols, and specific protocols for certain types of dispute, such as professional negligence, construction and engineering, and debt claims against individuals.

In broad terms, the protocols expect the claimant to send a detailed letter setting out the claim, the defendant to respond properly within a reasonable time, and both sides to exchange key documents and consider whether the dispute can be resolved without proceedings.

This stage often leads to settlement in its own right, because each side sees the other’s case clearly for the first time. Failing to follow the protocols can also have consequences if the matter later reaches court, including on costs.

Mediation

Mediation is a confidential process in which an independent mediator helps the parties negotiate. The mediator does not decide who is right. Instead, they work with each side, often separately, to explore the issues, test positions and find terms both can accept.

Mediation is flexible. It can take place before proceedings or at any stage during them, in person or online. A settlement can include things a court could not order, such as a continuing trading relationship, a revised payment schedule or an agreed announcement. Nothing is binding unless and until the parties sign a written settlement.

The courts now place real weight on alternative dispute resolution. They can order parties to engage in it, and an unreasonable refusal to mediate may be taken into account when costs are decided. Even where you feel confident in your case, a considered response to a mediation proposal is important.

Expert determination and arbitration

Expert determination

Expert determination involves appointing an independent expert, such as an accountant, surveyor or engineer, to decide a specific issue. It is well suited to technical or valuation questions, such as the price payable under a share sale or a disputed calculation, and it is often provided for in the contract itself.

It is usually quicker and more private than court, and the expert’s decision is generally final and binding, with only very limited grounds for challenge. That finality is an advantage, but it also means the process and the choice of expert need care.

Arbitration

In arbitration, the parties refer their dispute to an arbitrator whose decision, called an award, is binding and enforceable. It is a private alternative to court, usually required by a clause in the contract. It still involves a formal process and can be as involved as litigation, so it is not always cheaper.

Understanding costs risk

A key reason to explore settlement is costs risk. In court proceedings, the general rule is that the losing party pays a proportion of the winner’s legal costs. That sounds reassuring if you expect to win, but the winning party rarely recovers everything it has spent, and the court has wide discretion over the amount. The losing party can face its own costs and a large share of the other side’s.

Formal settlement offers, such as offers made under Part 36 of the Civil Procedure Rules, can shift the costs position significantly if they are not accepted and the other side fails to do better at trial. Used well, they put pressure on the other party to take settlement seriously.

We will explain the likely costs of each option at the start and keep you updated as things change, so decisions about settlement are made with the full picture. You can read more about how we approach this on our commercial dispute resolution page. If the dispute involves a lease, a business sale or employees, our commercial property, corporate and commercial and employment law for employers colleagues work alongside us.