1. WHY DO DISPUTES HAPPEN?
Business is all about risk: it is a complex matrix of people, resources, and activities which inevitably has the potential to lead to a dispute.
Legal and contractual risk - both in putting together and executing the contract - are part of any business and so forward planning as to how to minimise risk and deal with disputes is essential.
2. THE LIFE CYCLE OF A RISK
Risks are like frogs and have a life cycle.
They are spawned, often in murky circumstances, they hatch, they can grow at an alarming rate, they mature and they eventually die. The study of the lifecycle of a risk is almost a biological and scientific exercise.
A good manager who gets these principles under his or her belt will know how to develop the appropriate foresight to control and manage the lifecycle of a risk.
3. HOW TO DEAL WITH DISPUTES EFFECTIVELY?
All disputes, whatever form of dispute resolution mechanism you choose - litigation, arbitration or adjudication - essentially follow a basic pattern.
- Genesis - Appreciation by management that there is a potential dispute brewing. Putting systems in place to try to close down or limit the life span of a dispute is essential. Obtaining good legal and technical advice at an early stage will repay you many times over. This is not advertising: it's a brutal fact of life. The best money is spent early on.
- Crystallisation – This happens when the potential dispute has not been resolved internally.
- Formalisation – The Lawyer’s job! At this point your lawyer should be in charge and must present your claims in the appropriate format and forum.
- Substantiation
Remember: right might be on your side, but a case is only as good as the evidence you have to prove it!
You will need to produce the following: - Original documents; and
- Witness statements
- The issues to be considered:
- Do you have all the relevant documents to support your case? Who will give evidence? How strong are they? Are they still with you? Are they likely to leave at any point?
- Confrontation
Litigation and arbitration are traditional procedures where both sides have the opportunity to hear and comment on the other side's case.
They are adversarial by nature.
There is also the Alternative Dispute Resolution option, in particular mediation, which minimises the confrontational aspect of traditional dispute resolution.
- Decision
Once a decision has been made by the appropriate forum - can the other side throw obstacles in the way of you making a recovery?
- Review and Appeal
4. SO HOW DO DISPUTES BECOME RESOLVED?
Generally speaking disputes become resolved because the parties have no choice.
Costs and management time may be significant considerations.
All the directional features of modern dispute resolution are designed to put pressure on the parties to present their case quickly and efficiently and thereby to promote an early settlement.
5. WHO IS IN CHARGE OF THE DISPUTE RESOLUTION PROCESS?
When I qualified 20 years ago, the answer would have been: the parties.
For the last 14 years the Courts and Tribunals have been in charge.
Since 1999, dispute resolution has undergone a radical reform – The Woolf reforms enacted as the Civil Procedure Rules - and which are designed to compel parties to resolve their disputesefficiently and with costs that are reasonable and proportionate to the dispute.
- The Courts have been given increased power to be 'in charge' i.e. to case manage.
- Case management means that the Court, not the parties or their lawyers, run the process, can order the parties around and require them to act sensibly. They can penalise parties for bad behaviour, such as by a costs order or by preventing a party from continuing with such behaviour.
6. ALTERNATIVE DISPUTE RESOLUTION (ADR)
Mediation is the most well-known alternative dispute resolution process and has recently been referred to as ‘Litigation’s invaluable twin’.
It is a flexible and confidential process where a mediator tries to facilitate an agreement between the parties.
Solutions are found by the parties themselves and are not imposed by the mediator.
A commercial approach can be taken by the mediator – find a sensible solution rather than get bogged down with matters of law and interpretation.
It is not compulsory in litigation proceedings but is very suitable for certain kinds of dispute.
So, it provides the opportunity to reach a quick and cost effective settlement of a dispute.
Statistics show a high success rate – 80%.
A note of caution –
Mediation is sometimes glowingly referred to as a kind of rational panacea that always works and will save parties a lot of money in costs.
It is certainly not appropriate for all disputes.
Disputes will only be susceptible to mediation when parties have reached the point that commercial considerations are more important than the original dispute such as trying to preserve a working relationship and to save time and money.
7. THE NEW LITIGATION LANDSCAPE
What does it look like?
Recent changes have brought in new provisions to deal with the increasing costs of litigation.
Clients now need to be advised about Cost Budgeting and Cost Management Orders introduced in April 2013.
This gives the Court greater power to control budgets and for there to be greater transparency about costs. Lawyers now have to estimate the cost of various stages of the litigation proceedings.
There will be consequences if the lawyers get their budgets wrong!
There are also new funding options:
- Damages Based Agreements (DBAs)
Lawyers entitled to enter into a written agreement with client for a share of the damages – up to 50% in commercial cases. Clients do not simply have to pay hourly rates or fixed prices for litigation.
Lawyers will potentially share the cost or pain of defeat which will necessitate a proper evaluation of the strength of a client’s case from the outset.
What about a heavyweight case that settles for a multi–million pound sum shortly after proceedings issued using a DBA where a lawyer is entitled to 50% of the damages? – Would a client be happy with such a situation?
A client may pay far more in legal costs to their lawyer and be financially worse off with a DBA than simply paying hourly rates.
- Third Party litigation funding
Where third parties may agree to fund a case in return for a share of the damages.
£3 return for private equity investment for £1 invested is standard.
8. CONCLUSION
The objective of any dispute resolution process should be the best outcome for your client. Having an experienced lawyer advise your management team from the outset will ensure your business is best protected from the perils of costly disputes.
This article contains general advice and comments only and therefore specific legal advice should be taken before reliance is placed upon it in any particular circumstances.
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