When court is unavoidable

Introduction

Commercial disputes can arise out of a variety of situations – such as breach of contract, intellectual property infringement and negligence.

Having an early understanding about the nature of the commercial dispute facing you and its potential consequence will go a long way in helping you to managing a successful outcome for your business.

As many business leaders have discovered, failing to deal with a commercial dispute properly can cause extensive financial and reputational harm to your business, as well as using up valuable management time.

This note focuses on litigation (court action). So, let’s assume for the purposes of this article that we are dealing with a commercial dispute that is going to court in the courts of England and Wales rather than to mediation, arbitration or adjudication.

Commercial disputes – Checklist

In any type of commercial dispute, it’s a good idea to consider the following:

• Is there a contract?
• Is there a dispute resolution clause? resolution clause?
• What “Pre-Action Protocol” applies to the dispute?
• What procedural rules apply to your dispute?
• What is the value of the dispute?
• The cost benefit position
• What are the funding options?
• How can you try and force a settlement of the dispute?
• Alternative Dispute Resolution (“ADR”)

Is there a contract?

Clearly it pays to have a clear, well written agreement in place that captures what the parties doing business together intended. However, often when a dispute arises there is no signed contract in place – just a series of emails and/or conversations passing between one party and another.

If so, gather all relevant emails together and get early advice on whether those exchanges may amount to a legally binding contract.

If there is a contract in place, consider:

• Who are the contracting parties?
• What parts of the contract have been breached?
• Are there any exclusion clauses that limit and /or exclude liability (and if so, are such clauses enforceable?)
• Are there potential grounds for a counterclaim?

Is there a dispute resolution clause?

Your contract may include a clause specifying how any disputes must be resolved – such as through the courts. But check if you first need to try and negotiate a settlement of the dispute informally and whether you need to follow any “pre-action protocols” (explained in the paragraph below) before bringing proceedings.

Note that pre-action protocols may still apply even if the contract doesn’t expressly say anything about them.

Pre-action protocols

Now imagine that your informal “without prejudice” attempts to settle a dispute have been unsuccessful. What now?

Usually the next step –importantly to be taken before any court proceedings are started – is to comply with the relevant “pre-action protocol” mentioned in the paragraph above.

Pre-action protocols are a set of prescribed steps that parties to a litigation must follow before issuing a claim. Their purpose is to encourage a full exchange of information, encourage parties to settle before proceedings are commenced, or if not, to at least zero in on the issues in dispute so that the court proceedings can run efficiently. They are based on an underlying principle that litigation should always be a last resort.

The protocols are therefore intended to take some of the heat and emotion out of a dispute by:

• Requiring the party wishing to start legal proceedings (the Claimant) to set out concisely its claim in writing to the other party to a dispute (the Defendant)
• Allowing the Defendant, a reasonable time to respond to that claim – typically 14 days in a straightforward case and no more than three months in a very complex case, and
• Requiring parties to consider whether a form of Alternative Dispute Resolution could be used to try and reach a settlement of their dispute

Failure to comply with pre-action protocols can be serious.  For example, a court may impose a range of sanctions for non-compliance, including:

• Putting the court proceedings on hold until necessary steps have been taken to comply with the relevant protocols, and
• Making a costs order against the non-compliant party requiring them to pay some or all the costs of the other party

Rules of engagement- What rules apply to your dispute?

Different courts have different rules. So understanding what rules and procedures will apply is crucial in determining how quickly that dispute might take to be resolved and at what cost.

For disputes referred to litigation, a set of procedural rules known as the Civil Procedure Rules or CPR will apply mainly according to the value and complexity of the claim.

Crucially, those rules will affect your dispute in terms of:

• How much court time and cost will be allowed by the court for resolving your dispute
• What costs you might recover if you are “successful” and what costs you might have to pay if you are “unsuccessful”, and
• Understanding what other remedies might be available in respect of that dispute – such as whether you might get an injunction restraining the other party from taking certain actions or compelling them to follow through on certain obligations

The value of the dispute

Typically, for litigation purposes, claims between £10,000 and £25,000 are likely to be allocated to the “fast track” and (for now at least) claims above £25,000 are likely to be allocated to the “multi track”. The relevant track determines how much court time and cost will be allowed for resolving your dispute, so an early appraisal should help in managing the dispute.

But be aware that the value of a dispute may change, such as where a defendant brings a counterclaim, or where elements of a dispute are struck out.

Review the cost benefit position

Once you’re in the system responding to each wave of arguments made back and forth during proceedings, it’s easy to lose sight of the big picture.

Review the likely cost of bringing or defending a claim when measured against the costs of prosecuting or defending that claim. Factor in too the potential loss of management time. Keep this cost benefit analysis under   review on a regular basis.

What are the funding options?

As an alternative to, or sometimes combined with, the traditional retainer between a client and solicitor, consider what options there are for funding commercial disputes in the civil courts; including damages-based agreements, conditional fee agreements, legal expenses insurance or third-party funding arrangements.

Forcing a settlement

“Part 36 offers” are one of the most important tactical steps that litigation parties can take in commercial disputes. Claimants and Defendants may both use such offers as a way of trying to force a settlement.

There may be significant cost implications for the party that fails to beat  a Part 36 offer, so getting an early evaluation as to your chances of winning or losing a dispute is essential.

Alternative Dispute Resolution (“ADR”)

Consider the use of ADR (such as mediation, conciliation and expert determination) to settle commercial disputes because it can have the following general benefits:

• Saving time and costs
• Flexibility, choice and control
• Confidentiality
• Maintaining positive business relationships
• The likelihood of achieving a settlement

Read this article for a good introduction to other forms of dispute resolution and this article with top tips on dealing with disputes, for a more tactical perspective.