Alternatives to litigation

Written by Sarah Pooley
16 September 04

The popular perception about court litigation is that it is time consuming, stressful, costly, risky and only the lawyers ultimately benefit. Unfortunately, those assumptions are largely correct.

However, as long as there are agency agreements, there will be disputes. But not all agency disputes are worth litigation. The question that should always be remembered is whether the amount of money (or reputation) justifies the resources spent on it. Because the process often takes a long time, business can suffer in several ways: not only in terms of funding but also in terms of your own downtime, bad publicity and lost opportunity. Also, agency relationships might be compromised or even lost in the process. It is hardly surprising that alternative means of resolving disputes are constantly being explored and developed. Apart from straightforward negotiations, there are two well established alternatives to court litigation: the first is mediation and the second is arbitration.

Mediation

Mediation has become increasingly popular in the UK in the last few years and, although the concept is by no means new, only recently have the UK courts been actively encouraging parties to mediate disputes. In fact, in certain circumstances, the courts have gone so far as to penalise a party in costs for refusing at least to try it.

Key features

Mediation is essentially a process through which the parties to a dispute are encouraged to broker their own deal with the assistance of a neutral third party and usually their solicitors. What distinguishes mediation from most other forms of dispute resolution is that the mediator will usually encourage the parties to focus on their underlying concerns and needs and not purely the strengths and weaknesses of their case. The parties decide who the mediator should be and both sides will commonly share the mediator’s fee.

The mediation process is entirely non-binding and conducted “without prejudice”. The parties must all agree to it in the first place, they cannot be forced to accept any settlement offer and are free to pull out at any time. As the process is conducted on a “without prejudice” basis, any statements or admissions a party makes during a mediation cannot later be used against that party should the mediation fail and the matter end up in court.

Procedure

The mediator will usually begin by giving each party an opportunity to make an opening statement and to vent their views and frustrations in each other’s presence. The parties are usually then split into separate rooms and the mediator will spend time with each of them in turn.

What often happens is that the parties, with the help of the mediator, come up with a way of settling the dispute which neither had previously considered. This can often mean a continuation of the agency relationship.

Is mediation appropriate for every type of dispute?

If, for instance, a principal has absolutely no grounds on which to dispute an agent’s entitlement to compensation. In such cases there are far more robust, and usually quicker, steps which an agent could take such as serving a statutory demand or seeking summary judgment through the courts.

Key considerations when considering mediation

• What is the claim worth? If it has a low value (say less than £10,000), it would probably not be worth going to mediation. The mediation itself is likely to cost almost that much and a result is not guaranteed. 
• Is the case factually complicated? Where the facts and circumstances surrounding a dispute are vague or complicated, it is likely that you and your solicitors will have to spend a disproportionate amount of time investigating all the details. This makes court proceedings costly and very risky and in such cases mediation which adopts a more broad-brush approach may well be a better option. 
• Are the legal merits clear cut? If your dispute involves an unclear or as yet undetermined area of law, litigation will again be risky and early mediation may therefore be preferable. 
• Do you want to resolve the dispute early? Of course everyone generally does, but there may be very pressing reasons to do so in certain cases. The downtime which litigation often involves may mean that work cannot continue or be completed on more important projects.
• Would you like to maintain the agency relationship with the other party to the dispute? Mediations generally don’t produce clear winners and losers but both parties usually walk away feeling that something was achieved. This is more conducive to preserving agency relationships and it is not uncommon for new agency contracts to emerge from mediations, or for existing agency contracts to be revised. 
• Is privacy important? Mediations are conducted in strict privacy. 
• Do you have commercially sensitive information which you would otherwise have to disclose in court proceedings? Even though the other party in court proceedings will be under a duty not to use the information for anything but the litigation itself, you may still feel very uncomfortable with disclosing it. There are no disclosure duties in mediation and you cannot be forced to disclose anything they do not want to.

What a mediation usually requires in order to succeed is that the parties come with an open mind, are willing to compromise in at least some respects and have a genuine desire to walk out with a result.

Arbitration

There are a number of factors which arbitrations share with mediations:

• Arbitrations are strictly private.
• The arbitrator can be chosen by the parties. This can be especially useful in disputes involving specific technical issues. The parties can choose an arbitrator with the requisite knowledge and expertise who will be better equipped than the average high court judge to understand the issues. But the parties need to pay the arbitrator’s fees themselves which can be considerable. 
• Arbitrations are controlled by the parties themselves. They follow their own procedural rules and can be heard at a time and place that suits everyone.

However, there are a number of respects in which arbitrations and mediations differ fundamentally:

1. It is important to remember that arbitrations are binding on the parties. A disgruntled party cannot simply pull out if they don’t like the direction it’s taking. Once the process has begun, the arbitrator has powers that closely resemble that of a court judge and can compel parties to take certain steps.
2. At the end of an arbitration hearing, the arbitrator will make a judgment (known as an award). The parties are bound to accept this award and, although they may appeal to the courts, the grounds on which they may do so are fairly limited. A party in whose favour an award is made can have the award enforced by the courts if necessary. Arbitration awards can be recognised and enforced in many countries around the world.

In summary, although both mediations and arbitrations are private and agreed, arbitrations are adversarial, binding and governed by rules of procedure while mediations are not. This means that in practice they amount to nothing other than “private litigation”. Although they can often be quicker and cheaper than court litigation, this is by no means always the case.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Sarah Pooley or any member of the Fox Williams’ agentlaw team (www.agentlaw.co.uk).