Alternatives to Litigation

There are no prizes for taking a case to Court. In most cases there are much better alternatives to litigation. Our job is to find those alternatives to litigation and implement the solution.

Finding alternatives to litigation

Assessing alternatives to litigation

It is not uncommon for costs in some cases to exceed the potential benefits. For example, a complex claim worth £1m could easily cost more than that to run in Court. The general rule is that the winner recovers its legal costs from the loser. But the recovery is never 100% and generally falls between 60% – 80% of the total legal costs.  So, alternatives to litigation should be found.

Legal cost risk

All costs have to be reasonably incurred and proportionate.  Use of expensive lawyers when more reasonably priced lawyers have the skills is increasingly dangerous.  The risk is that you are forced to pay some or all of the other side’s legal bill. This is even if you win the case.

If you are receiving threatening correspondence from the other side and sometimes wild claims it can be easy to lose sight of proportionality.  Our experience will rein you in.

Lines of attack

When dealing with a case, it is our job to conduct a cost/benefit analysis. We can then tell you how we think the dispute can be resolved. Often this will involve two streams of attack as follows:

  1. Off the record discussions – whereby we attempt to resolve the dispute; and
  2. On the record steps – these are matters that will be placed before a Court in the event a trial is held. Letters of claim fall within this bracket.

Sometimes we ramp up the pressure on the other side knowing that they or you do not want the case to end up in Court. The reason is this can then open a route to settlement or other alternatives to litigation.

Alternative to litigation tactics

We find the best tactics to deploy to find alternatives to litigation include:

  • Building a strong case; and
  • Wise choice of pitching an offer.

Building a strong case

We need to build a case to get the Judge on side. This usually requires creating a decent document and correspondence trail.

Example of how to go about building a strong case

For example, consider a group of minority shareholders aggrieved with a sole director’s breach of duty by paying himself an unjustifiable large salary reducing profits otherwise available as a dividend. The minority shareholders do not know how much the director has paid himself but want to exit the business. We might consider:

  1. Asking the director to disclose financial records and offering to meet associated expenses;
  2. Offering to attend the company’s premises and review financial documents;
  3. Suggesting that an independent auditor reviews the salary payments and prepares a report;
  4. Joint agreement for an independent valuer to value the minority shareholders’ shares for the company/director to then buy them.

Evidence for court

A wise solicitor would advise the director to entertain the methods of resolution. However, if no settlement is reached, using the Court may be the only means of resolving the dispute. Having built a case by carefully presented communications we would be in a position to present a stream of correspondence showing the Judge that we have exhausted all options to resolve the dispute. This then works to the shareholders’ favour upon a Judge considering costs.

Use of offers

Court rules are designed to facilitate early settlement. If an offer to settle is made in a certain way, and a party rejects it, the rejecting party can face severe cost penalties come trial if (i) the rejecting party loses altogether or (ii) the rejecting party wins but does not beat the offer submitted.

Therefore, even if you win a case, you could still face cost penalties.

Using mediation as an alternative to litigation

Many people do not realise that mediation is a successful alternative to litigation and resolves disputes in a great many cases.  With such a high success rate mediation should be seriously considered.

Basic idea behind mediation

The basic idea is an independent third party assists:

  • Each party understand the other’s point of view,
  • By suggesting settlement options the parties may not have considered,
  • In brokering an agreed settlement.

Mediators are often, but not always, trained lawyers. For example consider a shareholder dispute. Here an active or retired commercial solicitor with appropriate mediation training and experience might be ideal.

Advantages of mediation

Mediation is becoming an increasingly common method of dispute resolution, because:

  • Confidentiality and privilege are fundamental to mediation. The private nature prevents court enforced precedents which are often unworkable;
  • Mediators are known for their commercial acumen, and can often bring a “business brain” to a legal dispute, which a case hardened judge may not;
  • A mediator can help the parties through deadlock that has been created by one or the other’s unreasonable stance;
  • Communication between the parties can be facilitated through a neutral third party;
  • Long-term relationships, arrangements in small or specialist markets, joint ventures and working relationships can be restored or enhanced;
  • Mediation is inexpensive compared to immediate court proceedings;
  • The process is flexible, culturally sensitive and adaptable; and
  • The client’s commercial and technical interests and aims can be achieved through mediation. A case hardened judge is often not the most commercially astute.

Even if the mediation proves unsuccessful, the parties are likely to have benefited through having the opportunity to listen to each other’s views, which in turn narrows the issues in dispute.

Mediation leaves you in control

An attraction of mediation is that ultimately, the parties are in control of the decision and the terms of the resolution. Unlike the position with a Court hearing or arbitration a decision is not forced upon the parties.  All decisions reached via mediation have to be consensual.

Mediation is voluntary. Although, as will be seen, failure to partake in mediation can have severe cost penalties if the case reaches Court.

Selecting a mediator

Once the parties have agreed to mediate, the parties can either select a mediator themselves or request an ADR organisation, such as the Centre for Effective Dispute Resolution (“CEDR”), to appoint a mediator on their behalf. A venue will have to be selected and it is common for one of the parties’ solicitors to hold the mediation at their offices.

A mediator’s costs will usually be shared between the parties. The parties will also agree to pay their own legal fees in respect of the mediation. If the mediation fails, the costs may be considered as part of a party’s costs in the case come trial.

The mediation hearing

Before the mediation, the parties’ solicitors will often prepare a bundle of documents to be submitted to the mediator in preparation for the mediation itself. Not only does this save time, it gives the mediator the opportunity to understand the merits of each party’s case from the outset.

Arbitration as an alternative to litigation

Arbitration can be an alternative to litigation. Arbitration is conducted under a statutory framework and is usually presided over by a former Judge or expert barrister. The arbitrator’s decision is binding on the parties and there is a set process for the parties to follow which is not dissimilar to the Court process involving disclosure of documents.

Arbitration clauses requiring the parties to arbitrate in the event of a dispute are common in shipping, oil, gas, insurance, property, and aviation contracts. Arbitration is more suited to technical disputes involving complex issues on fault. Arbitration is not as flexible as mediation which means that it is less commonly used in practice.

Penalties of not seeking alternatives to litigation

Court of Appeal guidance indicates that a party who unreasonably refuses an offer to mediate or settle risks an adverse finding on costs.  The cost implications are:

  • Even if they win – the legal bill payable by the losing side can be reduced.
  • If unsuccessful, the court may order the loser to pay all of the winner’s legal costs, and not just a proportion of them.

Refusing to seek alternatives to litigation

Given such severe costs penalties, parties must be sure of their position before refusing to consider ways to settle. Over recent years the following, seemingly reasonable, arguments have been advanced:

  • It’s a win lose situation – there’s no middle ground;
  • The parties are too far apart;
  • It’s a black and white matter of contractual interpretation. This requires a judge to decide;
  • The parties hate each other and won’t negotiate;
  • The party wants his “day in court” to prove they are right;
  • The other side hasn’t fully particularised their case and we haven’t seen all the documents;
  • We reasonably believe the other side’s case has no merit.

These arguments are usually unsuccessful in Court.  This means that reliance on what will be regarded as an excuse will not remove the risk of facing an order from the Court to pay the other side’s legal bill in whole or part.

  • Having been through the court process before, we were keen to avoid action. Gannons brokered a settlement for us, and we were delighted with the outcome.

  • Costs were important to us. John repeatedly suggested mediation to the defendant which meant we eventually resolved the dispute without the need for court.