Most commercial disputes where the amount at stake is in excess of £50,000 are heard in the High Court which has various different divisions and specialist courts which cater for different types of work.
Cases are heard usually by one judge in public (and statements of case are also open to public scrutiny - a disadvantage over, for example, arbitration) with a right of appeal on the law to the Court of Appeal and (leaving to one side possible appeals to Europe) the House of Lords as the ultimate appeal tribunal.
Following the Woolf Reforms some 10 years ago, Civil Procedure Rules (Rules) and protocols have been implemented to encourage the exchange of detailed information before the issue of proceedings, to discourage litigation by ambush, to regulate the conduct of litigation and to encourage the concept that litigation should be seen as a "last resort". The Rules encourage more interventionist judging and the concept that a case will proceed at the pace dictated by the court and not just the parties.
After 10 years, a view is emerging that the Woolf Reforms have been helpful in creating a more efficient and interventionist litigation system but have led to the front end loading of litigation. Parties to threatened or actual litigation are spending more money than historically was the case in preparing their claims or defences and doing so before the claim form is issued. This has cashflow disadvantages. Arguably it brings with it the advantage that parties to actual or threatened litigation have more and earlier knowledge of their own positions, and those of their opponents, than has been the case in the past. This should inform attitudes to litigation and possible settlement. There is, however, a current debate as to whether the Woolf Reforms have led to any overall or substantial saving of costs. The continuing concern at the high level of costs incurred in major pieces of litigation has led to a root and branch review of civil litigation costs being undertaken by Lord Justice Jackson with his final recommendations due to be published in December 2009.
The Woolf Reforms also encourage 'alternative dispute resolution' - ADR. There is a developing trend of judges encouraging parties to resolve litigated disputes by some method of ADR with potential cost sanctions if they unreasonably refuse to do so. Judges will also enforce agreements to mediate and freeze litigation started in disregard of such agreements.
Possibly one of the most significant practical changes under the Woolf Reforms was the provision enabling a claimant (in addition to a defendant which was always the case) to make a procedural offer under the Rules to settle claims - a Part 36 offer. The advantage of such an offer is that it allows a claimant to exert pressure on a defendant to settle a claim. More detail on part 36 offers can be found in Part 13 of our litigation survival guide - offers to settle under Part 36.
ADR and Mediation
Mediation is an example of ADR - probably the best known and most widely used. In a classic mediation, the parties agree (or have nominated for them) a mediator to act as an independent neutral to bring the parties together in a without prejudice and confidential framework to see whether common ground can be reached and a settlement achieved. The mediator facilitates a settlement - he/she does not decide anything.
The advantages of mediation are that it creates a focus for informed debate between the parties and, in particular, the decision makers at an early stage before costs can run away; it is private and confidential and without prejudice; it can promote settlement and the preservation of commercial relations between warring parties which would otherwise almost inevitably be damaged as a result of a sustained period of litigation and a trial; and it can create flexible results - more flexible than a High Court judge can create, who can only properly answer questions such as "who is liable" and "for how much?".
Therefore, for example, a mediated solution to a dispute could include not only the payment of money from one party to the other, but also a method of regulating their future trading together, the awarding of contracts, the admission to a tender list, an apology and so on.
The disadvantages of mediation are that the parties are inevitably taking views on the merits of their case and the merits of their opponent's case without full knowledge; there is no 'day in court' and no issue of factual or legal principle will be decided. Mediation can take place at any stage before (or even sometimes during) trial of a litigated case. The earlier it takes place, then the less likely the parties will be to know what evidence will form the basis of their witness statements, their opponent's witness statements, expert reports, disclosure and so on.
Inevitably, and, some commentators would argue increasingly, some parties approach mediation in a cynical state of mind with no intention to attempt a settlement, but with an intention to learn more about their opponent's case - that sort of knowledge, even on a without prejudice basis, can inform future tactics, the amount of a Part 36 offer and so forth.
If mediation is successful it will lead to the settlement of the claim and confidentiality can be preserved as part of that settlement (further detail on settlement can be found in parts 16 and 17 of our litigation survival guide - that's settled then! and keeping your settlement confidential). Typically a settlement is signed there and then. The whole mediation process is itself confidential and any solution which is reached is one which is owned by the parties, is one they have agreed to and is not one which has been forced upon them by an external agency, such as a judge or an arbitrator.
There is a growing trend of case law which is designed to encourage parties to mediate because there may be costs sanctions if they unreasonably refuse to do so, and the decision in Malmesbury and others v Strutt & Parker indicates that the court can look at a party's conduct in a mediation in certain limited circumstances when considering the question of the award of costs. Further detail on this case can be found in our alert to waive (privilege) or not to waive? - that is the question.
Other methods of ADR include Early Neutral Evaluation (where for example a retired judge gives a binding or non-binding view to the parties on likely outcome at trial) or mini-trial (an accelerated form of trial where issues of fact, law or expert opinion are canvassed, sometimes in front of executives of the opposing parties rather than a judge).
It is fair to say that mediation is by far the most popular form of ADR in the UK, at least at the moment. There has been some recent but limited growth in use of Early Neutral Evaluation, but from a low base.
Where parties to a contract agree to arbitrate any differences, the courts will enforce it as long as it is incorporated into the contract and its wording is sufficient to cover the issues in dispute.
Parties to international commercial contracts regularly agree (or have no alternative but to agree) arbitration clauses. Choice of law and dispute resolution clauses are regularly fought over in commercial negotiations. Whereas a non-UK contracting party may agree for a dispute to be governed by English law, it is quite likely that that party will insist on arbitration rules promulgated by institutions such as The International Chamber of Commerce (ICC), The London Court of International Arbitration (LCIA), UNCITRAL, The American Arbitration Association (AAA) or The China International Economic and Trade Arbitration Commission (CIETAC) (see below) to govern the resolution of any such dispute.
Although in negotiating and drafting commercial contracts the parties quite understandably do not want to major on what will happen if the contract goes wrong, time and attention spent on the proper drafting of an arbitration clause will repay dividends in such an event.
The various arbitral institutions all have their own rules for arbitrations under their aegis. There are a growing number of such institutions, reflecting the growth of the global economy.
The advantages of arbitration are that it is confidential, relatively quick, gives more party control, convenience of seat and hearing location, finality and therefore better costs predictability, neutrality and the parties can chose their own arbitrators or at least choose a body which is going to appoint their arbitrators. In addition, arbitration awards are more readily enforceable around the world than English High Court judgments because of the effect of the New York Convention of 1958.
Disadvantages of arbitration include the fact that it is no less costly than High Court litigation, the views and deliberations of arbitrators may be less intellectually robust than the equivalent High Court judge, interim measures such as injunctions are more difficult to obtain, no legal precedents are established because awards are not published and, although there is finality, this comes at a price - rights of appeal against an arbitration award are more limited than its High Court equivalent.
The principal International Arbitration Institutions include:
This is one of the longest established major international commercial arbitration institutions. The fees it charges are not based on the sums in issue.
This is perhaps the most well known and used of the international arbitration institutions. The ICC's International Court of Arbitration was established in 1923. Its rules provide for Terms of Reference and for scrutiny of awards by the ICC Court. Its fees are based on the sums in issue (claim and counterclaim, if relevant).
The AAA was founded in 1926 and is based in New York with regional offices throughout the US. It is the leading arbitration institution in the US and in 1991 it promoted the International Arbitration Rules which are largely based upon the UNCITRAL Arbitration Rules.
The current arbitration rules published by CIETAC came into force in 2005. From a case load perspective CIETAC is one of the busiest international arbitration institutions in the world.
e.Arbitration Institute of the Stockholm Chamber of Commerce (SCC)
Established in 1917, the Institute is an independent entity within the SCC and has grown in status over the last 30 years, particularly to its current position as a leading centre for the resolution of East - West trade disputes and a leading international arbitration institution with activities in over 40 countries worldwide.
Its revised rules came into force on 1 January 2007.
f.World Intellectual Property Organisation (WIPO)
WIPO is based in Geneva and as its name suggests its primary area of operation is in intellectual property disputes. It has pioneered a number of dispute resolution systems including a domain name dispute resolution system.
g.The UNCITRAL Arbitration Rules
These are primarily intended for use in ad hoc arbitrations where the parties have not therefore necessarily agreed any procedural framework. The rules are designed to provide an acceptable procedure in a worldwide context and have achieved considerable acceptability.
This is a process whereby the parties agree, either in their original contract or on an ad hoc basis when a dispute arises, to ask an expert to determine who is right and who is wrong. The procedure is usually simpler and therefore less costly than litigation or arbitration and gives the parties flexibility to agree the precise remit and scope of authority of the expert.
Particularly in technical disputes and/or where a substantial contract is still continuing and the parties need to know the answer to a technical question quickly, expert determination can be a very powerful tool.
The parties to the dispute are free to decide themselves as to whether the expert determination will be binding or non-binding, and normally the whole process will be confidential, unless and until one party has to apply to court for some form of enforcement of a determination.
So the advantages are speed, efficiency of result, particularly in a technical dispute and reduced cost; the disadvantages include the summary nature of the result and the fact that an expert's determination can only be challenged on limited and unusual grounds such as bias, deceit or an expert acting ultra vires.
Therefore, for most practical purposes, the decision of an expert is not challengeable by a dissatisfied party.
In Owen Pell Limited v. Bindi (London) Limited 2008 the court stressed how unusual it is to overturn an expert's determination even if both parties consider that the decision was wrong. Read our analysis of this case for further detail - expert determination: court refuses escape route from a final and binding decision.