Cardiff Legal

Com­mer­cial dis­putes are inev­it­able. There are com­mon fea­tures to all dis­putes — one party is more wrong than right; one or both parties will incur costs; to resolve a dis­pute takes time and effort.

Here are some types of Com­mer­cial disputes:

1. Breach of Con­tract; 2. Mis­rep­res­ent­a­tion / Mis-selling; 3. Intel­lec­tual Prop­erty (e.g. Copy­right, Trade Mark); 4. Fin­ance & Credit; 5. Unfair Com­mer­cial Practices.

But what’s the best way to resolve com­mer­cial dis­putes that are at an impasse?

Here’s a com­par­ison of two dif­fer­ent approaches to dis­pute res­ol­u­tion. Below is a brief over­view of the Small Claims Track (County Court) and Medi­ation. We’ll assess the bene­fits and draw­backs of each and try to draw some con­clu­sions from real­istic examples of typ­ical disputes.

Small Claims Track (County Court)

Some­times called “Small Claims Court”, this refers to a spe­cial pro­ced­ure for hand­ling legal dis­putes between two parties. The per­son ini­ti­at­ing a claim is the ‘Claimant’ and the per­son defend­ing a claim is the ‘Defendant’.

A Judge — either a Dis­trict (Junior level) Judge or a Cir­cuit (Senior) Judge, sit­ting alone, makes the final decision in favour of one party or the other. Only claims of £5,000 or less are dealt with in this ‘track’.

This is often referred to as an ‘Adversarial’ method, whereby the suc­cess of either party depends on their skill — or that of their advoc­ates (Soli­citor or Bar­ris­ter) — in mak­ing a more con­vin­cing argu­ment than their opponents.

The claim pro­cess occurs in stages. The Claimant applies to the court and gives their reas­ons for mak­ing a claim. The court noti­fies the Defend­ant, who must respond to say whether they wish to admit or defend the claim. If admit­ted, judge­ment is given for the Claimant. If all or part of the claim is dis­puted, the Defend­ant will be asked to state their reas­ons. The court then sends both parties a dir­ec­tion to com­plete an ‘Alloc­a­tion Questionnaire’.

They are required to sub­mit evid­ence and details of any wit­nesses they intend to rely on at a hear­ing. The court will then sched­ule a hear­ing date and both parties — or their rep­res­ent­at­ives — must attend. The schedul­ing of a hear­ing date often depends on how busy the local Court is. In Cardiff, on aver­age a hear­ing takes place within two months of the ori­ginal applic­a­tion. In other courts, the wait could be much longer.

Parties can have rep­res­ent­a­tion. How­ever, cost rules pro­hibit recov­ery of soli­citor fees in the Small Claims Track. The Judge man­ages the hear­ing, allow­ing each side to present their case in turn, before mak­ing a final decision. The Judge then decides on the appro­pri­ate legal rem­edy. This is usu­ally com­pens­a­tion, or ‘dam­ages’. The los­ing party usu­ally pays the other party’s costs.

If the judge­ment amount is not paid in a cer­tain time, they debt is recor­ded on the County Court Register as a CCJ. The win­ning party may seek to take Enforce­ment Action to recover the judge­ment debt. There is a more in-depth explan­a­tion of the Small Claims Track here.

Facil­it­at­ive Mediation

Con­trary to Small Claim action, Medi­ation is non adversarial. Medi­at­ors are usu­ally trained pro­fes­sion­als such as law­yers or coun­cil­lors whose role is to be an inter­me­di­ary between dis­put­ing parties, assist­ing them in reach­ing an agree­ment. Facil­it­at­ive Medi­ation involves the dis­putants and Medi­ator enga­ging in a con­struct­ive dia­logue, nor­mally in a neut­ral venue or via tele­phone, where the pro­cess is led by the dis­putants and mod­er­ated by the Mediator.

Medi­ation is best dis­tin­guished by what it is not. It is not a court so there is no judge and any out­come in non-judicial; The Medi­ator does not (usu­ally) make a final decision; It is up to the parties to decide if a res­ult­ing agree­ment should be leg­ally binging on them­selves; Medi­ation is informal and flex­ible in com­par­ison to court action.

As Medi­ation requires the dis­putants to have a desire to settle their dif­fer­ences, some situ­ations can­not be medi­ated. But those that engage Medi­ation are likely to be more motiv­ated to reach an out­come. Ses­sions can be arranged fairly quickly as both parties simply need to be avail­able and a venue found. This flex­ib­il­ity means that costs are gen­er­ally less than if tak­ing court action.

The pro­cess is con­fid­en­tial and the parties will be asked to sign an agree­ment to recog­nise this. Con­fid­en­ti­al­ity — and the gen­eral rule that the Medi­ator dis­cards any notes or doc­u­ments relat­ing to the Medi­ation ses­sion — ensures that the inform­a­tion shared by the dis­putants in a ses­sion can­not later be used against each other in a court.

These guidelines are import­ant if both parties are to enter the pro­cess with hon­esty and sin­cer­ity. As the aim of Medi­ation is not to see which party makes the best argu­ments, the out­come is much more likely to be mutu­ally acceptable.

Which option is right for you?

Here are two scenario’s from the real cases that we have been involved in.

Con­tractor Dispute

Party A was the main Build­ing Con­tractor in charge of a gov­ern­ment fun­ded pro­ject. Party B is a sub­con­tractor, hired to com­plete a sig­ni­fic­ant por­tion of that con­struc­tion pro­ject. The value of both the main and sub-contract were sig­ni­fic­ant. The rela­tion­ship between the parties broke down, with both sides accus­ing the other of breach­ing the con­tract. On the face of it, both seemed to have legit­im­ate and com­pet­ing claims — Con­tractor B failed to com­plete work to the required stand­ard; Con­tractor A failed to re-imburse B for the hire of Plant and Machinery used in the construction.

Both claimed con­trac­tual ‘dam­ages’ (com­pens­a­tion). Con­tractor A’s claim was far in excess of Con­tractor B’s claim due to pen­alty clauses designed to indem­nify A for delays in com­ple­tion of the main con­tract that were due to B’s sub­con­tractor duties. Due to the value of the claims and com­plex­ity of the tech­nical issues, court action would be costly.

Builder v Restaurant

Party C owned a res­taur­ant requir­ing renov­a­tion and hired Party D, a Build­ing Con­tractor, to con­duct the renov­a­tions in con­junc­tion with an inde­pend­ent Pro­ject Man­ager. A stand­ard Con­struc­tion Con­tract was agreed with pro­vi­sion for a ‘Reten­tion’ to be with­held by Party C until the work was com­pleted to a sat­is­fact­ory stand­ard and in accord­ance with the contract.

Party C com­plained that the work was incom­plete, sub­stand­ard and over­due which entitled them to apply pen­alty charges. Party D argued that delays were due to Party C’s inter­fer­ence and any qual­ity issues should have been determ­ined by the Pro­ject Man­ager. They argued that the con­tract was sub­stan­tially com­plete, there­fore Party C were only entitled to with­hold the Reten­tion until these minor issues were com­plete. Party D said they would sue for non-payment and Party C said they would coun­ter­claim for the cost of com­plet­ing the work and the pen­alty charges due under the contract.

Com­par­ison

Was either case Medi­able? Or were they more suit­able for Court?

In both cases the cost of mak­ing a court claim would have been con­sid­er­able due to the val­ues of the claim and the cer­tain need for legal representation.

Medi­ation was undoubtedly the cheaper option and an out­come could be gained far more quickly than if a court claim was issued. Both cases could be medi­ated but were the parties suf­fi­ciently motiv­ated to do so, or had the rela­tion­ships be broken bey­ond repair?

Each dis­putant thought they had a win­ning case and expec­ted com­pens­a­tion. Such a res­ult could only be achieved through an ‘Adversarial Sys­tem’, where the Judge finds in favour of one party over the other. How­ever, the dis­putants also recog­nised that there was a risk of los­ing and were there­fore open to other options, includ­ing Mediation.

So what was the outcome?

The Con­struc­tion dis­pute was Medi­ated. Both parties recog­nised the other’s com­pet­ing claim and the strong like­li­hood that they would each incur sig­ni­fic­ant legal costs along the way. There­fore, they chose the Medi­ation option and, after a long period of nego­ti­ation, reached an amic­able set­tle­ment. Party A waived their claim for dam­ages and in exchange Party B remedied their sub­stand­ard work. Party B also agreed to indem­nify most of Party A’s delay costs in exchange for the right to be re-instated as a sub­con­tractor for the remainder of the pro­ject. Both parties agreed to re-negotiate the terms of pay­ments for the hire of Party B’s plant and machinery.

The Res­taur­ant renov­a­tion was not medi­able as the rela­tion­ship between the parties was unre­cov­er­able. Party C denied the Con­tractor access to return. The Con­tractor felt this was unreas­on­able and sought full pay­ment in accord­ance with the con­tract. Both refused to nego­ti­ate or accom­mod­ate the risk of los­ing in court and wanted a Judge to decide.

The judge recog­nised that Party D was in breach of con­tract, but ruled that Party A failed to show evid­ence of the excep­tional repair costs being claimed. The Judge agreed that the out­stand­ing works were minor in nature and sub­ject to the ‘reten­tion’ only. The Judge did not agree that the pen­alty clause applied but con­cluded that Party C did con­trib­ute to the delay. There­fore, whilst he awar­ded part of Party A’s claim for com­pens­a­tion, he ‘off­set’ this against Party D’s more sub­stan­tial claim, which meant Party D received both com­pens­a­tion and costs.

Had Party C and D attemp­ted to Medi­ate their dis­pute it may have saved them con­sid­er­able cost and effort. Party C was left unhappy with the out­come (which they sub­sequently appealed), and Party D was almost Bank­rupt in the pro­cess. Neither explored the option of a more flex­ible solu­tion. The out­come also meant that the rela­tion­ship between the two parties worsened.

How­ever, the court decision was (rel­at­ively) final and there is no guar­an­tee Medi­ation would have been suc­cess­ful. In this sense, Medi­ation could still have proved costly.

Tell us what you think about Medi­ation and Small Claims action. Which option is bet­ter? Are you involved in a dis­pute that could be head­ing to Court? Would you con­sider Medi­ation instead?

Use­ful ADR Links:

Employ­ment — http://​bit​.ly/​6​Q​b​fVd

Fam­ily — http://​www​.justice​.gov​.uk/​a​b​o​u​t​/​a​l​t​e​r​n​a​t​i​v​e​d​i​s​p​u​t​e​r​e​s​o​l​u​t​i​o​n​.​htm

Gen­eral — http://​www​.adrnow​.org​.uk

Cardiff Legal

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