Knowing how to resolve business disputes is a vital part of running your business. Disputes can arise when dealing with other businesses, subcontractors, customers, or suppliers, and if they aren’t resolved quickly and proactively they can result in lengthy and costly court proceedings.
When deciding how to resolve a business dispute, it’s important to try to negotiate a resolution and/or try alternative methods like mediation or arbitration before taking court proceedings. Not only could you save time and money, if you do end up in court the judge will take into account whether you tried to resolve the matter using other methods first.
This blog provides guidance on how to resolve a business dispute, including using negotiation and offers to settle, mediation, arbitration, and/or going to court as a last resort.
How to resolve business disputes
You should always consider alternatives to resolve your business dispute before commencing any legal action. Otherwise, even if you go on to win your case at court, the court can order you to pay some of the other side’s legal costs, or reduce the amount of costs that they have to pay you. Additionally, going to court is generally the most expensive, time-consuming, public and stressful method of dispute resolution.
Note that if your dispute is based on a written contract, it may specify what you have to do in the event of a dispute, in which case you must usually follow what it says.
We’ve set out below some methods of proactively resolving business disputes that can be attempted before taking legal action.
1. Negotiation and offers to settle
Informal negotiations can be a valuable and efficient way of resolving business disputes. You may negotiate by email or in person, and it’s important to stay calm and respectful during negotiations.
If the other side sends you a settlement offer, you should take time to consider the settlement’s terms carefully. It’s important to consider:
- the impact on your business of refusing the offer (keeping in mind the time, focus, and costs a legal dispute can take away from business development and operations);
- any need to maintain a working relationship with the other side; and
- the financial consequences of not accepting the offer. If the matter escalates to court and you are ordered to pay less than they offered, you will normally be penalised (except in the case of a small claim, where the court usually doesn’t penalise you).
If you receive a settlement offer, check whether it’s labelled as a ‘Part 36 offer’ (explained further below).
Part 36 offers
A Part 36 offer is a special type of offer to settle a dispute with specific legal consequences attached to your acceptance or refusal of the offer.
When considering a Part 36 offer to resolve business disputes, it is important to keep in mind:
- the rights and wrongs of the situation, alongside the impact on your business of standing your ground;
- the consequences of accepting the offer – acceptance of a Part 36 offer normally requires the paying party to cover the legal costs of the receiving party; and
- the potential consequences of not accepting if the matter proceeds to court. If you ultimately do less well than the offer, you will be penalised, unless the matter is a small claim (simple and worth less than £10 000). This penalty can include interest, legal costs and penalty charges. See our Q&A for further guidance on Part 36 offers.
2. Writing a letter before action
Note that there are certain rules around the steps you must take before bringing legal action against someone. This is called ‘pre-action conduct’ and the full set of rules can be found on the Ministry of Justice’s website. One key requirement is that you must send a letter before action to the other party, which is your opportunity to explain what has gone wrong and what you want the other side to do or pay to make it right.
Unless you intend to run any legal proceedings yourself (eg if it is a simple small claim worth £10,000 or less), it is advisable to have a lawyer draft this letter for you. If your matter is a small claim, see Starting a claim against someone else for guidance on writing your own letter before action, including templates you can use.
3. Mediation
Mediation is a voluntary process by which an independent third party, called a mediator, helps two or more parties in a dispute come to a mutually acceptable agreement or arrangement. Mediations can take place at a physical location or via video or tele-conferencing. Mediation can be a quicker and cheaper way of resolving a dispute, as it usually only takes a day or two.
Additionally, as it is not a legal procedure, you and the opposing side can agree an outcome, as opposed to having a judge’s decision imposed on you.
The cost of mediation (without a lawyer) will usually be the mediator’s fee and associated costs, such as hiring a venue. Typical mediators’ fees range from a few hundred pounds to a few thousand pounds. The costs of the mediator and location are usually divided equally between the parties, although you can agree a different divide if you want to.
Another benefit of mediation is that if a resolution isn’t agreed, everything that was said and done during it is confidential. This means that in any legal action, the judge won’t be told what went on at the mediation.
Note that if you behave unreasonably in refusing to mediate and the matter ends up in court, you may be ordered to pay more of the other side’s legal costs, or have to pay more of your own costs than you would have otherwise. These consequences don’t normally apply if the dispute is worth £10,000 or less (a small claim).
4. Arbitration
Arbitration is a form of alternative dispute resolution in which the parties agree to allow an independent and impartial person (the arbitrator) to decide how their legal dispute should be resolved. It is important to note that any decision made by an arbitrator is legally binding on the parties. Arbitration is usually chosen to resolve larger-scale business disputes without the expense and publicity of going to trial.
If you and the other party have a written agreement to agree to an arbitration to resolve business disputes, you can’t refuse an invitation to arbitrate. If you don’t have a written agreement to arbitrate, it is up to you whether you wish to arbitrate or not.
Arbitration can be cheaper than going to court, but not always, especially in small or low-value matters. It is certainly not cheap — the arbitrator will usually charge between £250 and £750 per hour. You are likely to want a lawyer to represent you at an arbitration, just as you would in most court cases, so they must be paid for too.
5. Legal action to resolve business disputes
You should always consider alternatives before commencing any legal action. However, for straightforward disputes worth £10,000 or less, you can bring a comparatively quick and cheap small claim yourself in the County Court. You do not need a lawyer to do this, although you can hire one if you wish. See our recent blogs on what a small claim is and how much it costs to bring a small claim, for further guidance.
For any claim that is not a small claim, going to court is expensive. The exact cost of bringing a claim to court is not predictable, but you can expect to pay your lawyer’s fees and a court fee upfront, as well as additional fees payable to the court as your claim progresses.
The content in this article is up to date at the date of publishing. The information provided is intended only for information purposes, and is not for the purpose of providing legal advice. Sparqa Legal’s Terms of Use apply.
Marion joined Sparqa Legal as a Senior Legal Editor in 2018. She previously worked as a corporate/commercial lawyer for five years at one of New Zealand’s leading law firms, Kensington Swan (now Dentons Kensington Swan), and as an in-house legal consultant for a UK tech company. Marion regularly writes for Sparqa’s blog, contributing across its commercial, IP and health and safety law content.