Why consider alternative dispute resolutions prior to litigation
During a dispute, it is relatively common for those involved to consider legal proceedings early on, sometimes seeing court action as a way to encourage cooperation from the other side.
However, threatening court action is not always the most practical solution, as it can be effective but isn’t always necessary, and litigation can increase costs and delay resolution.
Before commencing proceedings, it is sensible to consider whether alternative approaches could provide you with a quicker and ultimately more cost-effective outcome.
Civil procedure rules (CPR): what is it?
The litigation process in England and Wales is governed by the Civil Procedure Rules (CPR).
Under the CPR, parties are required to consider whether negotiation or another form of Alternative Dispute Resolution (ADR) could be the answer to resolving the dispute without having to go through court proceedings.
Issuing proceedings should therefore be treated as a last resort in these cases and the courts expect parties to engage constructively before resorting to litigation.
Alternative dispute resolution (ADR) options
There are several forms of ADR that may help resolve disputes without going to court:
Mediation: where an independent mediator facilitates discussions
Arbitration: where an independent arbitrator (or panel) makes a binding decision
Round table meetings: direct discussions between parties can often lead to a practical and cost-effective resolution
If those involved do not consider ADR, the court may view this as unreasonable, which can lead to cost penalties, even for the successful party.
Understanding cost recovery in litigation
If ADR does not resolve the dispute and litigation goes ahead, it is important to understand how legal costs are managed.
Generally, the losing party is ordered to pay some of the winning party’s costs, yet this is often misunderstood since this is not automatic and depends on several factors, including:
The conduct of both parties
Whether reasonable settlement offers were made
Compliance with court rules and procedures
Cost recovery usually happens at the end of the case. Until then, each party is responsible for their own legal costs, including solicitor and court fees.
“How much of my legal costs can be recovered?”
Although the losing party is often required to contribute to the other side’s costs, full recovery is uncommon.
The court has discretion to decide:
Whether costs should be awarded at all
The proportion of costs that can be recovered
In most cases, the court awards about 60% to 70% of the successful party’s costs.
If costs are awarded on an indemnity basis, recovery may increase to 80% to 90%. This usually applies where the losing party has acted unreasonably, for example:
Engaging in unreasonable conduct
Obstructing genuine settlement efforts
Refusing to participate in ADR
Cost influencing factors
Several additional factors can affect how costs are assessed by the court, including, but not limited to:
Whether the successful party succeeded on all aspects of the claim
Whether any part of the claim or defence was exaggerated
Whether legal costs incurred were reasonable and proportionate
The elaborateness and duration of the case
Whether a costs management order was in place and complied with
These factors underline the need to act reasonably and proportionately throughout the dispute.
The financial risks of litigation
Losing a case can have significant financial consequences.
An unsuccessful party is responsible for its own legal costs and will usually be required to pay a proportion of the other party’s costs too.
Even at a reduced percentage, this can be a substantial amount.
Even if a case is successful, the financial and emotional costs of litigation can be considerable.
Successful parties are unlikely to recover all of their legal costs and may still be responsible for 10% to 40% of their total expenditure.
For this reason, it is important to consider whether litigation is the most appropriate course of action or whether the dispute can be resolved more efficiently by other means.
Getting legal advice for litigation
If you are in a dispute, seeking legal advice early can help you understand your options.
Our litigation solicitors can guide you through them and help you decide whether to proceed with litigation.
