Dispute Resolution Mechanisms — SQE1 FLK1 Dispute Resolution

A man is considering suing a former business partner for £75,000. He tells you he will go to court on three conditions. That no competitor learns what is said about his profit margins. That the claim is heard by someone who has worked in his industry. And that the parties fix their own timetable and depart from the rules where those rules are inconvenient.

Can the civil courts give him any of the three? No. Hearings are public, the court controls the procedure and the timetable, and nobody chooses their judge. Those three things are exactly what arbitration sells. This is Dispute Resolution Mechanisms, the first topic in Dispute Resolution, and the work is matching the process to what the client actually needs. Keep our man in mind.

Here is the route. Litigation first, and what only a court can do. Then arbitration, and what the parties buy by agreeing to it. Then mediation, where nobody decides anything but the parties. Then the pressure the court now applies to use ADR, and what it costs you to refuse. Then choosing between them. And last, without prejudice privilege and the other methods.

Three mechanisms. Litigation, arbitration, mediation. Litigation means resolving the dispute through the courts, usually the County Court or the High Court, under the Civil Procedure Rules. Four characteristics define it. It is public. It is formal. It is enforceable. And it creates precedent.

Which is why our man gets nothing he asked for. The general rule is that a hearing is to be in public, judgments are given publicly, and a non-party may generally obtain a copy of a statement of case. So a competitor could read what he says about his margins. Procedure is set by the rules, case management and listing belong to the court, and no party may select the judge.

So what does litigation give you that nothing else does? Powers. The court can compel disclosure, compel evidence, compel attendance. Its judgments are enforceable by taking control of goods, by charging orders, by third party debt orders. It creates binding precedent. There is a right of appeal, with permission. And there is legal aid for some cases.

Try one. A software company finds that a programmer who left three weeks ago took its source code to a competitor. That competitor plans to launch a product built on it within days. The managing director asks whether a mediator could stop it, or whether he should just claim damages. Neither. He needs an interim injunction, and only a court can grant one.

That is the pattern. Choose litigation when you need the court's enforcement powers, when you want a binding precedent, or when the dispute turns on a point of law of public importance. Choose it when one party needs compelling, when injunctive relief is required, or when ADR has been tried and failed.

And the price. It can be very expensive. It is often slow, months or years to trial. It is public, which may expose sensitive commercial information. It is adversarial, so it damages relationships. The loser usually pays. And the court is bound by law and procedure, so the outcomes it can give you are limited.

Arbitration next. The parties agree to refer their dispute to one or more arbitrators, who make a binding decision called an award. It is governed by the Arbitration Act 1996. Section 1 states the objective. A fair resolution of disputes by an impartial tribunal without unnecessary expense or delay. And the parties are free to agree how their disputes are resolved, subject to certain mandatory provisions.

Four features. Private, so proceedings and awards are confidential. Flexible, because the parties agree the procedure. Final, because appeal rights are very limited. And enforceable, because an award can be enforced in court like a judgment. Which is our man's list exactly. Confidentiality, an arbitrator the parties choose, and a timetable the parties set.

Choosing the decision-maker is the real prize. Section 16 leaves the appointment to the parties' agreement, so they may appoint whomever they wish, including a chemical engineer to decide a dispute about a reactor vessel. In litigation you cannot choose your judge, though a judge decides technical disputes on expert evidence every day.

Finality cuts both ways. Under s.69 an appeal lies only on a question of law arising out of the award, and only with permission or the other parties' agreement. And not at all where the parties have excluded the right, which institutional rules routinely do. A challenge for lack of jurisdiction under s.67, or serious irregularity under s.68, survives a waiver. Both are narrow.

And enforcement abroad is arbitration's trump card. Under the New York Convention the courts of a contracting state must recognise and enforce an award, and may refuse only on narrow grounds. A court judgment has no equivalent global framework: enforcement abroad depends on whatever the other state's rules allow. Where your counterparty owns nothing in this jurisdiction, that difference alone should decide the clause.

Note that the court stands behind arbitration rather than against it. Sued in breach of an arbitration agreement, you apply under s.9. The court must stay the claim unless the agreement is null and void, inoperative or incapable of being performed. No discretion. Section 44 lets the court grant urgent interim relief in support of an arbitration, even before a tribunal exists. And under s.66 an award may, with permission, be enforced in the same manner as a judgment.

The costs of all that. Arbitrator fees and venue on top of legal costs. Disclosure powers narrower than a court's. No precedent created. And because appeals are so limited, mistakes may simply stand.

Mediation is different in kind. It is a facilitated negotiation. An impartial third party helps the parties reach their own settlement, and imposes nothing. It usually starts with joint sessions where each side explains its position, then the mediator meets the parties separately, in private caucuses, to explore what a deal might look like. Everything said is without prejudice. If they settle, they sign a binding settlement agreement.

And if they do not settle, they can still go to court. That is the low-risk part. The advantages: the parties control the outcome, the process is confidential, and it is usually the fastest and cheapest of the three. Relationships can survive it, and around 70 to 80% of mediations settle. It can also produce solutions no court could order.

The limits are the mirror image. It needs a willingness to compromise. There is no guarantee of settlement, so a failed mediation costs time and money. Nothing binds anyone unless they agree. Power imbalances can affect fairness. And it is no use at all where you need an injunction.

Hold on to one difference and the whole map falls into place. In litigation a judge decides. In arbitration an arbitrator decides, chosen by the parties. In mediation the parties decide. That single difference drives cost, speed, privacy, and whether the two sides can still do business afterwards.

Now the pressure. The Civil Procedure Rules push you towards ADR, and they were sharpened on 1 October 2024. Dealing with a case justly and at proportionate cost expressly includes promoting or using alternative dispute resolution. That is CPR 1.1(2)(f). And active case management includes ordering or encouraging the parties to use, and facilitating the use of, ADR. That is CPR 1.4(2)(e).

Read that word again. Ordering. In Churchill v Merthyr Tydfil, in 2023, the Court of Appeal held that a court can lawfully stay proceedings for, or order, a non-court dispute resolution process. Two conditions. The order must not impair the very essence of the claimant's right to a judicial hearing, and it must be proportionate. Since 1 October 2024 the rules say so expressly. A party who simply objects no longer blocks it.

Then the costs. Halsey v Milton Keynes General NHS Trust is the leading authority on costs sanctions for refusing ADR, and two points from it do most of the work. First, the burden lies on the party seeking the sanction, not on the party who refused. Second, the fact of refusal is not by itself enough.

Refusal is not unreasonable where ADR had no reasonable prospect of success, or where mediation would be delayed by the need for further information. Nor where the cost of the ADR would be disproportionate to the claim. The court also weighs the nature of the dispute, the merits, and whether other settlement methods were tried.

Test that. A woman sues a kitchen installer for £18,000 over defective workmanship. His solicitors propose a two-day mediation whose fee and venue would cost about £12,000, shared equally. Within a week she declines, giving her reason, that the cost is out of all proportion to the sum in dispute, and offers a settlement meeting instead. He ignores it. She wins £16,000. Costs sanction? No.

The burden was on the installer, and a mediation costing £12,000 in an £18,000 claim is plainly disproportionate. She refused promptly, gave a reason, and proposed something cheaper. Compare the cases where refusal has been held unreasonable. Rejecting mediation out of hand without proper consideration. A dispute whose nature made it particularly suitable, an ongoing relationship for instance. A refusal resting on a misguided belief about what mediation is.

And there is a sharper rule than any of that, which comes back at the quick check. Silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, even where an outright refusal might have been justified. If you do not want to mediate, say so, and give your reasons.

Because the armoury is real. The court may deprive a party of some or all of its costs even though it won. It may order costs on the indemnity basis. It may adjust the interest payable. It may order a party to bear the costs thrown away. A win can become a serious financial loss.

So how do you choose? Six factors. Relationship: do the parties have to work together afterwards? Urgency: is immediate action needed? Expertise: does the dispute need specialist knowledge? Precedent: is a public ruling wanted? Cost: what can the client afford? And enforceability: where are the other side's assets?

Run them as a path. Is an immediate injunction needed? Then litigation, because nothing else can grant one. Is an ongoing relationship important? Then mediation first. Do you need an industry expert to decide it? Then arbitration. Otherwise, litigation. And remember what the manufacturer with forty dealers needs: a public ruling on his standard terms that he can use across the network. Only a court gives him that.

Last piece, and it protects every negotiation you will ever run. Without prejudice privilege. Communications made in a genuine attempt to settle a dispute cannot be referred to in court if the settlement fails. It is the substance that matters, not the label.

Which decides this one. A customer's managing director emails a supplier. We both know the goods were delivered and that we owe you something. But we cannot afford a fight, so we will pay £50,000 now to end this. The email carries no heading of any kind. Negotiations break down. Can the supplier put it before the court as an admission? No. It was a genuine attempt to settle, and that protection does not depend on any label.

The variant is worth learning. Head a letter without prejudice save as to costs and you qualify the protection deliberately. The letter cannot be shown to the court while liability and quantum are decided, but either party may rely on it once the court turns to costs. That is Cutts v Head.

And four other methods, one line each. Early neutral evaluation: a neutral gives a non-binding assessment of the strengths and weaknesses of each side's case. A reality check, and the court can run the process itself. Expert determination: an expert decides one specific technical issue and the decision binds as a matter of contract.

That last one is stricter than people expect. If the expert answered the question referred, a mistake in how he answered it does not reopen the determination. The court interferes only for fraud, or a material departure from instructions. Jones v Sherwood Computer Services.

Adjudication: construction's speciality, under the Housing Grants, Construction and Regeneration Act 1996. A party may refer a dispute at any time, and the adjudicator normally decides within 28 days. The decision binds until the dispute is finally determined by the court, by arbitration or by agreement. Pay now, argue later. And ombudsman schemes, free to the consumer, where the determination binds the business once the consumer accepts it, and she keeps her right to sue if she does not.

A word on how SQE1 tests this. You will not be asked to recall a case name or a rule number. You get a scenario, five answers, and one instruction. Pick the best. So learn the rules and the reasons. The names here are memory pegs, nothing more.

If you keep only three, keep these. Halsey v Milton Keynes General NHS Trust, where the burden of showing that a refusal to mediate was unreasonable sits on the party asking for the sanction. Churchill v Merthyr Tydfil, where the court gained the power to order you to the table. And CPR 1.4(2)(e), which since October 2024 says so in terms.

Four traps. One: do not say the court cannot compel ADR. That was the old position and it is gone. Since 1 October 2024 the court may order the parties to use ADR, provided that does not impair the essence of the right to a judicial hearing and is proportionate.

Two: do not reverse the burden. The party asking for a costs sanction must show the refusal was unreasonable. And do not treat a sanction as automatic once unreasonableness is shown, because the court retains a broad discretion.

Three: match the mechanism to the need, not to the mood. Only a court grants injunctions and creates precedent. Only arbitration lets the parties pick the decision-maker and travels well abroad. Only mediation lets the parties design an outcome no court could order.

Four: the label on a letter is not the privilege. A letter headed without prejudice which has nothing to do with settlement is not protected, and an unmarked email that is a genuine settlement attempt is. Ask what the communication was for.

Quick check. A claimant's solicitors write to the defendant's solicitors proposing mediation. They name three mediators, offer to pay half the cost, and suggest dates two months before trial. They write again a month later. The defendant's solicitors do not reply to either letter and give no reason. The claim goes to trial, the defendant wins and asks for its costs. Is it at risk of a costs sanction?

Three answers. One: no, because a successful defendant is entitled to its costs, and silence is not a refusal. Two: no, because a costs sanction requires an express refusal, which the defendant never gave. Three: yes, because silence in response to an invitation to mediate is itself unreasonable conduct. Pause here if you want a moment.

The answer is three. Silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, whether or not an outright refusal might have been justified. A party that does not wish to mediate should say so and give reasons. The sanction is not automatic. It lies in the court's discretion under CPR 44.2, which makes the parties' conduct relevant to any costs order.

Why the other two fail. Option one is right that success normally carries costs, but it does not protect a party from a conduct-based reduction. Option two makes the mistake the rule is aimed at. It is the absence of a reasoned refusal that is unreasonable, so no express refusal is needed.

Five things to take away. One: litigation is public, court-controlled and slow, but only a court grants injunctions, compels evidence and makes precedent. Two: arbitration is private, the parties choose the tribunal and the procedure, appeals are very limited, and an award travels abroad under the New York Convention.

Three: in mediation nobody decides but the parties, which is why it is the only process that can preserve a relationship and produce a remedy no court could order. Four: since 1 October 2024 the court may order ADR, not merely encourage it.

Five: refuse unreasonably and it costs you, even if you win, and saying nothing at all is worse than saying no. And our man with the £75,000 claim? He wanted privacy, a decision-maker who knows his trade, and his own timetable. He wanted an arbitration clause. Next time, Pre-Action Considerations.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.