Disputes can be messy, time-consuming and expensive for smaller businesses without the necessary resources and experience required to navigate them efficiently and effectively.
Litigation has long been the only solution for small businesses resolving disputes, whether between themselves and individuals or even between businesses. Now, however, mediation has emerged as an alternative method of dispute resolution.
Evaluating the options
Mediation allows the parties to agree how the matter is resolved, which means that solutions can be a win/win situation, whereas in litigation, the outcome is imposed on the parties where there is one winner and one loser.
When it comes to commercial dispute resolution, small businesses should first of all consider informal dialogue with the companies with whom they potentially have a dispute. If this is unsuccessful, a more formal approach should then be attempted, such as a joint settlement meeting (with legal advisors but without a mediator), or a mediation.
Mediation will often be a lower cost solution and can take place at any time. It can be a particularly suitable option just before formal proceedings have started (when all parties have stated their case), or immediately before a trial, which is when the major costs will be incurred. By taking take part in mediation before proceedings commence, court fees and legal costs can hopefully be avoided.
Mediation in practice
The standard process for mediation generally involves an initial meeting with all parties and the mediator to focus all minds on settlement, balanced with the potential cost of litigation or a trial, if the mediation is unsuccessful. Litigation is not only costly in terms of legal fees and disbursements, but also costs a company a significant amount of management time and takes focus away from the business.
Those taking part in mediation have free reign over key decisions, such as who the mediator is and where the mediation will take place. The terms discussed during the mediation (and any settlement) are kept confidential, which could prevent potentially sensitive commercial information or outcomes being made public and avert the risk of any reputational issues from being aired during a public trial.
Parties in mediation can negotiate flexible outcomes (for example obtaining credit notes, performing works for no extra charge, and exploring new business opportunities to allow parties to preserve business relationships).
If a client is involved in a dispute that risks the integrity of a long-standing relationship, mediation can also bring value by facilitating dialogue (allowing terms to be renegotiated), which means that these relationships can be salvaged and trade may continue if both parties are in agreement. If communication has broken down, encouraging the respective managing directors to meet and speak to each other can allow misunderstandings to be resolved more easily.
The disputing parties are ultimately in control of the decision to settle and the terms of resolution, but it should be noted that mediation may also encourage openness about each party’s strengths and weaknesses of their case. This can help manage expectations, encourage parties to have empathy for each other’s positions and work together to come to an amicable and commercial resolution.
The resolution of choice for small businesses
No form of dispute resolution provides completely guaranteed success, and although mediation does not always result in a resolution on the day, quite often our experience has shown that the effect of having the parties focus their minds on the issue means that a resolution is reached soon after. This approach encourages participating parties to consider their desired outcomes and the merits of the dispute realistically, away from the pressured environment of the courtroom, and to find a commercially mutually acceptable solution for all parties.
As courts increasingly impose costs sanctions if a request to mediate is refused unreasonably, the problem-solving approach of mediation, together with confidentiality in the discussions, makes it an attractive and commercial method for resolving business disputes and getting the focus back on growing the company. For these reasons, SMEs should consider mediation as their first port of call for dispute resolution.
Elaine Chan and Tony Winterburn are partners in the commercial litigation team in the Manchester office of Ward Hadaway.