Factors to consider when selecting a commercial dispute resolution method

If your business becomes involved in a dispute, whether with a customer, supplier, adviser or another party with whom you have a business relationship, there will often be more than one method open to you for resolving that dispute. My colleague Ross Campbell set out the most common of those in his recent blog, and our Alternative Dispute Resolution handy guide provides further information on the most common methods of dispute resolution. But how do you choose the option that is right for you in your particular circumstances? What factors should you consider?

Step 1: Check the contract – is there a dispute resolution clause?

If your dispute arises out of a contractual relationship, it is important to check whether the contract includes a dispute resolution clause setting out the procedure which the parties are contractually required to follow – in other words, you may not have a choice. Such a clause may provide for a staged process, escalating dispute resolution through some or all of the following: informal discussions between personnel of increasing levels of seniority; mediation; expert determination on technical issues; and usually either litigation or arbitration as the final step.

Step 2: Consider your priorities

What are your priorities in resolving this dispute? Is it important to maintain the business relationship, or would you prefer a "clean break"? Would it be helpful to have a decision which you could point to in the future if similar issues arise, or would you prefer to keep everything confidential and out of the public domain? Would you like the flexibility to be able to design a bespoke settlement deal that includes non-monetary aspects (for example, a commitment to do business together in a certain way in the future), or is it just about getting the best overall financial result? Working through what is important to you at the outset will often point to the most suitable form of dispute resolution in each case. It may also be that, for tactical reasons, you wish to start with one method (by raising a court action to obtain security for a debt pending resolution, for example) and then try another method (often a mediation) further down the line.

Step 3: Select a method(s) which best aligns with your priorities

The two tables below set out the characteristics of the most common dispute resolution methods (although there can, of course, be exceptions to this general guidance). Each method involves a trade-off; so, for example, arbitration enables the parties to keep matters private, but the decision cannot be relied on in future disputes. Mediation can be relatively quick and cheap, but it can be harder to enforce your rights if the other side goes back on their side of the bargain, especially where the agreement is not wholly about money.

Method	Public or private?	Rules-based or flexible procedure?	Who makes the decision?	High, medium or low cost (comparatively)
Litigation (raising an action in court)	Public	Rules-based	A judge/sheriff	High
Mediation	Private	Flexible	The parties themselves, facilitated by a mediator.	Medium
Arbitration	Private	Rules-based	The arbitrator / arbitration panel.	High
Expert Determination	Private	Flexible	The expert.	Medium
Negotiation	Private	Flexible	The parties themselves (ideally with advice from their own solicitors).	Low

Method	Sets a binding precedent?	Ease of enforceability of outcome	Comparative speed	Ability to appeal
Litigation (raising an action in court)	Yes (depending on the level of the court).	Good, depending on the location of the parties.	Can be very slow – though using commercial court procedure helps.	At least one appeal is always possible as of right.
Mediation	No	Agreements reached at mediation are binding and most are honoured without enforcement being required. In the event of breach, separate proceedings for enforcement would be required.	Can be very quick and can take place at any stage in the lifetime of the dispute.	If agreement is reached there will be a written settlement agreement. No appeal process is appropriate since parties can simply walk away if agreement is not reached at the mediation.
Arbitration	No	Good, depending on location of the parties.	Can be slow, but generally quicker than litigation.	Limited -depends on what has been agreed between the parties at the outset.
Expert Determination	No	Moderate - would require separate proceedings to enforce an agreement based on an expert determination in the event of breach.	Generally quite quick.	Limited – depends on what has been agreed between the parties at the outset.
Negotiation	No	Low to moderate, depending on whether the terms of the agreement are recorded in a settlement agreement.	Can be very quick.	Not applicable.

The methods set out above are not mutually exclusive. It is common, even where there is no prescribed procedure set out in the contract for dispute resolution, for parties to attempt to resolve matters by negotiation in the first instance, before moving on to one of the other methods. Seeking legal advice at an early stage is therefore crucial to ensure you are protecting your interests and get the best result for your business, even if you do not ultimately need to go to court.

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