Settlement and Alternative Dispute Resolution (ADR)

Litigation should be a last resort, therefore the parties are always encouraged to attempt to reach an agreement, ideally before proceedings are issued, however, an agreement can also be reached at any stage right up to the trial, to avoid further litigation and costs.
Attempting settlement

Whether still at the pre-court stage or once proceedings have been issued, it is possible to attempt to settle a claim at any point. In some cases, it may even be possible to get the other side to discontinue proceedings, or prevent proceedings from being issued in the first place. This can be achieved in a number of ways:

  • Communicating with the other side before proceedings are issued, for example, by sending and/or responding to letters before claim. This can have the effect of avoiding litigation altogether.

  • Exchanging documents and information to assess each side’s position.

  • Direct negotiation between the parties, either informally over the phone or through written correspondence.

  • With the help of mediation, where a third party facilitates the negotiations.

  • Agreeing to certain terms, embodied in a consent or Tomlin order.

  • Getting the other side to discontinue the claim if they are unable to provide suitable documentary evidence of the debt or proof that it is not time barred.
ADR and mediation

Paragraph 8 of The Practice Direction – Pre-action Conduct states that litigation should be a last resort and that settlement should be considered at any time. The PD recognises mediation, arbitration and Part 36 offers as forms of ADR.

Settlement and ADR

8.  Litigation should be a last resort. As part of a relevant pre-action protocol or this Practice Direction, the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings.

9. Parties should continue to consider the possibility of reaching a settlement at all times, including after proceedings have been started. Part 36 offers may be made before proceedings are issued.

10. Parties may negotiate to settle a dispute or may use a form of ADR including—

(a) mediation, a third party facilitating a resolution;

(b) arbitration, a third party deciding the dispute;

(c) early neutral evaluation, a third party giving an informed opinion on the dispute; and

(d) Ombudsmen schemes.

The PD also provides  links to resources where you can find mediation providers:

Commercial mediation providers charge according to the complexity and value of the claim. Fees are calculated on the basis of an instruction fee per party, plus an hourly rate. Instruction fees are around £250 and hourly rates range between £200 and £600. With anything between 1 and 3 hours required, the costs can quickly mount up.
LawWorks provides free mediation to those who cannot afford to pay. Go to LawWorks or call 01483 216 815.

mediationMediation is not compulsory, however, the courts expect the parties to take reasonable steps to settle their disputes. It should be noted that mediators are not judges or legal advisors. They cannot take sides, give you legal advice or tell you whether you should settle the claim or go forward with it. They can only assist the parties in reaching an agreement.

For claims above £10,000, the directions questionnaire N181 allows parties to request a one month stay while the parties attempt settlement. The court may extend the stay if the parties agree to request and extension and provide the court with relevant information regarding the steps being taken to resolve the dispute.

Small claims mediation service


For claims below £10,000, the small claims mediation service is free. You access this service simply by ticking the box agreeing to mediation on the directions questionnaire sent by the court after your defence has been submitted. See allocation for more information.

Mediation takes place over the phone but not in conference call format. The mediator will call you, then hang up and call the other party and so on, until an agreement is reached.

The mediation service will usually contact you by email asking you some basic questions to decide whether to go ahead with mediation. These include whether you are willing to compromise and whether you have enough information to assess your situation.

Mediation can be a good opportunity to reach an agreement with the creditor if your defence isn’t very solid. You may be able to arrange for a reduced settlement or token payments to be accepted without having to go to court.
Without prejudice communications

HandshakeCommunications between the parties for the purpose of achieving a settlement are protected by without prejudice privilege. Most negotiations are of this nature and cannot be disclosed to the court, other than as evidence that the claim has been settled if that’s the case.

The without prejudice privilege is intended to encourage out of court settlement by preventing statements made in the course of negotiations from being used in court as evidence of an admission. The idea is to enable parties to communicate freely knowing that whatever admissions they may have made, cannot be used against them should the negotiations and attempts to reach a settlement fail.

It is not a requirement to use the words”without prejudice” in the correspondence to benefit from the privilege.
Any verbal communications that take place in the course of negotiations are also covered by the rule.
The inclusion of the words “Without prejudice” in a document does not prevent the communications from being used in court if their purpose was not a genuine attempt to settle the matter. The most important criteria is whether the document was truly a negotiation document.

Documents used in the course of unsuccessful negotiations cannot be used to establish that someone had refused a reasonable alternative dispute resolution (ADR) proposal, nor can they be used in future proceedings. However, negotiations that succeed in achieving a settlement are admissible to prove the terms of the settlement.

Part 36 offers

Most communications intended to achieve a settlement between the parties are protected by the without prejudice privilege, therefore they cannot be disclosed to the court. This means there is no recourse as to costs when one party feels the other side have been unreasonable.

Part 36 of the CPR provides a means to make a formal offer in settlement which is treated as without prejudice but which can be disclosed to the court with respect to costs. Its function is to place the other side at risk as to costs if the offer is not accepted and the party then fails to achieve a better result in court than the terms of the offer. A party who receives a realistic offer is therefore advised to accept it and settle the claim.  A Part 36 offer can be made at any time, whether before or after the start of proceedings.

The formalities that a Part 36 offer must contain are set out under CPR 36.5:

Making offers

Form and content of a Part 36 offer


(1) A Part 36 offer must—

(a) be in writing;

(b) make clear that it is made pursuant to Part 36;

(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted;

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e) state whether it takes into account any counterclaim.

(Rule 36.7 makes provision for when a Part 36 offer is made.)

The terms of the offer should be clear with regards to whether the offer in full and final settlement and whether it takes into account any counter-claim. The terms must also include the costs consequences. Part 36 offers must be made for a lump sum to be paid out to the creditor.

Part 36 of the CPR does not apply to the small claims track.