Settlement and Alternative Dispute Resolution (ADR)
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.
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.
The PD also provides links to resources where you can find mediation providers:
Mediation 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.
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.
Communications 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.
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.
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:
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.