The alternative dispute resolution (ADR) sector in the UK has experienced significant growth since the Woolf reforms of the late 1990s and the Pre-action protocols and Civil Procedure Rules (CPR) of the civil justice system promoted its use. Despite this, the ADR sector remains fragmented with many small businesses and individuals still unaware of its possibilities.
The Chartered Institute of Arbitrators (CIArb) played a key role in drawing up plans for a Small Business Commissioner who would promote ADR as an adjunct to the courts and enable swifter and more cost-effective access to justice. The government introduced this as part of the Enterprise Bill and a recruitment drive is now under way. However, there remains scant knowledge about these plans by businesses as well as by many ADR professionals as research conducted by the CIArb shows.
With the government having consulted on its green paper Building our Industrial Strategy, there is now a real opportunity to employ an education strategy that would foster a culture change in dispute resolution to ensure that conflict avoidance and ADR mechanisms become embedded in the justice system, to deliver further efficiencies in the courts and strengthen the legal framework to encourage the development of a competitive economy.
The costs associated with resolving a dispute are considerable. The Federation of Small Businesses (FSB) notes that between 2010 and 2015, around £62 billion was tied up in disputes involving small businesses, equating to £12.4 billion per year during that period.
There are also knock-on consequences for the overall economy. The disruption to previously agreed and mutually beneficial commercial arrangements results in inefficient resource allocation across the economy and late payments, the issue most FSB members reported as the cause of a dispute, act as a significant drag on investment and growth. Recent estimates put the level of late payments affecting small and medium sized enterprises (SME) at £266 billion, roughly 15 per cent of SME sector’s average turnover stuck in the payment chain.
Given these significant costs to wider society, ADR mechanisms enable a fair, just and efficient way of resolving disputes, particularly if used as part of a three-tier dispute resolution system comprising prevention, ADR as well as the courts.
Arbitration is one of the most popular forms of ADR; it is final and legally binding, and an arbitral award is enforceable in the same way as a court judgement. It offers limited grounds of appeal and provides the parties with the opportunity to agree on a tailored procedure overseen by an expert decision maker of their choice. It is also considered speedier and cheaper than using the courts with more flexibility as participants can have more control over the method, pace and scope of the process.
Mediation is another ADR procedure where parties are able to ‘control’ the outcome, rather than having it imposed upon them. The mediator has no decision making power but acts as a facilitator between the parties to assist them in reaching a voluntary settlement. Mediation is particularly suited to situations where the parties wish to preserve business relationships.
In an effort to cater for the needs of SMEs, CIArb has gone further by launching the Business Arbitration Scheme (BAS) for disputes between £5000- £100,000 in value. A fixed fee scheme, BAS gives parties certainty as to costs from the outset. It offers the certainty of a final and legally binding award in under 90 days from the appointment of the arbitrator. Businesses can present their own case without legal representation if they so wish and formal procedural steps have deliberately been kept to a minimum. The costs recoverable have been limited to protect parties against liability for their opponents’ high legal bills.
Despite the extensive ADR mechanisms available and their obvious benefits, its use by small businesses remains relatively low. The FSB report cites only eight per cent using ADR to resolve a dispute compared to 19 per cent who used the civil courts. Lack of awareness was a key reason according to the FSB’s report, with up to a third of UK businesses stating they were not aware ADR existed at all.
Recent research conducted by CIArb amongst its members concurs, with 89 per cent of those surveyed stating that they believed there was still a significant problem regarding ADR awareness amongst SMEs. An overwhelming majority felt ADR had a role to play in supporting the courts (97 per cent) and that government had a key role to play in linking ADR providers with businesses (81 per cent). Yet surprisingly, a significant majority were not aware of the proposals for a Small Business Commissioner (82 per cent) though many welcomed this development (79 per cent).
Respondents to the survey said that ADR was lacking in the education system, from schools to university and law schools, with some citing a lack of ADR knowledge even amongst lawyers.
The need to close the ADR knowledge gap is an urgent issue which CIArb highlighted in its response to the government’s green paper. CIArb continues to work with government in leading the ADR debate and to influence matters at the heart of policy. For further details or to get involved, please contact Chris Wilford, Head of Policy and Public Affairs, firstname.lastname@example.org.