Business dispute resolution – court litigation or arbitration?

Court fees currently charged in the civil court system are calculated at 5% of the claim amount for money claims between £10,000 and £200,000. Any claim over £200,000 incurs a maximum fee of £10,000.

Earlier this year the Ministry of Justice (MoJ) carried out additional consultation. The consultation, which closed on 15 September, proposed an increase in the maximum fee for money claims to at least £20,000, which it said could generate an estimated additional income of £48million. The court system currently costs £1billion more a year to run than it receives in income. The MoJ is still analysing the feedback. 

In light of the above, and the expected outcome of the consultation, should businesses review their standard dispute resolution clause?

Although dispute resolution clauses are often standard or ‘boilerplate’, they can have significant consequences for how a dispute is resolved, and now contractual rights and obligations are enforced. Further, the clauses will determine the likely costs and expenses in resolving a dispute. 

A dispute resolution clause sets out the forum in which the parties agree any dispute under the contract will be resolved. It should be distinguished with a governing law clause, which deals with the substantive law governing the contract. 

The parties may agree to take a number of steps, including alternative dispute resolution (ADR) mediation, before the dispute is escalated. Ultimately, the parties may have agreed to either enter into court litigation, or arbitrate. There are advantages and disadvantages to both options: Cost is often a factor, and previously court litigation was viewed as being cheaper. However, in the light of the current court fees, and the possible increases in the future, the balance between the two options may have shifted.

A thorough understanding of the advantages and disadvantages of the different alternatives is important when determining what is agreed in a particular contract, or inserted in standard terms and conditions.

What dispute resolution clause is set out in your terms and conditions of contract?

For help and advice on Dispute Resolution issues, please contact us.