Alternative methods of dispute resolution — practice questions

Issue: Which ADR method fits, and consequences of refusing mediation.

Negotiation: Cheapest first step — parties' solicitors can exchange without prejudice offers. Non-binding unless agreement reached.

Mediation: Suitable for confidentiality and relationship preservation. Mediator facilitates but does not decide. Outcome only binding if parties sign settlement agreement.

Arbitration: Best where parties want a binding, private decision without public court process. Arbitrator's award enforceable as contract; appeal grounds narrow (s69 Arbitration Act 1996).

Court penalties: Under Halsey v Milton Keynes NHS Trust, courts may impose adverse costs orders if a party unreasonably refuses ADR. Factors: nature of dispute, merits, costs of ADR vs trial, delay, and whether ADR had reasonable prospect of success.

Conclusion: Start with negotiation; if deadlock, arbitration meets both parties' needs for a binding and confidential outcome. Unreasonable refusal of mediation risks costs sanctions even if the refusing party wins at trial.

Exam tip: Match method to party priorities — binding vs non-binding, cost, speed, confidentiality.

Objective: To compare the estimated costs of litigation versus mediation for an £80,000 commercial dispute.

Step 1: Calculate the Total Estimated Cost of Litigation

• Solicitor's Fees: This is the hourly rate multiplied by the estimated number of hours. $100 \text{ hours} \times £300/\text{hour} = £30,000$
• Barrister's Fees: Given as a fixed sum. $£10,000$
• Court Fees: Given as a fixed sum. $£4,000$
• Total Litigation Cost: Sum of all litigation-related costs. $£30,000 + £10,000 + £4,000 = £44,000$

Step 2: Calculate the Total Estimated Cost of Mediation

• Innovate Ltd's share of Mediator's Fee: The total fee is split equally between the two parties. $£4,000 \div 2 = £2,000$
• Solicitor's Fees for Mediation: This is the hourly rate for the reduced time commitment. $12 \text{ hours} \times £300/\text{hour} = £3,600$
• Total Mediation Cost for Innovate Ltd: Sum of the party's share of the mediator's fee and their own legal costs. $£2,000 + £3,600 = £5,600$

Step 3: Conclusion and Advice

• Litigation Cost: £44,000 (taking 15 months)
• Mediation Cost: £5,600 (taking 1 day)

Financial Implication: The estimated cost of litigation (£44,000) represents 55% of the total claim value (£80,000). Even if Innovate Ltd wins, they may not recover all their legal costs. The cost of mediation (£5,600) is significantly lower, representing only 7% of the claim value. There is a clear and substantial financial incentive to attempt mediation. It offers a potential saving of £38,400 in legal costs and resolves the matter over a year sooner, which is critical for a small company's cash flow.