18th May 2016
...with legitimate claims from starting legal action.
Court fees on starting a claim at court have recently been hiked to 5% of the sum claimed (currently up to a maximum £10,000, but further increases are in the pipeline) and typically, if no negotiated settlement is achieved, a claim of more than £25,000 can typically take 12 to 18 months to get to a final decision at trial.
To address this perceived delay, the High Court has recently introduced two pilot projects – the Shorter Trials Scheme (STS) and the Flexible Trials Scheme (FTS). The pilots will run until 2017 and offer a pared down, quicker procedure to trial for suitable cases, usually those which are not document or evidence-heavy. Cases run on the STS or FTS are required to reach trial within eight months of a preliminary case management conference hearing, with judgment being given within the next six weeks.
But, eight months of incurring legal costs and diverting managers' time away from ordinary business activities is still a long time. And what the schemes don’t address is that despite their more limited procedural steps which are likely to reduce overall legal spend on the dispute, there is no reduction in the court fee payable to start the claim. They also merely re-brand options which were predominantly already available to the court and the parties through existing procedures.
Within weeks of the launch of the FTS and STS, the Chartered Institute of Arbitrators (CIArb) – a UK-based international organisation promoting alternatives to court resolution of disputes – launched its Business Arbitration Scheme (BAS) to provide the "simple, cost-effective, and timely resolution of disputes of low to medium monetary value (£5,000-£100,000) before a sole arbitrator”.
For those not familiar with the term, arbitration is a non-court, but legally-binding, method of dispute resolution which parties agree to enter into either at the time a dispute arises or, more usually, in the initial contracts which govern their business relationship.
Traditionally, arbitration has been viewed by many as an expensive method of resolving disputes because, unlike with a court judge, the parties pay for the time which the arbitrator spends in resolving the dispute. Not only have increased court fees led to a shifting of this opinion, but BAS addresses this criticism head on by introducing a fixed fee for a BAS arbitration of £1,250 plus VAT per party. For claims of £25,000 and above, this is a fee level which looks rather attractive in comparison to the 5% court fee. A business dispute valued at £100,000, for example, pursued through the courts would incur a court fee for the claimant of £5,000; the same dispute resolved through the BAS would only incur a fee of £1,250 plus VAT for the claimant.
Arbitration has some important advantages over court litigation which BAS preserves: it is a confidential procedure (whereas court hearings and many court documents are open or available to the public) which can be vital in certain industries or situations; the parties can select their arbitrator and can often chose an individual with expertise in their particular sector; and, the parties can control the timetable of the dispute and when a final decision will be reached, meaning that a final decision is often reached much more quickly in an arbitration than in a court litigation.
Key to the appeal of BAS will be that disputes run through the scheme aim to provide the parties with a final, legally-binding decision in less than 90 days from the arbitrator’s appointment. This is in stark contrast to eight months on the FTS and STS court schemes and, taken alongside the confidentiality of the procedure, is likely to be extremely attractive to clients.
Whilst there will always be circumstances which require disputes to be resolved through the courts, whether or not the STS and FTS provide a real solution to the inevitable time and costs impact of litigation remains to be seen. BAS, on the other hand, appears to fill a real gap in the dispute resolution market and offers a viable option to clients wanting to vigorously protect their interests whilst looking to limit their legal spend by providing a cost effective, quick and private resolution to their medium-sized business disputes.
For help and advice on any aspect of commercial disputes, litigation or arbitration, please contact Caroline Watson.