The graveyard of litigation: why most partnership disputes never see their day in court

Despite being an experienced litigation solicitor, it always surprises me how few cases reach trial. I think there are several reasons for this.

First of all, litigation is inherently expensive, and getting a matter to trial involves a huge amount of effort and stress for the parties. One disadvantage is that trials are held in open court, which means they are matters of public record. Therefore, if there’s any sensitivity that the parties wish to preserve, then a trial is not the best place for that to happen.

This might be particularly the case if there’s a dispute between partners in a professional practice, where they do not wish to reveal either details of the dispute itself or the financial issues that might be attached to it.

Another reason why so few cases go to trial is that the judiciary is actively encouraged to help parties resolve their disputes. Judges do this by deploying their active case management powers, which include the ability to order a party to engage in alternative dispute resolution (ADR) ahead of any trial.

There’s been recent substantial case law that supports this position, together with an amendment to the Civil Procedure Rules, which provides the court with a specific power to stay proceedings and order the parties to engage in ADR in the hope that this can avoid a trial. One recent case involved proceedings being stayed for the purpose of ADR in the final few weeks before the trial was due to take place.

What alternative dispute resolution methods might solicitors use to achieve an early settlement?

If a partnership or LLP agreement provides for it, the parties might find themselves contractually obliged to arbitrate. Arbitration is a quasi-judicial process where an external third party (often a retired High Court judge or a senior barrister) is appointed by the parties to give a judgment.

The parties agree through their contract to be bound by the decision of the arbitrator (save in circumstances of manifest error on the part of the arbitrator). They do this by agreeing that the outcome of the arbitration has the same enforcement status as a High Court order.

The parties then go through a similar process to litigation. They exchange documentary evidence and witness evidence and, if there’s a requirement for expert evidence, they will be asked to obtain it. The parties then prepare for and attend a hearing in front of the arbitrator, who will provide a decision.

The advantage of arbitration is that it is determinative, in that someone is asked to pass judgment on the matters in issue. Unlike litigation, it’s held privately, and the arbitrator’s judgment is confidential to the parties, meaning that if there are sensitive issues that need to be addressed, that can happen outside of the glare of publicity. However, because the same level of preparation is required as in litigation, arbitration can be as expensive as, if not more than, taking a matter to a contested trial.

A lighter form of arbitration is an early neutral evaluation (ENE). ENE is a process where the parties agree to appoint an expert (perhaps an accountant or an experienced barrister) who then gives an opinion that the parties agree to be bound by. Although it has the advantage of speed and lower cost, it can be a little ‘rough and ready’ in terms of the outcome. The disadvantage, therefore, is that the parties can find themselves bound by a decision they don’t want, on the basis that it has been obtained quickly.

As well as being a solicitor, I’m also a practising civil and commercial mediator, and so one of my preferred ADR processes is mediation. In a mediation, the parties agree to appoint an independent third-party mediator to facilitate a discussion. The mediator does not pass judgment on the parties and is not there to give an opinion or provide a binding decision. Instead, the mediator tries to encourage the parties to recognise the risk they’re taking in the litigation so they can adopt a settlement mindset.

As with other ADR processes, mediation has the advantage of being private and confidential. Matters discussed during mediation, and any resulting settlement, are private to the parties and the process itself. Those sensitive matters referred to above will not be revealed if a mediation takes place, and the details of the settlement will not be recorded publicly.

One of the key benefits of mediation is that it’s all about the art of the possible. During mediation, it is well within the gift of the parties to agree outcomes that couldn’t be ordered as a remedy in legal proceedings. For example, the parties might be able to redefine the commercial terms and move forward with a new, workable relationship.

Mediation is also highly successful. The majority of disputes referred for mediation either settle on the day or shortly afterwards.

It’s clear that the courts will continue to funnel cases towards ADR rather than letting matters go straight to trial. There will not be a decrease in disputes, but there’s likely to be a substantial increase in the use of alternative methods for resolving them.