Why court a big legal bill?

Christopher Newman says firms should seek alternatives to litigation

Last week the Lord Chancellor made his much-publicised criticism of the exorbitant rates charged by leading commercial barristers. His comments will have raised eyebrows among former colleagues at the Bar: prior to the election Lord Irvine was himself - by his own admission - charging the rates he now censures as being a primary reason for the high cost of civil litigation.

If his comments made lawyers nervous about cost-cutting plans he might have up his sleeve, they will undoubtedly have struck a chord with businesses faced with the rising cost of commercial litigation. Anyone unfortunate enough to have been a party to legal action will also have learned that lawyers' fees are only one of the costs. Litigation involves an exhaustive analysis of the facts that gave rise to a dispute and the law which determines who should be responsible. That analysis takes time, costs money, takes businessmen away from their business and usually destroys the relationship between the parties in dispute. These characteristics have inevitably resulted in legal action being viewed as a last resort. Yet no one can deny that businesses are operating in an increasingly litigious environment.

Abandoning litigation is certainly not a realistic answer. In many disputes it is necessary to at least start litigation just to focus the attention of the other side and make them realise they must deal with the issue. Litigation is in certain cases the only option. It is the only way to freeze the assets of a fraudster before the funds stolen from a business go overseas. Costs incurred in litigation can prove to be money well invested: victory at trial against a solvent defendant from whom the successful party can recover full damages as well as the majority of legal costs is usually a good experience.

However, while not dismissing the benefits of litigation, the key to satisfactory dispute resolution lies in the imaginative use of available options. A plethora of resolution processes have been developed, tried and tested in the UK and abroad. After a slow start in the early 1990s, these options are regularly chosen by legal advisers and clients as a way of resolving disputes over anything from a few hundred to several million pounds.

Outside legal circles, it may not commonly be known that the courts are actively encouraging the use of these alternatives as part of the drive to improve the efficiency of the civil justice system. Even those who, unaware of the options, start litigation proceedings are likely to be asked whether they have considered other ways of resolving the dispute. The commercial court in London will adjourn proceedings and direct the parties to try another avenue. Only if that fails can the litigation continue.

What do these resolution processes have to offer? In many cases, once the anger has subsided, the parties are less interested in apportioning blame than in sorting out the mess. Alternative dispute resolution processes, collectively described as "ADR", focus on future business interests. The most common process is mediation: a neutral third party facilitates negotiations between the parties with a view to arriving at a binding settlement agreement. Mediations commonly last one or two days and can be set up in a matter of weeks. The time and cost savings can be huge and the outcome is not limited to the payment of money by one party to the other; the settlement agreement may well encompass more creative ways of bridging the gap.

Although the focus of attention in mediation is on the future, the legal rights and wrongs of the dispute are not forgotten since, if negotiations fail, the parties will generally resort to litigation. But in most cases mediation does not fail. The Centre for Dispute Resolution (CEDR) reports an 85 to 90 per cent success rate.

Another process is expert determination, where the parties hire an expert to decide technicalities. With submissions usually made in writing, and with no right of appeal, the process can be quick and inexpensive.

Other processes include expert tribunals, case evaluations, and arbitration, which has fluctuated in popularity over the past few years but has been given a new lease of life by the Arbitration Act 1996. All these processes have one important feature: confidentiality.

It is not just a matter of picking a single dispute resolution process and sticking with it. It may be that litigation is required at the outset to focus the attention of the other party and to obtain information and documents. At an early stage in litigation, expert determination can be used to resolve technical issues to enable the parties to then use mediation to settle the whole dispute. Mixing and matching can often bear fruit.

Despite Lord Irvine's concerns, the outlook for businesses involved in commercial disputes is encouraging. Litigation is no longer the only approach but has evolved into dispute resolution, offering a number of options for litigants. It is interesting to note that even those law firms which have nurtured a ferocious image are now recognising the need for the development of more user-friendly services. Yet to do this effectively requires training of both litigators and commercial lawyers so that their clients can be made aware of the options.

However, training for lawyers is only half the story. Many businesses need guidance so that, should a dispute arise, they will be aware that litigation is only one option. Lawyers need to be proactive in informing clients of the avenues available. At Baker & McKenzie, clients are educated through interactive workshops which provide a simulated experience of the new processes. Newsletters and regular updates can be an effective way of keeping clients abreast of the latest developments.

Businesses can make the most of these new processes by including a provision in contracts they negotiate, so that in the event of a dispute, the parties will consider other options.

Whether or not the Lord Chancellor persuades the commercial Bar to reduce its fees, businesses may be reassured to know that where litigation was once the inevitable consequence of a dispute, there are now many cheaper options available.

q Christopher Newman is a senior associate at Baker & McKenzie, an international law firm with 57 offices in 33 countries. Its London office received the 1996 award from CEDR as the firm which had most enthusiastically embraced ADR as part of its culture and practice.

For further information about ADR, and Baker & McKenzie's autumn dispute resolution workshop programme, contact Janet Southon on 0171 919 1000.