446 Chapter 17The resolution of business disputes
both sides. We have also seen that these costs can be very substantial. In many cases the
costs are greater than the amount being claimed. As well as the costs which are claimable
by the winner, other hidden costs (such as the cost of time spent instructing solicitors) are
likely to be incurred. The winner of the case will not be able to claim anything in respect of
these hidden costs. Furthermore, there is the risk that the loser will become insolvent. If this
happens then the winner of the case is likely to have to pay all the legal costs which he or
she has incurred, even though the winner does not normally have to pay costs.
A further disadvantage of litigation is that it is a very stressful experience. The worry
involved can take a toll on health. One factor which makes this particularly true is that
litigation takes time, particularly when a case is allocated to the multi-track. Another dis-
advantage is that a court case is heard in public and this publicity can be very harmful if the
other side makes allegations about the business. Furthermore, litigation is almost certain to
mean that the parties do not deal with each other again.
In the light of all these disadvantages, many legal disputes are settled by alternative
dispute resolution. That is to say, they are settled without a court case. The simplest way
in which this can happen is that the parties, usually through their lawyers, voluntarily
agree to a settlement. As we saw in Chapter 2, if the parties agree to settle out of court this
agreement is a binding contract. There are various other methods of alternative dispute
resolution, which are considered below.Arbitration
Business disputes are often settled by arbitration. If a dispute is settled in this way then it is
resolved by an impartial referee, an arbitrator, who takes over the role of the court. Once the
parties have agreed to arbitration, they will not be able to change their minds and take the
dispute to court. If one party does try to take the dispute to court, the other party will be
able to get any court proceedings stayed (discontinued).Advantages of arbitration
The main advantage of arbitration is that the proceedings are conducted privately, whereas
court proceedings are held in public. Privacy can be a very important factor in business
disputes. Let us assume, for example, that a dispute has arisen between Acme Ltd and Bill’s
Bakery Co. Acme Ltd supplied a new boiler to Bill’s Bakery Co and are suing for the price.
Bill’s Bakery Co are refusing to pay the price because they say that the boiler supplied
was not of satisfactory quality. Neither of the parties would want the publicity which might
arise if this dispute were to be heard in open court. Acme Ltd would not want it to be
publicly claimed that their boilers were not of satisfactory quality. Bill’s Bakery Co would
not want it to be publicly claimed that the business does not pay its debts. If the dispute is
referred to arbitration this adverse publicity will be avoided.
A second advantage of arbitration is that an arbitrator with specialist knowledge can be
chosen. Eventually, the dispute between Acme Ltd and Bill’s Bakery Co would depend
upon whether or not the boiler supplied was of satisfactory quality. If the case went to court,
the judge would make this decision, probably after listening to expert witnesses from both
sides. It is highly unlikely that the judge would know much about boilers. The side which
loses the case would be likely to feel that the judge got it wrong. Both Acme and Bill’s
Bakery Co might have more faith in the decision if it was taken by an expert in the field,
perhaps by the chairman of the local Boilermakers’ Federation.
Arbitration might also be cheaper than going to court. However, this is by no means
certain. Arbitrators can demand good money for their skills and the lawyers arguing the
case in front of an arbitrator will often charge the client the same rate as they would for