The short answer is yes, but it takes work. 

The more practical question is usually whether you may want, or need to, given the impact the answer can have on tactics. Simon Walsh, Partner in the Commercial Litigation & Dispute Resolution Team at SA Law looks at how SMEs embroiled in a legal dispute can preserve their commercial relationships with the opposing party?

May 2024’s introduction of compulsory mediation in many lower value claims (more on that below) however means that whatever your view on whether there is a relationship to preserve, you now need to prepare yourself for a step that can often help to salvage relationships in those cases where salvaging them may not be important or necessary.

Bridges have often been burned long before a dispute hits my desk.  In many cases that may not be a concern, for example, where a bill to a one-off, or difficult, client has not been paid.  Other cases are different though, particularly those with long term clients, key suppliers, investors or joint venture partners where a business may have to continue dealing with an ‘opponent’ for one reason or another after a dispute has been resolved.

SMEs with experience of legal disputes will be well aware of the strain disputes can put on business relationships.  They will also know that if disputes are not managed carefully those relationships can be permanently fractured or even end altogether.  There are however options that can be deployed before, during and after the dispute process has started that can save relationships and minimise a dispute’s impact.

At the contract stage

Consider putting dispute resolution clauses into appropriate agreements contracts like long term supply contracts, franchise or distribution agreements and anything that covers internal relationships, particularly shareholders’ agreements.

This type of clause comes in many forms and must be tailored to specific circumstances.  Whatever version is used, the clause should provide for a preliminary procedure that can be an effective tool to stop issues escalating and allow for them to be resolved ‘in-house’ as well as in private.  This often involves senior management on each side meeting to discuss the issue with each other, which may bring commerciality to a situation, particularly if the senior personnel have not been directly involved in that led the issues leading to the dispute.

When disputes arise

The court’s rules include various pre-action protocols that all share the common aim of promoting an early exchange of information so that parties understand each other’s positions and can attempt to settle disputes, or specific issues in them, without the need for proceedings.  The protocols also say that the parties should do a stocktake and reflect on whether the dispute is capable of resolution by other means before issuing a claim at court.

Experience shows that proper engagement with the protocols can significantly improve the chances of avoiding court, particularly when parties start to appreciate their respective cases and take properly informed commercial decisions on their best courses of action.

There are sanctions for not following the protocols.  In extreme cases these can lead to a successful party being penalised in the amount of legal costs it would have otherwise recovered, or a loser paying more than would have otherwise have been the case – which is incentive enough for most to take them seriously.

Think about ADR before and during disputes

Alternative dispute resolution, particularly mediation, has become a much greater feature in commercial disputes in recent years.  Partly because the protocols require parties to think about what form of ADR might assist with settlement at the pre-action phase, but also because businesspeople are becoming more familiar with it, not least because courts also impose costs sanctions on those who ignore ADR or unreasonably refuse to try it.

The Court of Appeal recently criticised two parties who “were silent in the face of an offer to mediate” and went on to say that their silence “was in itself unreasonable. To compound matters, they breached an order of the court requiring them to explain their failure to agree to mediation. If breaches of such orders are ignored by courts when deciding costs, parties will have no incentive to comply with them. That would undermine the purpose of making them, which is robustly to encourage parties to mediate.”

The final sentence shows a clear direction of judicial travel, as does the introduction of compulsory mediation for most claims for less than £10,000 issued after 21 May 2024.  That direction is underlined by comments from the Ministry of Justice which confirm that it has not ruled out mandatory mediation for higher value claims.

Mediation isn’t the only form of ADR though.  Much can be achieved through well timed, good old fashioned, negotiation conducted by solicitors, or clients direct, under the cover of the ‘without prejudice’ rule.  The rule stops either side referring to settlement discussions in proceedings and allows them to speak openly and freely in a way that I can say from personal experience, can and does, rekindle frayed relationships when people who once worked together realise that they did so for good reasons that are often still there once they’ve worked out a way to put their current differences behind them.