BUSINESSES should follow new rules in disputes or face penalties in court. Stewart Irvine, a partner and head of Muckle LLP’s dispute resolution group, outlines the implications of important changes to the way businesses should handle disputes.

Businesses in many types of legal disputes need to follow a new set of rules. The 49th update to the Civil Procedure Rules introduced a new practice direction governing pre-action conduct which sets out a new protocol to be followed by parties prior to the issue of legal proceedings.

If you are in a dispute that could end in a court case, you should take account of the new set of court rules that govern how you should behave before you launch formal legal proceedings. The new rules apply in all cases where there is not already a specific ‘pre-action protocol’. The protocol is intended as a guide for parties in straightforward claims that are likely to be disputed.

If the dispute goes to court, it is important to be able to say you have followed the new rules because, if you have not, the court can decide to penalise you by ordering you to pay legal costs to the other side, even if you win. The court also has power to increase or reduce any interest payable on damages awarded, or to stop the case until the rules are complied with.

The aim of the new protocol, of course, is to enable parties to try to settle disputes without the need to start proceedings and to avoid matters going before the court, if at all possible. However, if court involvement becomes unavoidable, the changes aim to help businesses and the courts manage cases more effectively.

The court process has contained mechanisms to encourage early settlement for many years now, and such aspects are routinely addressed by litigation lawyers; when drawing up a timetable for a trial, the courts regularly build in a one month “stay” which is designed to give the parties a chance to settle. Parties are also encouraged to mediate and must give reasons for declining this option.

These new developments now bring in to play the conduct of the parties even before legal proceedings are issued. Over time this could bring subtle behavioural changes and dilute the so-called “litigation culture” that has undoubtedly developed over the last 10 years. In the short term, however, for those not au fait with the rules, mistakes made in the early stages of a dispute can rebound much later down the line, with potentially drastic consequences.

The new rules say you must act reasonably and proportionately (given the importance and urgency of the matter), to try and reach an early settlement without going to court. You should exchange information and documents relevant to the dispute. You should:

Provide sufficient information for the other side to assist them to understand the issues, or assist them to make informed decisions about whether to settle or how to proceed;

Detail the basis on which the claim is made and provide a concise and clear summary of the facts on which the claim is based;

Detail the essential documents on which you intend to rely to support your claim;

Indicate to the other side the date you consider reasonable for a full response to be provided;

Act within time limits set by the rules;

Not unreasonably refuse to try alternative dispute resolution; and

Not unreasonably fail to provide documents the other side asks to see.

If the claim is by a business against an individual for payment of a debt, there are additional rules governing the information that must be given to the individual about the debt.

The claimant should provide details of how the money can be paid, for example, the method of payment and the address to which it can be sent. The claimant should also state that the individual can contact the claimant to discuss possible repayment options. The claimant is also required to inform the individual that independent advice organisations exist and can provide the individual with free advice. There are similar rules where the individual is a tenant, and the business is its landlord.

The new rules highlight the importance to a business of keeping good records, recording agreements and retaining documentation relevant to that business’ relationship with a third party. In advance of contemplating court proceedings, an exchange of documentary evidence and the provision of comprehensive information regarding a claim could possibly settle a dispute at an early stage and avoid an expensive court battle. If not, it should certainly narrow the issues between the parties, if proceedings are then issued.

Implementing internal procedures to retain important contemporaneous documents and record matters properly could also assist cases where businesses wish to claim compensation in court for management time spent on disputes. It is possible to recover damages in respect of wasted management time if a claimant can establish that staff have been significantly diverted from their usual activities. Businesses should keep proper records showing the time spent to avoid reductions in the compensation awarded.

Compensation for lost management time can be claimed in court cases, but where there are no specific records detailing that management time, the court may decide to reduce the compensation to reflect that fact.

In a recent case, there were no such records, and the business claiming for lost management time had to reconstruct the time its managers had spent on the case, retrospectively, from memory. The court allowed the claim to be made, saying that a reconstruction from memory could be acceptable evidence. However, it reduced the company’s £7,680 compensation claimed by 20% because no records were made at the time to support the claim.

Businesses should therefore make sure that managers record their time spent on disputes, at the time, if there is a possibility they may end up in court.

It is now so important to take the appropriate advice as early as possible. It could be that the new guidelines can be used to engineer a swift resolution, or it may be that pressure can be applied to an opponent to get them to engage in useful, early dialogue.

New rules bring new tactics. Whilst getting it right has never been more complicated, it has never been more important to make the right moves at the right times.

For further advice and information, you can contact Stewart Irvine who is head of the Muckle LLP dispute resolution group on 0191–211 7935 or email sirvine@muckle-llp.com.