Consensual Dispute Resolution
A settlement agreed freely by the parties is always better than one imposed by a third party such as a judge, hearing officer, arbitrator or expert. A dispute resolved by consent is usually reached more quickly and hence more cheaply than one concluded by litigation or arbitration. Because there is no winner or loser it is easier for the parties to restore a business relationship.

With a few exceptions the parties to a dispute have a duty to:

"(1) exchange sufficient information about the matter to allow them to understand each other's position and make informed decisions about settlement and how to proceed; and
(2) make appropriate attempts to resolve the matter without starting proceedings, and in particular consider the use of an appropriate form of ADR in order to do so."
(paragraph 6.1 of the Practice Direction - Pre Action Conduct).

If a party fails to comply with that duty, the courts can punish non-compliance by suspending proceedings, depriving the party of some or all of the costs or interest to which it would otherwise be entitled if that party is ultimately successful or ordering it to pay more costs or interest than it would otherwise have to pay if it is unsuccessful (paragraph 4.5 ibid).

"The duty to exchange information requires the complainant ("the claimant") to set out details of the matter in writing by sending a letter before claim and the person to whom such letter is addressed ("the defendant") to give a full written response within a reasonable period, preceded, if appropriate, by a written acknowledgment of the letter before claim (paragraph 7.1 ibid). Paragraphs 2.1 to 2.3 of Annex A of the Practice Direction set out detailed guidance as to what should be in the letter before claim.  This is supplemented by the Code of Practice for Pre-Action Conduct in Intellectual Property Disputes. Paragraph 3 of Annex A specify what should be in the defendant's acknowledgement. Paragraph 4 supplemented by the Code state what should be in the response."

Paragraph 8.1 of the Practice Direction explains:

"Starting proceedings should usually be a step of last resort, and proceedings should not normally be started when a settlement is still actively being explored. Although ADR is not compulsory, the parties should consider whether some form of ADR procedure might enable them to settle the matter without starting proceedings. The court may require evidence that the parties considered some form of ADR (see paragraph 4.4(3))."

Neither the Practice Direction nor the Code addresses in detail how the parties might decide to resolve a dispute but both suggest negotiation, mediation, expert determination and evaluation.   For more information on those options see Jane Lambert's articles "Dispute Resolution""Alternative Dispute Resolution" and "What happens in a Mediation" on the NIPC Mediation website.

Very often an arbitration agreement requires mediation or some other form of dispute resolution. For example, this is a clause that is often requested:

"Dispute Resolution
(1)        Any dispute or difference arising under, out of or relating to a Contract and any subsequent amendments, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be referred to mediation before a mediator agreed by the parties or, in default of agreement within 14 days of the reference, appointed by the Managing Director of NIPC Ltd. in accordance with the NIPC Mediation Rules.

(2)        If, and to the extent that, any such dispute or difference shall not be settled pursuant to the mediation within 60 days of the reference to mediation, either party may refer the dispute to final arbitration before a single arbitrator agreed by the parties or, in default of agreement within 14 days of the reference, appointed in accordance with the NIPC Arbitration Rules."

Where such a clause occurs it is usually necessary to attempt mediation before trying arbitration. There are of course exceptions to that rule. The court will not expect parties to go through the motions if it is obvious that negotiations will lead nowhere and simply increase costs and delay (Halifax Financial Services Ltd. v Intuitive Systems Ltd. [1999] 1 All ER Comm). But cases where that is the case are rare.