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29 September 2017

Grounding dispute resolution in the Industrial Strategy to benefit SMEs

Is arbitration a missed legal opportunity for small businesses? 

By Nikki Nang Nilar

Small and medium sized enterprises (SMEs) are undoubtedly one of the UK economy’s greatest assets. They accounted for 99.9% of all private sector businesses at the start of 2016, providing 60% of all private sector employment and 47% of all private sector turnover in the UK, according to the Federation of Small Businesses (FSB). 

They are also a sector most financially at risk in the event of a dispute. The FSB estimates that between 2010-2015, £62bn was tied up in disputes involving small businesses, representing a £12.4bn cost to the economy per year in that period. Late payments in particular pose a major problem for small businesses, with many facing bankruptcy because of this. Amongst the list of problems for SMEs is a lack of bargaining power against their larger counterparts and rising court fees which make litigation largely prohibitive as an option for dispute resolution.

The alternative dispute resolution (ADR) sector has been steadily growing in the UK, providing a much-needed adjunct to the courts in providing swift and cost-effective access to justice. ADR can assist the small business community to avoid protracted disputes in court. There are even schemes devised specifically for SMEs such as the Chartered Institute of Arbitrators’ (CIArb) Business Arbitration Scheme (BAS), a fixed fee scheme for disputes between £5,000-£10,000 in value. The UK’s ADR sector is amongst the most well-developed and respected in the world, with London being consistently chosen by global business as a centre for international commercial dispute resolution.

Nevertheless, awareness of ADR methods is still lacking amongst SMEs. The FSB reports that only 8% of small businesses used ADR compared with 19% who used the civil courts. Lack of awareness was the key reason, with up to a third of UK businesses stating they were not aware ADR existed at all. Findings from recent research conducted by CIArb amongst its members supports this, with 89% of those surveyed stating that there was a significant problem regarding ADR awareness among SMEs.

The appointment of a Small Business Commissioner (SBC) will help raise that awareness by providing a vital link between businesses and ADR providers. However, more could be done and incorporating ADR into the Industrial Strategy presents a once-in-a-generation opportunity to embed the culture of dispute resolution across the whole country.

A key role for the SBC would be in driving wider cultural change. In complex supply chains and with late payment such a critical issue for SMEs it is more important than ever that businesses consider disputes from the outset, including in their contract drafting. Effectively designed contracts are vital in conflict avoidance and in managing disputes. As a registered charity, CIArb provides free contractual clauses such as its recommended BAS Arbitration Clause.

Training and education are also imperative. Bringing ADR into the mainstream education curriculum, from the teaching of mediation skills in schools to incorporating conflict resolution into apprenticeships, will equip the next generation of business leaders with an awareness of conflict avoidance and dispute management. 

Professional bodies such as the CIArb also play a key role in the sector, providing accreditation to practitioners and monitoring the quality of practice as well as facilitating ADR to develop skills. Standardised training and qualifications boost confidence in alternatives to court as well as provide opportunities for people to build on their skill set and pursue new opportunities at every stage of life.

Sustainable commercial justice is a key driver for economic development. As part of a modern industrial strategy, it enables small businesses to have access to redress so that they can compete and grow. The ADR sector is there to support this and it is high time SMEs were putting it to full use.

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