According to the UK Department for Business, Innovation & Skills, small businesses accounted for 99.3% of all private sector businesses in 2015. Crucially, the research showed that total employment in SMEs comprised 60% of all private sector employment and that their combined annual turnover was £1.8 trillion, amounting to 47% of all private sector turnover in the UK. With these statistics in mind, it seems irrefutable that SMEs comprise one of the UK economy’s greatest assets.
Thriving SMEs may take it for granted that they need to have effective strategies and processes in place in order to hit targets and ensure growth. But an effective dispute management strategy is not always a top priority for companies, despite the fact that a decision on that matter is one which could critically impact the longevity of a business.
Intellectual property, employment conflicts and late payment issues are the most common disputes that SMEs encounter. Late payment disputes are amongst the most notorious, with recent research estimating that small firms are owed over £32 billion in this way.
The traditional method for resolving such conflicts has been through the courts, but in a climate of rising court fees, SMEs have to seriously consider whether resorting to litigation is in their best interests. Lord Dyson, Master of the Rolls, revealed his concerns about heightened court fees hindering access to justice when he appeared before the Justice Committee earlier this year. He said that fee increases “won’t deter rich people, but (will deter) small businesses.” He is neither the first, nor will he be the last to raise such concerns.
Critics have argued that for UK based individuals and small businesses, the impact of court fee increases is disproportionate. Keisha Williams, Head of the Chartered Institute of Arbitrators’ (CIArb) Dispute Appointment Service said: “Not only will SMEs be reluctant to pursue legitimate debt claims, but there could be an imbalance in the bargaining power of SMEs in settlement discussions with larger firms, who will feel incentivised to deny liability, safe in the knowledge that their opponent could not afford to bring proceedings.”
Alternative Dispute Resolution (ADR) offers a solution to SMEs in this predicament. An umbrella term for a whole range of processes and techniques that help parties resolve disputes without going to court, ADR usually involves the assistance of a neutral third party. It is often less formal, cheaper and quicker than litigation. And in addition to being timely and cost-efficient, ADR is also confidential and offers a discreet and neutral setting for the resolution of disputes.
Arbitration is one of the most popular forms of ADR; it is final and legally binding, and an arbitral award is enforceable in the same way as a court judgement. It also offers limited grounds of appeal and provides the parties with the opportunity to agree on a tailored procedure overseen by an expert decision maker of their choice. One of the greatest strengths of arbitration is that as a result of the New York Convention 1958, arbitral awards can be enforced transnationally. By contrast, court judgments are generally only enforceable where reciprocal enforcement arrangements exist.
Mediation is another ADR procedure which is gaining traction within the business community. A core principle of mediation is that the parties ‘control’ the outcome, rather than it being imposed upon them. The mediator will facilitate dialogue and communication between the parties in a structured way assisting them to reach a voluntary settlement. The mediator has no decision making power so the dispute is resolved on the parties’ own terms. Mediation is therefore particularly suited to situations where the parties wish to preserve business relationships.
Despite the obvious benefits of ADR however, a recent survey conducted by IPSE, The Association of Independent Professionals and the Self Employed, found that only 5.5% of their members were aware of it.
Fundamentally, The Enterprise Act 2016 is an important step in the right direction for businesses, as it provides the legislative framework for a Small Business Commissioner, set to deliver general advice and information to small businesses, to consider complaints from small businesses relating to payment matters in connection with the supply of goods and services to larger businesses, and make recommendations.
In an effort to cater to the needs of SMEs, CIArb has also taken active steps to find an alternative for businesses faced with rising court fees. Launched in 2015 for disputes between £5,000 – £100,000, CIArb’s Business Arbitration Scheme (BAS), delivers five tangible benefits which small businesses should consider before making their decision as to whether or not it is in their best interests to resort to litigation.
First and foremost, BAS is a fixed fee scheme, giving parties certainty as to costs from the outset. A fee of £1,250 + VAT per party is payable upon commencement of the arbitration to cover CIArb’s administrative costs and the arbitrator’s fee. Secondly, BAS offers the certainty of a final and legally binding award in less than 90 days from the appointment of the arbitrator. Thirdly, the BAS rules were created with simplicity in mind, allowing ease of use and flexibility. The scheme is simple enough for businesses to present their own case without legal representation if they so wish. Formal procedural steps have deliberately been kept to a minimum. Fourthly, the costs recoverable have been limited to protect parties against liability for their opponents’ high legal bills. And finally, CIArb provides a specialist panel of arbitrators. The Scheme is administered by CIArb’s Dispute Appointment Service (DAS), and the appointment is made by the Chairperson of the Applicant’s Local Branch of CIArb.
Businesses wishing to use BAS should consider drafting a dispute resolution clause into their commercial contracts or into terms and conditions. A free dispute resolution clause for BAS can be found here.
Ultimately, just as it is irrefutable that SMEs are an invaluable asset to the UK economy, it is clear that they need the right support within a tailored framework which recognises their challenges. ADR and the BAS Scheme provide tangible benefits for SMEs, which offer them the opportunity to address disputes without falling prey to rising court fees.
Olivia Staines, PR and Communications, CIArb.
The Chartered Institute of Arbitrators (CIArb) is a leading professional membership organisation representing the interests of alternative dispute resolution (ADR) practitioners worldwide. With 14,000 members located in 133 countries, CIArb supports the global promotion, facilitation, and development of all forms of private dispute resolution.