The UK government has unveiled yet another ADR initiative for small and medium-sized enterprises (SMEs). The latest plan from the Department for Business, Innovation and Skills (BIS) is for a Small Business Conciliation Service intended to “help small businesses settle their problems with large corporations” and to “avoid expensive legal costs and maintain business relationships by reaching mutually satisfactory agreements”.
The service has been designed to help in cases involving late payments which negatively impact cash-flow. Without the same liquidity or access to finance as larger companies, SMEs can find themselves on the verge of trading insolvent notwithstanding a strong sales ledger. Litigation to recover debts can often be prohibitively expensive, a position exacerbated by sharp increases in court fees in England & Wales this year.
In March 2015, court fees rose from £610 to £1,000 (64 per cent) for claims of £20,000; from £610 to £2,000 (228 per cent) for claims of £40,000, and from £910 to £4,500 (395 per cent) for a £90,000 claim. SMEs with larger disputes faces even stiffer rises, with fees for cases of £150,000 jumping from £1,315 to £7,500 (470 per cent) and cases of £190,000 rising from £1,315 to £9,500 (622 per cent). Cases valued at more than £200,000 now attract fees of £10,000, a major mark-up on the previous fees of £1,515 and £1,720 for cases valued at £250,000.
Although SMEs are more likely to be at the lower end of the scale, the changes are making SMEs reconsider the costs of litigation. “The increase in court fees is certainly putting people off going to court,” says Michael Wood from Keystone Law. “While this may be seen as a benefit for mediation, as it is cheaper, the other consideration is that SMEs may simply not bother launching certain cases if they are deemed too expensive. In issues such as debt recovery, this could pave the way for unscrupulous individuals and companies to exploit SMEs.”
Understanding the process
Details of the latest Conciliation Service are sketchy but Wood believes that, on the whole, SMEs remain unaware of mediation or the benefits of mediation. As with many disputes, overcoming the basic instincts of being wronged can be hard to accept. “You do find there can be a lot of emotion in disputes involving SMEs because these businesses often have more personal investment so the instinct is often to litigate,” Wood continues.
As such, SMEs need to try to take a step back and look at the benefits of mediation. In addition to the reductions in costs and time, the ability to maintain positive terms with suppliers or other business relationships is paramount. One spat can soon escalate and, rather than working towards a compromise, can quickly turn bitter.
To this end, the government and other organisations are doing their part to make mediation more accessible to SMEs. Indeed, the BIS Conciliation Service is the latest in a string of mediation initiatives. There is the Intellectual Property Office Mediation Service to resolve IP and copyright disputes more quickly, effectively and efficiently, an HMRC Alternative Dispute Resolution trial to handle tax disputes as well as internal work-place mediation, such as ACAS, while BIS recently tendered a one-year pilot project for 30 specialist SMEs mediators one. There is also the general post-Jackson drive towards ADR in all civil litigation, where the threat of adverse costs orders loom for failure to review the ADR option.
More exposure to mediation will likely encourage wider usage. If SMEs become avid uses of internal mediation to solve employee disputes, for instance, it may be a platform for them to expand the concept. After all, solving a problem with an aggrieved employee internally without that need for expensive tribunals or the potential for reputational damage, will appear tempting to many businesses. That concept needs to then be applied to larger, commercial disputes.
Jane Cooksey, from Berkeley Square Mediation, concludes: “Mediation can provide additional incentives for SMEs: I had a case recently where the terms of an existing contract were able to be improved so instead of not speaking to each other they created what they both needed. This is unlikely to have happened in litigation.”
This post was written by Antony Collins who is a freelance journalist. He can be contacted at firstname.lastname@example.org