Small claims mediation: Biting the bullet - taking a commercial view

Litigants should give serious consideration to the possibility of settling small claims using the free mediation service, which has a number of things going for it, not least reduced legal costs.

Cost benefits

The advantages of alternative dispute resolution (ADR) are well documented, with the most obvious benefit being that - where successful settlements are reached - disputes are generally resolved more quickly and at less cost to the parties than if a result had only been achieved at trial.

The Civil Procedure Rules (CPR) recognise the need for litigation only to be brought as a measure of last resort, and the courts have taken an active role in promoting ADR by implementing cost sanctions against parties that unreasonably refuse to participate.

Despite the court's approach, ADR has continued to be overlooked by a significant proportion of litigants, and this was a key factor that prompted Lord Justice Jackson's recent shake-up of the system, with its focus on a further drive towards litigation at proportionate cost.

As part of the shake-up, the CPR overriding objective was amended to say that cases should be dealt with justly and at proportionate cost. This includes the overall expense not just the issues in dispute. However, Lord Justice Jackson resisted the call from interested parties, including the Ministry of Justice (MoJ), to introduce any concept of compulsory mediation into his reforms, so it falls to litigants themselves to recognise its cost benefits and do all they can to settle appropriate claims at an early stage.

Small claims mediation service

Statistics demonstrate the obstacles faced by Lord Justice Jackson's push for litigation at proportionate cost, and the fact that small value claims are where there is the greatest potential for settlement by mediation.

In his final report, Lord Justice Jackson found that in litigated cases where the amount claimed is between £5,000 and £15,000, the average legal costs involved exceed the amount claimed by 30%.

At the same time, the MoJ estimated that in 2010, 80,000 cases of the same value could have been settled without court the assistance.

The value of early-stage settlement is magnified in the small claims track because legal costs are not normally recoverable for such claims and will only be awarded by the court in exceptional circumstances, in accordance with CPR 27.14(2).

This makes the small claims mediation service particularly attractive.

The scheme, operated through a network of in-house mediation providers, allows willing parties to take advantage of a free, two hour telephone mediation service.

Commercially attractive?

Mediation is not suitable for every claim, but on the small claims track in particular, early settlement will almost always produce the most commercially attractive result.

Even if settlement is reached on less favourable terms than would have been achieved at trial, adverse settlement terms are likely to be more than offset by reduced legal costs.

Small claims parties should give serious thought to using the small claims mediation service, which will be of benefit to an increasing number of litigants given the recent and proposed raising of the small claims track threshold.