Lord Denning once said:
“Cash flow is the life-blood of the construction industry. It might be added that when the circulation is impeded by clots the consequence is thrombosis! One of the greatest threats to cash flow is the incidence of disputes.” Lord Denning (1996)
To tackle this very problem BIS is consulting on a plan to set up a Small Business Commissioner, which will promote the use of mediation and ADR to deal with business disputes, more quickly and effectively than going to Court.
ProMediate is involved and has attended a meeting at BIS to discuss the proposals. We are setting up a Business Ombudsman service as well as offering mediation.
Sadly the Law Society is not wholly supportive of the idea and in its response has warned against the ‘unintended effects’ of the proposals, as it has concerns that the changes could retrospectively remove contractual rights.
Under the plan small businesses would be able to get help resolving contractual disputes through a small business commissioner who would make sure that businesses would be offered voluntary mediation to help resolve any issues without having to take legal action.
The Law Society warned that businesses should still be able to retain their right to independent legal advice through any mediation process. As we understand it there is no suggestion being made to remove that right, so it is not clear where the Law Societt is coming from.
It also cautioned against government plans to highlight when a party has failed to participate in mediation. Under the plans any failure to participate in mediation would be considered in court proceedings in awarding costs.
Kathleen O’Reilly, a member of the Law Society’s company law committee, said: ‘Praising and shaming parties’ positions in disputes may risk disclosure of commercial confidentialities as well as interfere with the right to exercise freedom of choice and enforcement of contractual rights.’
This appears to be based on a misunderstanding as Courts already take failure to mediate into account when it comes to deciding who should pay the costs of Court action and there is no risk of a breach of confidentiality in revealing this.
On plans to introduce a complaints service, which would allow small businesses to issue a complaint about a medium or large business with which it has a contractual relationship, such as late payment of debts, which big businesses often use as a tactic in relationships with small businesses, the Society advised that an appeals process is needed if sanctions are proposed. There would obviously be an appeals process, just as with any other quasi judicial body such as an ombudsman.
Ms O’Reilly stressed that further consideration is needed before the proposals are put into practice, but that is obviously BIS’ intention and following the consultation further consideration will be given.
Ms O’Reilly said that “A small-business commissioner would provide real value with a new service for small businesses that assists with securing advice and encourages alternative affordable debt recovery.”
‘However, when tackling contractual supply-chain issues, the objective of changing business culture risks undermining established contractual law principles.’ It is not quite clear why Ms O’Reilly thinks that there is a risk of undermining contractual law principles? Any decisions taken about payment would in fact reinforce contractual law principles. One can only think that the Law Society is more worried about the work that will be diverted away from litigation and redirected to ADR, saving businesses time and money.
Mediation is not about retrospectively changing contractual rights retrospectively but about voluntarily stepping outside the dispute and trying to find a different way to resolve it on a confidential and without prejudice basis, which operates in other areas quite effectively without undermining any fundamental legal principles.
To quote again from Lord Denning:
“If we never do anything which has not been done before, we shall never get anywhere. The law will stand still while the rest of the world goes on, and that will be bad for both”
To put it another way, if we don’t move forward then we just stand still. Wise words which the Law Society would do well to heed.
Disclaimer: The information and any commentary on the law contained in this article is for information purposes only. No responsibility for the accuracy and correctness of the information and commentary or for any consequences of relying on it, is assumed by the author. The information and commentary does not, and is not intended to amount to legal advice to any person on a specific case or matter. The article was written on the date shown and may not represent the law as it stands subsequently. For the avoidance of doubt, the views in this article are personal to the author and not attributable to any other individual or organisation.