Procedure and alternatives - ADR options and settlement stra...

Learning Outcomes

This article covers ADR options and settlement strategy, including:

• The principal ADR methods available in England and Wales—mediation, arbitration, conciliation, early neutral evaluation, expert determination, adjudication, and sector ombudsman schemes
• Suitability analysis: when ADR is appropriate or unsuitable, and practical advantages and disadvantages compared to litigation (speed, cost, confidentiality, enforceability)
• The courts’ approach to ADR: powers to encourage or order non-court dispute resolution, stays, and costs consequences for unreasonable refusal or silence (e.g., Halsey)
• Negotiation planning frameworks: BATNA, opening bids, resistance points, variables, and identifying the settlement zone (ZOPA)
• Preparation for mediation and other processes, including attendance, settlement authority, agendas, and communication strategy
• Proper use of “without prejudice” and “without prejudice save as to costs” communications to protect negotiations
• Strategic deployment of formal and informal offers—Part 36 and Calderbank—and assessment of associated costs risks and protections
• Case evaluation to inform settlement: issue and evidence mapping, procedural considerations, and non-legal impacts (stress, time, reputation, cashflow)
• Recording settlement terms and ensuring enforceability via consent orders and Tomlin orders in proceedings
• Key drafting points for settlement documentation: scope of release, consideration and payment mechanics, costs, confidentiality, non-admission, tax, governing law and jurisdiction, and enforcement provisions

SQE2 Syllabus

For SQE2, you are required to understand alternative dispute resolution and settlement options from a practical standpoint, with a focus on the following syllabus points:

• the principal forms of ADR available in England and Wales, including their procedures and suitability
• the factors determining whether ADR or litigation is appropriate
• the practical advantages and disadvantages of ADR methods compared to litigation
• the processes for evaluating case strengths and risks to devise a settlement strategy
• the use and explanation of negotiation tactics, including the identification of a client’s BATNA
• the structuring and presentation of advice to clients on ADR, negotiation, and settlement proposals
• the court’s approach to ADR, including case law on costs consequences and powers to encourage or order ADR
• settlement mechanics and documents: “without prejudice” privilege, Part 36 offers, Calderbank offers, Tomlin orders and consent orders
• the selection, preparation and presentation for mediation, ENE, expert determination, adjudication and arbitration

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which ADR method involves a neutral party assisting parties to reach a voluntary settlement, without having power to impose terms?
2. What does ‘BATNA’ stand for, and why is it important in settlement negotiations?
3. Name three key factors a solicitor should assess before advising a client to use ADR.
4. True or false? Courts may penalise a party in costs for unreasonably refusing to participate in mediation.

Introduction

Disputes can be resolved in several ways. Litigation should not be the default. For SQE2, you need to understand the effective use of alternative dispute resolution (ADR), know when settlement options should be considered, and be able to advise clients appropriately.

A solicitor must evaluate both litigation and alternatives, considering client objectives and risk. This article outlines the core ADR methods, when to use them, and how to construct a rational settlement strategy for clients.

CPR and court guides emphasise active case management, including encouraging ADR to save costs and time. Courts can stay proceedings to allow ADR, and may impose costs consequences where a party unreasonably refuses ADR. Pre-Action Protocols require parties to exchange information early and consider ADR before issuing, reinforcing the expectation that ADR is not an afterthought but part of responsible dispute management.

ADR: Overview

Alternative dispute resolution (ADR) refers to processes for resolving disputes without a court’s final decision. There is a growing expectation that clients and solicitors consider ADR at an early stage, and courts may impose costs penalties for unjustified refusal to participate. Courts also have case management powers to stay proceedings for ADR and, in appropriate cases, to order parties to engage with non-court dispute resolution, provided doing so is proportionate and does not impair a party’s right to a fair hearing.

Key Term: alternative dispute resolution (ADR)
Any structured method for resolving disputes other than obtaining a court or tribunal judgment (e.g., mediation, conciliation, expert determination, adjudication or arbitration).

Main Types of ADR

Mediation

Mediation involves a neutral third party (the mediator) helping parties to reach a voluntary and mutual settlement. Mediation is confidential, flexible, and typically faster and less costly than litigation.

A mediation commonly includes a brief joint session to outline positions (sometimes omitted in high-conflict cases), private confidential meetings (caucuses) with shuttle negotiation, and a closing session to record agreed terms. Mediators may be purely facilitative or, if jointly requested, offer evaluative comments on risks. Agreements reached can be made binding by recording terms in a contract or, if litigation is on foot, by a consent order or Tomlin order.

Key Term: mediation
A voluntary and confidential process in which a neutral mediator assists the parties to negotiate a self-determined settlement.

Arbitration

Arbitration is a formal process where parties agree to be bound by the decision of an arbitrator or panel, often chosen for their specialist knowledge. The process is private and the award is binding.

Under the Arbitration Act 1996, parties can tailor procedure, choose institutional rules (e.g., LCIA, ICC) or ad hoc rules (e.g., UNCITRAL), and select the seat of arbitration. There are limited grounds to challenge an award (serious irregularity or lack of jurisdiction), with appeals on a point of law permitted only in narrow circumstances and often excluded by agreement. Awards are enforceable in England and internationally (New York Convention).

Key Term: arbitration
A process in which a neutral arbitrator makes a binding decision on a dispute, usually following a hearing.

Early Neutral Evaluation

A neutral evaluator assesses the strengths and weaknesses of each side’s case early on. The evaluation is not binding but may lead to negotiation and settlement.

Courts can facilitate judicial ENE and, in suitable cases, order ENE without the parties’ consent. Private ENE is also available and is useful where an authoritative view may overcome entrenched positions.

Key Term: early neutral evaluation
Non-binding assessment of a case by a neutral expert to indicate likely outcome if decided by a court or tribunal.

Key Term: conciliation
A process similar to mediation where a neutral third party helps resolve a dispute, but may play a more active role in proposing settlement terms.

Expert determination

Expert determination is a private process in which parties appoint an independent expert to decide a specific technical or valuation issue. It is commonly used for price adjustments in share purchase agreements, rent reviews, or quality disputes. The expert’s decision is contractually binding if the clause so provides, with very limited scope to challenge.

Key Term: expert determination
A private, contract-based process where an independent expert decides a defined technical issue; the decision is typically final and binding.

Adjudication

In construction disputes, statutory adjudication provides a rapid, interim-binding decision on payment and other issues, usually within 28 days. The “pay now, argue later” decision is enforceable by the court, pending final determination by arbitration or litigation.

Key Term: adjudication
A fast-track, interim-binding process (common in construction) where a neutral adjudicator decides a dispute quickly, typically enforceable on an interim basis.

Ombudsman and complaint schemes

Sector ombudsman schemes (e.g., Financial Ombudsman Service, Legal Ombudsman) offer free, informal dispute resolution with determinations that are binding on the business if accepted by the consumer. These are useful where parties fall within the scheme jurisdiction and prefer a low-cost route.

Key Term: ombudsman
An independent scheme that investigates and resolves complaints against organisations; determinations can bind the business if accepted by the consumer.

Advantages and Disadvantages of ADR

ADR may be faster, cheaper, and less adversarial than litigation. It is confidential and suitable for preserving business or family relationships. Mediators can explore creative outcomes beyond the court’s remedial limits (e.g., future orders, apologies, variations of ongoing contracts). Arbitration offers privacy and specialist decision-making with international enforceability.

However, it is not always appropriate—e.g., where urgent or interim relief is needed, one party refuses to cooperate, or precedent is essential. Non-binding processes (mediation, conciliation, ENE) may be gamed by a recalcitrant party. Arbitration has limited appeal rights, and costs can approach litigation if procedure is not actively managed. In adjudication, the interim nature of decisions may not finally resolve the dispute.

When is ADR Appropriate?

A solicitor should consider ADR where:

• There is need for a private process
• Parties want continued relationship
• Legal costs and delay of trial are disproportionate
• Outcome certainty is less important than control or creative solutions
• Technical or valuation issues predominate (expert determination)
• Speed is essential to cashflow (adjudication)

ADR is less suitable where:

• There are allegations of fraud or wilful non-cooperation
• A party wants a legal precedent or public judgment
• Immediate remedies (e.g., injunctions) are needed
• A test case or authoritative court ruling is required
• There is a material power imbalance that ADR cannot mitigate

Courts expect parties to consider ADR, and an unreasonable refusal can have costs consequences (see Halsey v Milton Keynes General NHS Trust). Silence in response to a proper invitation to mediate can itself be unreasonable. Courts can also stay proceedings for ADR, and have confirmed their power to encourage or order non-court dispute resolution where proportionate and compatible with the overriding objective.

Worked Example 1.1

Lucy’s business is in dispute with a supplier over defective goods. Both wish to preserve a future trading relationship, but communications have stalled.

Answer:
Mediation is likely to be appropriate as a flexible, confidential process that focuses on mutually acceptable solutions and helps preserve relationships.

Settlement Strategy and Case Evaluation

Settlement strategy is not just about making offers—solicitors must evaluate the merits and risks of the client’s case compared to alternatives. This involves careful problem analysis, weighing legal and non-legal factors, and helping the client make informed decisions about timing and terms.

Key elements include:

• mapping the legal issues and evidence (what must be proved and how)
• identifying uncertainties and evidential gaps
• assessing procedural considerations (disclosure burdens, interim applications, likely timetable)
• factoring in non-legal impacts (stress, management time, reputation, cashflow)
• designing a negotiation plan with realistic ranges and variables

Negotiation and BATNA

Effective negotiation is central to settlements. Before entering negotiation, a solicitor must clarify the client’s objectives, assess likely outcomes, and identify both sides’ best and worst alternatives if no agreement is reached.

Key Term: BATNA
Acronym for 'Best Alternative To a Negotiated Agreement'—the most advantageous alternative a party can take if negotiations fail.

Assessing BATNA gives clients a benchmark and ensures they do not accept a settlement less favourable than their next best option (e.g., going to trial). As part of planning, determine your opening position, your resistance point (the least favourable acceptable outcome given your BATNA), and the potential settlement zone.

Key Term: settlement zone (ZOPA)
The zone of possible agreement—overlap between parties’ acceptable ranges where a deal can be struck.

Prepare thoroughly:

• who will attend and with what authority to settle
• agenda and sequencing of issues
• likely concessions and variables (payment schedule, confidentiality, future business, interest)
• communication mode and tone
• whether to exchange short, non-prejudicial position statements to focus issues

Negotiation styles vary. A cooperative, problem-solving approach that explores interests tends to produce durable outcomes. Avoid common pitfalls: imposing a fixed agenda without engagement, jumping randomly between issues, avoiding core disagreements, or treating the process as a win/lose contest.

Key Term: without prejudice
A label used for genuine settlement communications that, as a matter of privilege, are inadmissible in court on liability and quantum, encouraging candid negotiation. “Without prejudice save as to costs” allows reference on costs after judgment.

Worked Example 1.2

Omar is suing for £20,000. He has legal expenses insurance. His case is average in strength, with an estimated 60% chance of success at trial. The defendant offers £10,000 plus costs. Should Omar accept?

Answer:
Omar should compare the net probable value of litigation (considering risks, costs, and time) to the offer. If, after honest assessment, litigation is expected to yield more than £10,000 (after adjusting for probabilities and costs), decline. Otherwise, consider accepting or negotiating further.

Opening bids, resistance points and variables

• Opening bid: set the highest justifiable position supported by facts and law, retaining credibility and room to move.
• Resistance point: set the least favourable acceptable outcome; be flexible if new information changes risk.
• Variables: consider non-monetary levers to bridge gaps—installments, accelerated payment, warranties, future orders, returns, confidentiality, non-disparagement, neutral references, or structured tax-efficient payments.

Settlement zones

If you assess that your client would accept no less than £20,000 and the other party would pay up to £35,000, the settlement zone is £20,000–£35,000. Your aim is to secure the best point within that zone while keeping the overall package aligned with the client’s priorities.

Settlement offers and costs risk

Strategic use of formal and informal offers is central to cost-aware negotiation.

Key Term: Part 36 offer
A formal offer under CPR Part 36 that carries specified costs consequences if bettered or not bettered at trial; strict procedural requirements apply.

A well-pitched Part 36 offer can create significant costs protection or pressure. Outside Part 36, a Calderbank offer (“without prejudice save as to costs”) can influence costs at the court’s discretion, especially where Part 36 is unavailable (e.g., some tribunals).

Documenting both your offers and the opponent’s stance also supports future costs arguments, particularly where the other side unreasonably ignores or refuses ADR.

Settling and recording terms

When agreement is reached, ensure the terms are complete, clear and enforceable. When proceedings are issued, consider a consent order or a Tomlin order.

Key Term: Tomlin order
A form of consent order staying proceedings on agreed terms set out in a confidential schedule; the court retains power to enforce the schedule.

Key drafting points:

• parties and authority: confirm who is bound and that signatories have authority
• scope of release: define precisely what claims are compromised (past, present, future, known/unknown)
• consideration and payment mechanics: amounts, dates, installments, interest on late payment, default provisions
• dismissal/stay: whether the claim is stayed (Tomlin order) or dismissed
• costs: whether included, payable separately, basis and timetable
• confidentiality and non-disparagement: scope, exceptions (legal or regulatory duties), remedies
• non-admission: make clear there is no admission of liability if required
• tax and indemnities: address tax treatment where relevant
• governing law and jurisdiction
• consequences of breach and enforcement route

Precision in drafting matters. Use clear definitions, avoid ambiguity about “and/or,” and ensure internal consistency. Confirm all settlement advice and client instructions in writing and keep a proper record of offers and responses.

Worked Example 1.3

A client wishes to proceed directly to court without considering ADR. What advice should you give?

Answer:
The client should be advised of the court’s expectation to consider ADR, the potential costs penalties for unreasonable refusal, and the potential benefits of a suitable form of ADR. The solicitor should record this advice and be prepared to justify any decision to proceed without ADR.

Worked Example 1.4

You act for a claimant with a strong but not certain case. The defendant has ignored two invitations to mediate and has made no offers. You are considering a Part 36 offer and whether to issue. What strategy reduces costs risk and maximises pressure?

Answer:
Make a well-judged claimant Part 36 offer reflecting a realistic discounted value of the claim, set a reasonable validity period, and renew the invitation to mediate in parallel. Record the defendant’s silence. If proceedings are issued, the Part 36 and ADR correspondence position you to seek favourable costs orders if you obtain an equal or better result at trial, and to argue for costs sanctions based on unreasonable refusal to mediate.

Exam Warning

For SQE2, remember that courts may impose costs sanctions for parties who refuse to consider ADR without a valid reason (e.g., Halsey v Milton Keynes General NHS Trust). Silence in response to a proper mediation invitation can itself be unreasonable with costs consequences. Courts can also stay proceedings for ADR and, where proportionate, direct parties to engage with non-court dispute resolution. Know how Part 36 offers work and how Tomlin orders record settlement terms confidentially. Be able to identify when refusal might be reasonable (e.g., urgent injunctive relief, truly hopeless ADR prospects, or where a point of law must be determined).

Revision Tip

Use the BATNA framework with clients: always assess their best and worst alternatives to settlement, then compare the value and risks logically before recommending next steps. Plan your opening bid, resistance point and variables, and identify the likely settlement zone to structure concessions and maintain momentum.

Key Point Checklist

This article has covered the following key knowledge points:

• ADR is an umbrella term for several structured alternatives to litigation, especially mediation, arbitration, conciliation, expert determination, adjudication and early neutral evaluation.
• Mediation is voluntary and focuses on party-driven settlement; arbitration leads to a binding third-party decision with limited appeal rights.
• Courts expect parties to consider ADR; unjustified refusal or silence can result in costs consequences, and courts can stay proceedings for ADR where appropriate.
• Solicitors must evaluate merits, risks, client objectives and non-legal impacts before advising on ADR or settlement.
• BATNA helps establish negotiation limits; plan opening bids, resistance points and variables to manage the settlement zone effectively.
• Use formal offers strategically: Part 36 offers carry powerful costs consequences; Calderbank offers may influence discretion where Part 36 does not apply.
• Record and implement settlement with clear, enforceable terms; Tomlin orders can keep terms confidential while ensuring enforceability.
• “Without prejudice” privilege protects genuine settlement communications; use “save as to costs” appropriately.
• Effective settlement strategy requires honest risk assessment, ethical conduct, and ongoing review as a case develops.

Key Terms and Concepts

• alternative dispute resolution (ADR)
• mediation
• arbitration
• early neutral evaluation
• conciliation
• expert determination
• adjudication
• ombudsman
• BATNA
• settlement zone (ZOPA)
• without prejudice
• Part 36 offer
• Tomlin order