22 February 2008
Faced with a legal challenge, most local authorities automatically go to court. They should learn from the private sector, where cheaper and quicker alternative dispute resolution is growing in popularity
Hard-pressed council finance officers are always looking for ways to save money and increase efficiency. One way they could do this would be to use modern litigation practice rather than the courts to resolve legal difficulties with commercial contracts.
Alternative dispute resolution —settling with the help of an independent third party and without the need for a formal court hearing — is being used extensively in the private sector. But for some reason local government does not seem to have caught on to this yet. Councils do use other forms of dispute resolution, such as arbitration, which retain the more traditional adversarial approach.
These were the main findings of an Eversheds survey of commercial litigation practice in the private sector and in local government, carried out by independent strategic research company Acritas. For the local government version, Eversheds worked closely with the Association of Council Secretaries & Solicitors and the Solicitors in Local Government Group.
The purpose of the local government survey was to find out how councils were coping with increased pressure in terms of commercial litigation and to identify what lessons could be learned and disseminated to others from this work. The results will be published later this month in the report, Understanding the drivers of local authority litigation.
The first part of the survey concerned the number and value of claims. Authorities were asked about the nature of any commercial contract disputes they had dealt with over the past year. These were divided into property, construction, judicial review applications and complex contracts.
The majority of respondents had experienced each type of dispute, apart from construction, where only about half had. Nine out of ten had experienced at least one judicial review case, and figures for property and complex contracts were also high. In each case, local authorities had a significant number of disputes, each with a fairly high mean value. Complex contractual disputes tended to involve relatively large amounts of money, with a mean value of £1.375m. The mean was derived from disputes ranging from around £50,000 to £3m. At least one of those questioned had more than six of these cases outstanding.
However, the most surprising result of the survey was how local authorities chose to resolve these disputes. While the private sector has moved increasingly to ADR, many local authorities continue to use the more traditional and considerably more expensive route of dealing with claims through the courts.
The chart above illustrates the local authority responses. Councils were asked which methods they used. All of those questioned used traditional litigation in some form or another. But, apart from adjudication, which is widely used in construction disputes, only half used ADR.
This is undoubtedly a key finding as the aspiration must surely be for close to 100% ADR, with litigation a last resort. However, an even more surprising result was obtained when the question was asked: 'Which is the authority's preferred method for handling commercial and contractual disputes?' Here, more than a third said litigation. This might seem perverse, but is hardly surprising bearing in mind the other results.
Detailed analysis has shown that litigation is rarely cheaper and that ADR can provide a swifter and cheaper solution that has less of an impact on the organisation concerned.
Of course, the commercial sector came to this view after spending substantial sums on lawyers to fight cases that cost millions and lasted for years, without the outcomes they wanted. This harsh experience has driven the development of new forms of dispute resolution. Sadly, local authorities do not seem to have yet caught up with much of this.
There is, of course, a role for traditional litigation, such as application for injunctive relief, summary determinations and strategic use to bring an intransigent party to heel.
But perhaps the public sector should give more consideration to ADR. Failure to explore the options flies in the face of judicial encouragement and could ultimately result in adverse cost orders.
Stephen Cirell is head of local government and Professor John Bennett is a consultant solicitor with Eversheds. A copy of the survey will be sent to local authorities in England and Wales later this month. A PDF copy can be obtained by e-mailing: [email protected]
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