Alternative Dispute Resolution (ADR) plays an increasingly central role in the resolution of civil debt claims. As the civil courts in England and Wales face sustained pressure on judicial resources, parties are encouraged—and in some instances, expected—to resolve disputes through ADR before litigation is commenced. This includes claims for recovery of unpaid debts, whether arising from contracts, services, or commercial relationships.
Under the Practice Direction – Pre-Action Conduct and Protocols, parties to a debt dispute must consider the use of ADR at an early stage. This includes informal negotiation, mediation, or other forms of facilitated settlement. The Debt Pre-Action Protocol, applicable to businesses pursuing individuals or sole traders, goes further by requiring creditors to provide comprehensive information to debtors and allow reasonable time for a response, including the opportunity to propose ADR.
Courts have made clear that failure to engage in ADR can lead to adverse cost consequences. In accordance with CPR 1.4(2)(e), courts must actively manage cases and encourage the use of ADR where appropriate. Refusal to engage in ADR, particularly where the dispute could reasonably be resolved without the need for trial, may be deemed unreasonable conduct. In such cases, even a successful claimant may be penalised in costs if ADR was unreasonably refused.
The strategic value of ADR in debt litigation extends beyond procedural compliance. Mediation offers a confidential and flexible forum where payment terms, interest, and future business relationships can be negotiated in a way that court judgments often cannot accommodate. Similarly, Part 36 offers can be used as a tactical means of encouraging early settlement while protecting a party’s position on costs.
While ADR is not yet mandatory in all civil debt claims, there is a growing policy shift in that direction. Notably, mediation is now compulsory in small claims once directions are filed, signalling a judicial move towards integrating ADR more firmly into civil procedure.
Ultimately, ADR in debt disputes is not simply a procedural formality; it is a substantive tool capable of resolving claims efficiently, preserving commercial relationships, and minimising costs. Legal representatives advising creditors and debtors alike must ensure ADR is properly considered and documented as part of a responsible litigation strategy.
