How to resolve a commercial dispute with another business

What to do first when a dispute starts

Most commercial disputes begin with something ordinary: an invoice that goes unpaid, goods that arrive late or faulty, a service that falls short of what was promised, or a disagreement about what a contract requires. What you do in the first few days often decides how expensive the dispute becomes, so it pays to slow down before you reply.

Start by collecting the documents. That means the signed contract or the terms and conditions that apply, any variations agreed later, purchase orders, delivery notes, invoices, and the emails and messages that show what each side said and when. Keep everything, including material that does not help you. If the case reaches court you will usually have to disclose relevant documents whether they help you or not, and records that were deleted or tidied up once a dispute was likely can damage your credibility.

Next, read the contract for the clauses that control the dispute itself. Many business contracts require notice of a claim within a set period or in a set form, require the parties to escalate the problem to senior managers or to mediate before going further, send disputes to arbitration instead of the courts, or cap the amount one party can recover. A clause saying which country's law and courts apply matters if the other business is based abroad. Missing a contractual notice deadline can lose a claim that would otherwise have been strong.

Then decide what you want to achieve. Payment, a replacement, a price reduction, ending the contract or an agreed way to keep working together each point towards a different approach. Be careful about what you put in writing while you decide. An angry email can be shown to a judge later, and a message that treats the contract as over when the law does not allow it can put you in breach yourself. Discussions aimed at settlement can be marked "without prejudice", which generally stops them being shown to the court if the case does not settle, but the label only protects genuine attempts to settle.

Finally, check your insurance. Some business policies include legal expenses cover, and liability policies usually require you to tell the insurer promptly about a claim or about circumstances that might lead to one, and late notification can put that cover at risk.

How long you have to bring a claim

The Limitation Act 1980 sets the deadlines for starting court proceedings. A claim for breach of an ordinary contract must be started within six years of the date of the breach, and a claim on a contract made as a deed within twelve years. Most claims in tort, including negligence, must be started within six years of the date the cause of action accrued, which for negligence is usually when the damage happened. Where the facts needed to bring a negligence claim were not known when the damage happened, an alternative period of three years from the date of knowledge can apply, subject to an overall limit of fifteen years from the negligent act or omission.

Those statutory periods are the outer limits, and your contract may impose much shorter ones, particularly for warranty claims under a share or business purchase agreement, and some statutory claims have their own periods. Negotiations on their own do not stop the clock. If a limitation date is close, a claim can be issued to protect your position and the court asked to pause it while the pre-action steps are completed, or both sides can agree in writing to extend time under a standstill agreement.

What the court expects before a claim is issued

Before a claim is issued, the courts expect the parties to exchange enough information to understand each other's position and to try to settle. For most business disputes the rules are in the Practice Direction on Pre-Action Conduct and Protocols. Specific pre-action protocols apply instead to some types of claim, including construction and engineering disputes, professional negligence claims, dilapidations claims about commercial property, and debt claims by a business against an individual or sole trader.

Under the Practice Direction, the claimant should write to the defendant with concise details of the claim: the basis on which it is made, a summary of the facts, what the claimant wants and, if money is claimed, how the figure is calculated. The defendant should reply within a reasonable time, which the Practice Direction puts at 14 days in a straightforward case and no more than three months in a very complex one. The reply should say whether the claim is accepted and, if it is not, which facts are disputed, why, and whether there is a counterclaim. Both sides should disclose the key documents and consider whether some form of alternative dispute resolution could settle the matter.

These steps have consequences for costs. If a party does not follow them, the court can order it to pay costs, including on the indemnity basis, and can adjust the interest on any sum awarded. A claimant at fault can be deprived of interest or given a lower rate, and a defendant at fault can be ordered to pay interest at up to 10% above base rate. A well-prepared letter of claim also makes both sides set out their case early, which is when many disputes can be settled at the lowest cost.

Negotiation, mediation and other ways to settle

The Practice Direction describes litigation as a last resort, and the Civil Procedure Rules make promoting or using alternative dispute resolution part of the overriding objective that guides the court. The court has the power to order the parties to engage in it. When it decides costs, it can take into account a party's failure to comply with such an order or an unreasonable failure to engage, and that can apply to a party that goes on to win.

Direct negotiation is the cheapest way to settle and is often enough. Offers can be made in without prejudice correspondence, at a meeting between the people who make the decisions, or as a formal offer under Part 36 of the Civil Procedure Rules. A Part 36 offer can be made before proceedings are issued and carries set costs consequences if it is not accepted and the other side then fails to do better at trial.

Mediation is a confidential process in which an independent mediator helps the parties negotiate. The mediator does not decide who is right. The parties usually meet in separate rooms, or online, with the mediator moving between them. If terms are agreed, they are written up and signed and are binding as a contract. If they are not, each side keeps its right to go to court, and what was said at the mediation stays confidential.

Early neutral evaluation, in which an experienced lawyer or judge gives a view on the likely outcome, can help when the parties disagree about how strong their cases are. For a technical or valuation question, expert determination, where an agreed expert decides the point, is usually quicker than a trial, and some contracts already provide for it.

When arbitration or adjudication applies

Arbitration is a private process in which one or more arbitrators decide the dispute and make an award that binds the parties. It applies only if the parties have agreed to it, usually through a clause in the contract. If your contract contains an arbitration clause and you start court proceedings, the other side can apply to the court under the Arbitration Act 1996 to stay the claim so the dispute goes to arbitration. Arbitration offers confidentiality and a decision-maker with relevant expertise, but the parties pay the arbitrators' fees and the costs of the hearing, and the routes for challenging an award in court are limited: for example, a challenge for serious irregularity, or an appeal on a point of law, which needs the agreement of the other parties or the court's permission and can be excluded by the contract.

Construction contracts have their own route. Under the Housing Grants, Construction and Regeneration Act 1996, a party to a construction contract can refer a dispute to adjudication at any time. The adjudicator must reach a decision within 28 days of the referral, which can be extended by up to 14 days with the consent of the party that referred the dispute, or longer if both parties agree. The decision is binding until the dispute is finally decided by the court, by arbitration or by agreement, and the parties can agree to accept it as final.

How a court claim works

Most business claims start in the County Court. A money claim can be started in the High Court only if it is worth more than £100,000, and larger or more complex commercial cases in the High Court are usually dealt with in the Business and Property Courts. The claimant issues a claim form with particulars of claim setting out the facts and what is claimed, and pays an issue fee. For money claims the fee rises with the value of the claim, reaching 5% of the amount claimed for claims over £10,000 and up to £200,000, and £10,000 for claims above that.

A claim form served in England and Wales must be served within four months of issue. The defendant then has 14 days after service of the particulars of claim to file a defence or an acknowledgment of service, and filing an acknowledgment extends the time for the defence to 28 days after service of the particulars. The parties can agree to extend that time by up to a further 28 days. If the defendant does nothing, the claimant can usually ask for judgment in default.

Once a defence is filed, the court allocates the case to a track. The small claims track is normally for claims worth £10,000 or less, the fast track for claims up to £25,000 that can be tried in a day, and the intermediate track for claims up to £100,000 that meet further conditions, including a trial of no more than three days. Larger and more complex claims go to the multi-track. The court then sets a timetable for disclosure of documents, witness statements, any expert evidence and the trial.

Not every claim needs a full trial. Either side can apply for summary judgment where the other has no real prospect of success on the claim or on a particular issue and there is no other compelling reason for a trial. In urgent cases the court can grant an injunction, for example to stop the misuse of confidential information while the dispute is decided. Settlement also remains possible at every stage, and the steps in the timetable, which require each side to put its evidence on the table, can prompt it.

What a dispute costs and who pays

The main costs of a dispute are your own lawyers' fees, court fees and the fees of any barrister, expert or mediator. Apart from court fees, the cost depends mainly on how much is in dispute: the number of issues, the volume of documents, the number of witnesses, whether expert evidence is needed and how the other side conducts the case.

The general rule is that the losing party pays the winning party's costs, but the court has a wide discretion. It looks at the conduct of the parties before and during the proceedings, including whether they followed the pre-action rules, whether a party succeeded on only part of its case, whether a claim was exaggerated and whether a party unreasonably failed to engage in alternative dispute resolution. Costs are then assessed, and on the usual standard basis the court allows only costs that are reasonable and proportionate, so a winner often does not recover everything it has spent. On the small claims track, the costs a winner can recover are limited to fixed issue costs, court fees and certain expenses unless the other side has behaved unreasonably. For most claims on the fast track and intermediate track, the recoverable costs are fixed by the rules.

Part 36 offers change the calculation. If a defendant makes a Part 36 offer and the claimant fails to beat it at trial, the court will usually order the claimant to pay the defendant's costs from the date the time for accepting the offer expired. If a claimant makes an offer and then does at least as well at trial, the court will usually award interest of up to 10% above base rate, costs on the indemnity basis and an additional amount of 10% of the sum awarded up to £500,000 and 5% of any amount above that, capped at £75,000. The timing and terms of offers therefore need as much thought as the evidence.

Common mistakes that weaken a good claim

Claims that should succeed are often weakened by avoidable mistakes. A business waits too long, and a limitation date or a contractual notice period passes. It stops performing a contract, or treats it as terminated, without being sure it is entitled to, and becomes the party in breach. It sends correspondence that exaggerates the claim or makes threats, which reads badly later. It fails to keep documents, or relies on an oral agreement that nobody recorded. It sues the wrong party, such as a parent company instead of the subsidiary that signed the contract, or a trading name that is not a legal person.

Another common mistake is spending heavily to pursue a party that cannot pay. Before committing to litigation, look at the other side's filed accounts and any registered charges at Companies House, and search the register of judgments. A strong claim against a business with no assets may still not be worth pursuing. Our guide on recovering an unpaid business debt explains how judgments are enforced and what to do if the other side cannot pay.

How we handle commercial disputes

When you bring a dispute to us, we start by reading the contract and the key correspondence, identifying any deadlines, and giving you our view on the strength of your position, what a realistic outcome looks like and what it is likely to cost to get there. We agree the scope of the work and the cost with you in writing before we start. Where settlement is the sensible course, we work towards it early, through a well-evidenced letter of claim, negotiation or mediation. Where it is not, we prepare the claim properly and keep the costs and the prospects under review as it goes on, so that you can make decisions with the full picture at each stage.

We act for small and growing businesses and their owners across England and Wales in contract disputes, disputes with suppliers and customers, claims for unpaid money and disputes between shareholders. If a dispute is starting to affect your business, talk to us as early as you can, while all of the options are still open.

Frequently asked questions

How long do I have to bring a contract claim?

For most contracts you have six years from the date of the breach to start court proceedings, or twelve years if the contract was made as a deed. Your contract may set shorter deadlines for giving notice of a claim or bringing it, and those can be enforceable, so check it early. Negotiations do not stop time running. If a deadline is close, a claim can be issued to protect your position, or the other side can be asked to agree a standstill.

Do I have to try mediation before going to court?

Mediation is not compulsory in every case, but the court expects you to consider it and has the power to order the parties to engage in alternative dispute resolution. If you unreasonably refuse to take part, the court can take that into account when it decides who pays costs. For money claims of £10,000 or less that the defendant disputes, you will usually be told you must attend the court's free mediation service, which is an appointment of up to an hour.

Can I recover my legal costs if I win?

Usually you can recover some of your costs, but often not all of them. The general rule is that the losing party pays the winner's costs, but the court has a discretion, assesses the amount and can reduce it for conduct such as refusing mediation. On the small claims track, recoverable costs are limited to fixed issue costs, court fees and certain expenses, and for most fast track and intermediate track claims the recoverable costs are fixed by the rules.

What is a letter before action?

A letter before action, also called a letter of claim, is the formal letter a claimant sends before issuing court proceedings. It sets out the basis of the claim, a summary of the facts, what the claimant wants and how any sum claimed is calculated. Under the Practice Direction on Pre-Action Conduct, the recipient should reply within a reasonable time, which is 14 days in a straightforward case and no more than three months in a very complex one.

What is the difference between arbitration and going to court?

Arbitration is a private process that applies only if the parties have agreed to it, usually in their contract, while the courts are available without any agreement. An arbitrator's award binds the parties, and the grounds for challenging it in court are limited. Arbitration can offer confidentiality and a decision-maker with specialist knowledge, but the parties pay the arbitrators' fees and the hearing costs themselves.

Should I stop paying or stop work if the other side is in breach?

Not without taking advice first, because withholding performance can put you in breach yourself. Whether you can suspend work, withhold payment or end the contract depends on the contract terms and on how serious the other side's breach is. If you get it wrong, the other party may be entitled to treat the contract as ended and claim damages from you. Some contracts allow set-off or suspension in defined circumstances, so check the terms before you act.

Sources & further reading

• Ministry of Justice — Practice Direction: Pre-Action Conduct and Protocols
• Ministry of Justice — Civil Procedure Rules Part 26: case management and tracks
• Ministry of Justice — Civil Procedure Rules Part 36: offers to settle
• Ministry of Justice — Civil Procedure Rules Part 44: general rules about costs
• legislation.gov.uk — Limitation Act 1980, section 5
• HM Courts & Tribunals Service — Civil court fees (EX50)
• GOV.UK — A guide to civil mediation

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).