How to Resolve a Contract Dispute Without Going to Court

Setfords Law, Published: 23rd July 2026, Last reviewed: 23rd July 2026, Read time: 8 minutes

Most contract disputes are resolved without ever reaching a trial. Negotiation, mediation, arbitration, and formal settlement offers all give you a route to a resolution that’s usually quicker, cheaper, and less damaging to a business relationship than litigation. Here’s how each option works, and how to use them well.

Key takeaways

• The large majority of contract disputes settle before trial, through negotiation, mediation, or a formal settlement offer.
• Mediation has a consistently high settlement rate, and courts can now order genuinely reluctant parties into it.
• A Part 36 offer is a formal settlement tool with real costs consequences, and it can be used before or during court proceedings.
• Settlement talks are usually protected as “without prejudice,” meaning they generally can’t be used against you if the dispute doesn’t settle.
• Refusing to engage with alternative dispute resolution without good reason can count against you on costs, even if you go on to win the underlying claim.

Court is the last resort in a contract dispute, not the starting point. Before proceedings are even issued, the Practice Direction on Pre-Action Conduct expects both sides to have tried to resolve things. That expectation doesn’t disappear once a claim is issued either.

There are several established routes to a resolution that don’t involve a judge deciding who’s right. These include direct negotiation, mediation, arbitration, expert determination, and formal settlement offers made under the court rules. Which one fits depends on the size and nature of the dispute, and how willing the other side is to engage.

None of this requires giving up your legal position. Settlement discussions are usually protected, and a well-used settlement offer can put real pressure on the other side without you having to go anywhere near a courtroom.

Key figures

87% · 21 days · £10,000

Commercial mediation in the UK has an outstanding track record. According to the Centre for Effective Dispute Resolution’s (CEDR’s) most recent Mediation Audit, it settles around 87% of disputes, 70% on the day itself and a further 17% shortly after.

A Part 36 settlement offer, a formal offer made under the Civil Procedure Rules, must stay open for at least 21 days before its costs consequences bite.

For defended money claims under £10,000, mediation is no longer only encouraged, it’s compulsory. Parties are automatically referred to a free, one-hour session run by the Small Claims Mediation Service, part of HM Courts and Tribunals Service (HMCTS). This happens before the case proceeds to a hearing

(These figures reflect typical practice and the latest published statistics. Confirm current figures and rules with your solicitor, since mediation statistics and court rules are both periodically updated.)

The main ways to resolve a dispute without court

• Direct negotiation. The simplest and most common route. Correspondence between the parties, or their solicitors, often resolves a dispute without any formal process at all.
• Mediation. An independent, trained mediator helps both sides work towards a settlement. The mediator doesn’t decide who’s right, and anything discussed is confidential and generally can’t be used later if the case doesn’t settle.
• Arbitration. Where the contract includes an arbitration clause, the dispute goes to a private arbitrator instead of the courts. It’s more formal than mediation, the arbitrator’s decision is usually final, and it’s rarely something you can appeal.
• Expert determination. Common for disputes turning on a technical or valuation question, such as the quality of goods or the value of a shareholding. An independent expert decides the specific issue, and their decision is normally binding by agreement between the parties, with limited grounds to challenge it.
• Formal settlement offers. A Part 36 offer, discussed below, can be made before proceedings start or at any point during them, and carries real costs consequences whether or not it’s accepted.

What does “without prejudice” mean? A label used on genuine settlement discussions to signal that neither side’s offers or concessions can generally be shown to the court. It also means they generally can’t be used against a party if the case doesn’t settle. It’s what lets parties negotiate frankly without it counting as an admission.

Using a Part 36 offer

A Part 36 offer is a specific type of settlement offer, made under Part 36 of the Civil Procedure Rules, with strict formal requirements and real teeth. It must stay open for at least 21 days, and the court doesn’t see it until after judgment. This means it has no influence on how the case is decided, only on who pays what afterwards.

The pressure comes from what happens if the offer isn’t accepted and the case goes on to trial. Say the party who made the offer does at least as well at trial as their own offer. The other side can then face a significantly worse costs outcome than they would otherwise. This can sometimes include higher interest and costs on a more generous basis than normal. That’s what makes a well-judged Part 36 offer such an effective tool for pushing a dispute towards settlement, even once proceedings are underway.

What is a Part 36 offer? A formal settlement offer made under the Civil Procedure Rules. It carries automatic costs consequences if it isn’t accepted and the case later goes to trial, designed to encourage early, realistic settlement.

What happens if you refuse to engage

Refusing to consider alternative dispute resolution isn’t cost-free. Following the Court of Appeal’s 2023 ruling in Churchill v Merthyr Tydfil, courts can order genuinely reluctant parties into mediation or another non-court process. This is provided doing so doesn’t stop them getting a fair hearing later if it fails.

Even short of that, an unreasonable refusal to engage with mediation can be taken into account when the court decides who pays the costs of the case. This applies regardless of who wins on the underlying claim. A party can win their case and still be penalised on costs for having refused a reasonable invitation to mediate along the way.

What slows down an out-of-court resolution

An unwilling counterparty. Mediation and negotiation only work if both sides genuinely engage. One party stalling or refusing to respond can drag things out even where the dispute itself is straightforward.

Unrealistic expectations on either side. Settlement talks stall where one party’s position has little connection to the merits or the likely outcome at trial.

Poorly drafted settlement offers. A Part 36 offer that doesn’t meet the formal requirements can lose its costs protection entirely, so getting the drafting right matters as much as the offer itself.

What helps resolve a dispute without court

Send a proper letter before claim. Setting out the basis of the dispute clearly, and inviting a response within a reasonable time, often prompts a serious conversation that wouldn’t otherwise happen.

Choose the right process for the dispute. Mediation suits most commercial disagreements. Expert determination fits disputes turning on a technical or valuation question. Matching the process to the dispute saves time and cost.

Use a Part 36 offer strategically. A well-judged offer, pitched realistically against the likely outcome at trial, can bring a dispute to a head even where informal negotiation has stalled.

Keep settlement talks properly “without prejudice.” Marking genuine settlement correspondence this way protects your ability to negotiate openly without it being used against you later.

Working out the right route to resolve a dispute depends on the specifics of your contract, the other side, and what you’re trying to achieve. Speak to our commercial disputes team for a confidential, no-obligation conversation about your options.

Common mistakes

1. Refusing mediation on principle. Courts can now compel reluctant parties into ADR, and an unreasonable refusal can affect who pays the costs regardless of who wins. Fix: engage with genuine proposals even where you’re confident in your position.
   
2. Getting Part 36 offers wrong procedurally. An offer that doesn’t meet the formal requirements can lose its costs protection. Fix: get advice on drafting before making a formal offer.
   
3. Discussing settlement without marking it “without prejudice.” Concessions made in an unmarked conversation can potentially be used against you later. Fix: make clear at the outset that settlement discussions are without prejudice.
   
4. Treating every dispute the same way. A technical valuation disagreement and a straightforward payment dispute don’t suit the same resolution process. Fix: match the method, mediation, arbitration, or expert determination, to the nature of the dispute.

When to speak to a solicitor

If you’re in a contract dispute and want to explore resolving it without going to court, getting advice early helps you choose the right route and use it well. This is useful whether or not you go on to instruct Setfords.

Speak to a solicitor if:

• You want to make or respond to a settlement offer and aren’t sure of the right approach.
• The other side has proposed mediation, or you’re considering suggesting it yourself.
• Your contract includes an arbitration clause and you’re not sure what that means for your options.
• You’ve received a Part 36 offer and need to understand the costs implications of accepting or rejecting it.
• Negotiations have stalled and you want to understand your next options before things escalate.

FAQs

Do I have to go to mediation if the other side asks?

If your claim is a defended money claim under £10,000, yes, mediation is now a compulsory step. Parties are automatically referred to a free, one-hour session through HMCTS’s Small Claims Mediation Service before the case can proceed to a hearing. For higher-value claims, it isn’t automatically compulsory, but refusing without good reason carries real risk. Following Churchill v Merthyr Tydfil, courts can order reluctant parties into mediation, and an unreasonable refusal can affect who pays the costs later, even if you win the underlying dispute.

What’s the difference between mediation and arbitration?

Mediation is a facilitated negotiation. An independent mediator helps the parties reach their own settlement but doesn’t decide the outcome. Arbitration is more like a private court process. An arbitrator hears the dispute and makes a binding decision that’s difficult to appeal.

Can settlement discussions be used against me later?

Generally not, provided they’re genuinely “without prejudice.” This protection covers real settlement negotiations, but it doesn’t automatically extend to every conversation with the other side. It’s worth being clear that settlement discussions are being conducted on that basis.

What happens if I reject a Part 36 offer and lose?

If you do worse at trial than the offer you rejected, the costs consequences can be significant. This can include paying the other side’s costs from the point the offer expired, along with enhanced interest in some cases. It’s a key reason to take any Part 36 offer seriously.

Is expert determination the same as arbitration?

No. Expert determination is generally used for a narrower, often technical or valuation question, and the expert investigates and decides it themselves rather than hearing formal legal arguments. Arbitration more closely mirrors a court process, with each side presenting their case to the arbitrator.

This article is general information about resolving contract disputes in England and Wales and is not legal advice. The law can change and every situation is different, so please speak to a qualified commercial disputes solicitor about your circumstances.