AI Systems – Legal and Commercial Risks, and How to Manage Them

Alternative dispute resolution (ADR) has moved from the periphery of commercial dispute strategy to its centre. Driven by judicial guidance, procedural reform, and policy direction from the UK government, parties are now expected to engage with ADR early and meaningfully. The Ministry of Justice has made clear that reducing reliance on court litigation through proportionate dispute resolution is a strategic priority, while recent updates to the Civil Procedure Rules reinforce the court’s power to encourage — and in appropriate cases effectively require — engagement with ADR. This article examines why ADR is no longer optional, how expectations have changed, and what commercial parties must now do to manage disputes responsibly. The End of ADR as a Tactical Afterthought For many years, alternative dispute resolution was treated as a tactical option in commercial disputes — something to be explored once litigation was already underway or when costs had begun to outweigh the perceived benefits of continuing to fight. That position has fundamentally changed. ADR is no longer viewed by courts or policymakers as an optional courtesy. It is now a core component of proportionate dispute management. Parties are expected to consider whether disputes can be resolved without recourse to full litigation, and to do so at an early stage. Treating mediation or arbitration as an afterthought is no longer neutral conduct. It carries legal, financial, and reputational risk. Policy Direction from the Ministry of Justice The shift in expectations around ADR is not accidental. It reflects a deliberate policy direction led by the Ministry of Justice. The MoJ has consistently emphasised the need to reduce unnecessary litigation and to promote earlier, more proportionate dispute resolution. ADR is viewed as essential to: Reducing pressure on the courts Improving access to justice Encouraging faster, lower-cost outcomes Supporting more constructive resolution of commercial disputes Government consultations and reform programmes have repeatedly highlighted mediation and other forms of ADR as effective tools for resolving disputes without the delay, cost, and rigidity of court proceedings. The clear message is that litigation should be the forum of last resort, not the default starting point. This policy stance directly informs judicial attitudes and procedural reform. The CPR Rules Update and Judicial Expectations Recent updates to the Civil Procedure Rules reflect this changing landscape. The CPR now place greater emphasis on the court’s role in actively managing cases to encourage settlement. Courts have wide powers to: Require parties to explain their approach to ADR Pause proceedings to allow for mediation Take unreasonable refusal to engage in ADR into account when making costs orders Importantly, the modern approach is not limited to asking whether ADR was considered, but how it was approached . A superficial or tactical refusal to mediate may attract judicial criticism, particularly where the dispute is suitable for early resolution. The message is clear: parties must engage with ADR seriously, proportionately, and in good faith. ADR as a Legal, Commercial, and Governance Expectation Against this backdrop, ADR has evolved into more than a procedural consideration. It is now a governance issue. Courts, insurers, regulators, and counterparties increasingly expect organisations to demonstrate that disputes are being managed responsibly. This includes: Early assessment of legal and commercial risk Consideration of ADR before positions become entrenched Ongoing review of resolution options as disputes evolve For boards and senior management, the failure to engage appropriately with ADR can raise questions about decision-making, risk management, and stewardship of resources. The Question Has Changed ADR is no longer something to be “kept in reserve” once litigation is underway. The modern dispute landscape demands a different starting point. The question is no longer whether ADR should be considered, but when, how, and how early it should be deployed as part of a coherent dispute strategy. In today’s commercial environment, failing to engage meaningfully with ADR is no longer a neutral choice — it is a risk. Why ADR Must Be Considered Early Modern dispute resolution is now firmly driven by the principle of proportionality. Courts have made clear that litigation should no longer be treated as the automatic or default response to commercial conflict. Instead, parties are expected to step back at an early stage, identify the true issues in dispute, and consider whether those issues can be resolved more efficiently, economically, and constructively outside the courtroom. This expectation reflects a broader recognition that many disputes are not purely legal in nature. Commercial disagreements often involve misunderstandings, competing business priorities, cashflow pressures, or relationship breakdowns — issues that traditional litigation is ill-equipped to resolve quickly or sensitively. ADR, particularly mediation, provides a forum in which these underlying factors can be addressed alongside legal rights and obligations. Crucially, failing to engage with ADR is no longer treated as neutral conduct. A refusal to consider or participate meaningfully in ADR without clear and well-reasoned justification can now carry tangible consequences. Courts may view such conduct as unreasonable, leading to judicial criticism, adverse cost orders, or questions about whether the dispute has been managed proportionately and responsibly. In some cases, the way a party approaches ADR can be as significant as the merits of the dispute itself. This shift also places a greater onus on decision-makers within organisations. Directors, senior executives, and in-house legal teams are increasingly expected to demonstrate that disputes are being handled strategically, with appropriate regard to cost, risk, and outcome. ADR has therefore moved decisively from the margins to the mainstream of commercial dispute resolution. The Shift in Judicial and Commercial Expectations Courts now approach dispute resolution through a significantly broader and more interventionist lens than in the past. Litigation is no longer regarded as the inevitable or default route for resolving commercial disputes. Instead, it is treated as one tool among many, to be deployed proportionately and only where appropriate. This shift reflects both systemic pressures within the justice system and a more commercially realistic understanding of how disputes arise and how they can be resolved. This change in approach is not merely cultural; it is expressly embedded in the Civil Procedure Rules (CPR). The Overriding Objective and the Court’s Duty to Encourage ADR Under CPR 1.1, the overriding objective is to enable the court to deal with cases “justly and at proportionate cost.” That objective underpins the court’s increasingly active role in directing parties away from unnecessary litigation. Crucially, CPR 1.4(2)(e) provides that, as part of active case management, the court must: “encourage the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitate the use of such procedure.” This is a clear procedural mandate. The court is not a passive observer of the parties’ approach to ADR; it is required to encourage and facilitate it where suitable. ADR is therefore built into the fabric of case management from the outset. Stays for ADR and Timing Expectations The CPR also give courts express power to pause proceedings to allow ADR to take place. Under CPR 26.4, the court may stay proceedings: “for such period as it considers appropriate, to enable the parties to try to settle the case by alternative dispute resolution or other means.” This provision reinforces the expectation that settlement discussions and mediation should not be left until late in the litigation process. Courts are increasingly willing to intervene early, before costs escalate and positions harden, to ensure that ADR is properly explored. Costs Consequences for Unreasonable Refusal Perhaps most significantly, the CPR framework supports judicial scrutiny of a party’s conduct when determining costs. Under CPR 44.2, the court has a wide discretion as to costs and must have regard to “the conduct of the parties.” That conduct includes how parties have approached settlement and ADR. In practice, this means that an unreasonable refusal to engage in ADR — or a purely tactical, box-ticking approach — can result in adverse cost consequences, even for a party that ultimately succeeds on the merits. From Voluntary Option to Procedural Expectation Taken together, these provisions mark a decisive shift. While ADR remains technically voluntary, the procedural framework now makes clear that parties are expected to engage with it seriously and in good faith unless there is a clear and well-reasoned justification for not doing so. Judges are no longer concerned solely with whether ADR was mentioned, but with how it was considered, when it was proposed, and whether the engagement was genuine. For commercial organisations, this represents a material change in risk. Why Litigation Is No Longer the Default Litigation continues to play a vital role in certain disputes, particularly those involving allegations of fraud, urgent injunctive relief, or points of law requiring authoritative judicial determination. However, for many commercial disputes, traditional court proceedings are increasingly ill-suited to the realities of modern business. Court litigation is inherently slow and procedurally rigid. Timetables are often dictated by court availability rather than commercial urgency, meaning disputes can take years to reach trial and even longer to conclude following appeals. A favourable judgment does not always translate into commercial success — particularly if enforcement proves difficult or the relationship with a key counterparty has been irreparably damaged along the way. ADR offers a fundamentally different approach. It provides flexibility in both process and outcome, allowing disputes to be resolved more quickly and with greater confidentiality. Mediation, in particular, enables parties to explore pragmatic solutions that a court would have no power to impose. Litigation is therefore a tool to be used selectively and strategically, supported — and often preceded — by serious consideration of alternative routes to resolution. ADR as a Governance and Risk Management Tool Disputes are rarely confined to legal departments. In practice, they are governance issues that sit squarely within the remit of boards and senior leadership teams. Viewed through this lens, ADR becomes a strategic governance tool rather than simply a legal mechanism. Early mediation or arbitration enables organisations to take control of disputes before they escalate, allowing decision-makers to assess risk realistically and at a stage when options remain open. What Early, Meaningful ADR Actually Looks Like Effective ADR is not about simply “turning up” to mediation. Early, meaningful engagement involves: A clear assessment of legal and commercial risk Proper preparation, including realistic evaluation of strengths and weaknesses Authority to negotiate and make decisions A genuine willingness to explore resolution Engaging with ADR early does not weaken a party’s position. In many cases, it strengthens it by clarifying the issues and opening channels for constructive dialogue. Taking a Strategic Approach At Kingsley Wood, we advise clients on dispute resolution strategies that reflect commercial realities as well as legal obligations. Mediation and arbitration are considered alongside litigation from the beginning, allowing clients to make informed decisions based on cost, timing, risk, and desired outcomes. Early advice often makes the difference between a controlled resolution and a costly, protracted dispute. → Request an ADR Case Assessment → Speak to a Mediation or Arbitration Specialist About the Author

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