ADR and mediation – A shifting landscape

Introduction

There has in recent years been a growing emphasis on the role of ADR, with the court being increasingly willing to make costs orders based on failures to mediate.

On 17^th October 2017 the Civil Justice Council’s ADR Working Group published a comprehensive interim report on the existing and potential role of ADR in civil justice. In assessment of the current state of ADR the report concludes that despite its undoubted success, that success has been extremely “patchy” and considers that ADR has to date “failed to achieve the integral position in the civil justice system that was intended and expected for it at the time of Woolf.”

The report tackles the controversial issue of whether ADR should be compulsory. What do you think?

Written submissions have been made and we await the CJC’s final report.

ADR NOW

The Jackson ADR Handbookwas distributed to all members of the judiciary in April 2013 and is now the sensible first point of reference for any substantial application for costs based on a failure to mediate.

The Handbookjoins the CPR and the Chancery Guide in making clear that judges and parties must consider ADR at all stages of litigation with a view to achieving the new Overriding Objective of enabling the court to deal with cases justly and at proportionate cost.

The standard direction to seek is:
“At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal [and not less than 28 days before trial]; such witness statement must not be shown to the trial judge until questions of costs arise.” (See Standard Directions at www.justice.gov.uk/courts/procedure-rules/civil).

The standard order gives the proposer of ADR a powerful tool with which to lay the ground for a costs order adverse to a party that unreasonably refuses ADR but such a course should have commenced prior even to issue:

Para. 8 of the Practice Direction on Pre-Action Conduct provides: “Starting proceedings should usually be a step of last resort… Although ADR is not compulsory, the parties should consider whether some form of ADR procedure might enable them to settle the matter without starting proceedings. The court may require evidence that the parties considered some form of ADR.”

ADR options – Practice Direction paragraph 8.2

The Practice Direction goes on to summarise some of the options for resolving disputes without litigation:

• Discussion and Negotiation
• Mediation (a form of negotiation with the help of an independent person);
• Early Neutral Evaluation(where an independent person,for example a lawyer or an expert on the subject, gives an opinion on the merits of the dispute and now sometimes confusingly used judicially to refer to a quasi-FDR hearing); or
• Arbitration

Assessment of suitability of Mediation

In Halsey v Milton Keynes General NHS Trust[2004] 1 WLR 3002 the Court of Appeal said the following factors should be considered: –

• nature of the dispute
• merits
• failure of other settlement attempts
• costs of mediation disproportionate
• delay
• whether any prospect of ADR succeeding

Inheritance Act claims are likely to be suitable in nature for resolution by mediation because of

• the costs of litigation – especially where multiple parties involved
• the difficulty in putting together agreed offers of settlement
• the need to address feelings of hurt
• the desirability of avoiding further damage to family relationships

THE DIFFERENT FORMS OF ADR

Mediation v Arbitration

Mediationof most inheritance disputes necessitates attendance by parties and their advisors at a mediation for which a day is allowed. Costs will still be modest compared with full-scale litigation (and see particularly guidance below). In very modest and simple cases, perhaps consider time limited mediation.

An alternative to mediation is for the parties to enter a binding agreement to arbitratewhereby they nominate an arbitrator of their choice to finally determine the case and avoid court proceedings altogether. The parties are free to design a process that is proportionate and appropriate to their case; they can choose the arbitrator, the timetable, the venue (which can be in comfortable environment such as chambers or a hotel), the level of disclosure and the nature of the hearing and procedure (for example you could decide to dispense with oral evidence if the factual matrix is clear or conduct a joint meeting with an accountant if there are tax issues). An arbitration award is binding and like a court order and is only appealable in certain circumstances and thus it brings finality which is not guaranteed with mediation. Like mediation the parties can decide at any time that they wish to stay court proceedings to arbitrate.

Both mediation and arbitration are voluntary processes however an arbitration is open and binding whilst a mediation is confidential and non-binding.

Early Neutral Evaluation v Financial Dispute Resolution

Early Neutral Evaluation (“ENE”) is an alternative approach that is particularly well suited to multiparty family provision claims and cases where there is little or no dispute as to the facts. It is where an independent and impartial evaluator is appointed to give the parties an assessment of the merits of their case. The evaluator is commonly a retired judge or senior counsel. The ENE is non-binding and is entirely without prejudice. ENE can be used as a standalone dispute resolution method or together with mediation. An ENE offers the same advantages as an arbitration. The evaluator will be chosen by the parties and will be a specialist in the area concerned thereby giving confidence to the parties. He or she will be able to dedicate significant preparation time and as much hearing time as is necessary unlike a court FDR where preparation is constrained by other court matters. An ENE will be held in an environment which is more conducive to settlement as opposed to a busy court room. Finally the ENE can be arranged at relatively short notice thereby saving considerable costs.

The term is now open to some confusion. In Williams v Seals & Ors. [2015] WTLR 34the judge dealing with preliminary matters (see below) had stated that the claim was “unquestionably a case which cries out for mediation and I would encourage the parties in the strongest possible terms to pursue mediation, as soon as possible after any further proceedings by the Respondents have been issued or after they have made clear that they do not intend to bring further proceedings”.

Mediation was attempted but stalled due to differing perceptions of the issues in dispute and the respective strength of the respective arguments. The Respondents made an application to the court in Seals, Seals v. Williams [2015] EWHC 1829 (Ch), where Norris J, VC, highlighted the positive steps which could be taken by the court in being invited to undertake an “Early Neutral Evaluation” of the case. He stated at paragraph 3 of his judgment:

“The advantage of such a process over mediation itself is that the judge will evaluate their respective parties’ cases in a direct way and may well provide an authoritative (albeit provisional) view of the legal issues at the heart of the case and an experienced evaluation of the strength of the evidence available to deploy in addressing those legal issues. This process is particularly useful where the parties have very differing views of the prospect of success and perhaps an inadequate understanding of the risks of litigation itself”.

Whilst an ENE can be voluntary the court has power to order an ENE as part of its case management. The court’s power to order ENE stems from CPR r3.1(2)(m) which came into effect on 1^st October 2015. It states that the court may “take any other step or make any other order for the purpose of managing the case and furthering the overriding objective , including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case”

Although the CPR do not expressly provide for “Financial/ Family Dispute Resolution” hearings as in family proceedings, the CPR did initially intend CMC’s to be used in a manner very much akin to what is now a FDR. This approach is finding favour in an increasing number of County Courts around the country particularly by judges familiar with the benefits that have accrued in financial remedy proceedings but also notably in CLCC. It is a without prejudice court hearing conducted by a judge who will give an indication to the parties as to the merits of their case. The Judge who conducts the FDR will have no further involvement in the case.

The advantages of an FDR/ ENE over mediation are:

1. The parties are likely to give the view of a judge or senior barrister more weight than a mediator who is limited as to what he or she can say as to the merits of the case.
2. A FDR/ ENE is particularly useful on cases involving questions of law such as construction of Wills than those involving questions of fact.
3. FDR is particularly helpful for cases where the parties have divergent views and need to hear an indication on the merits.

SANCTIONS

The courts have made clear their willingness to impose costs sanctions whenever a party has acted unreasonably in failing to take part in ADR.

Sanctions are dealt with at para. 15:

15. The court will consider the effect of any non-compliance when deciding whether to impose any sanctions which may include:

(a) an order that the party at fault pays the costs of the proceedings, or part of the costs of the other party or parties;

(b) an order that the party at fault pay those costs on an indemnity basis;

(c) if the party at fault is a claimant who has been awarded a sum of money, an order depriving that party of interest on that sum for a specified period, and/or awarding interest at a lower rate than would otherwise have been awarded;

(d) if the party at fault is a defendant, and the claimant has been awarded a sum of money, an order awarding interest on that sum for a specified period at a higher rate, (not exceeding 10% above base rate), than the rate which would otherwise have been awarded.

Unreasonably refusing or ignoring an offer to mediate is expressly included in the list of possibly non-compliant behaviour (see para. 14).

THE CASES

The question of whether costs sanctions should be applied against a successful litigant on the grounds that he refused to take party in an ADR was considered in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002. In that case the party declining mediation escaped sanction but the court reviewed the circumstances in which it might do so stating that the fundamental principle was that departure from the general rule (that the loser pays the costs of the successful party) was not justified unless it was shown that the successful party acted unreasonably in refusing to agree to ADR. The burden was on the unsuccessful party. The factors which were relevant to the question whether a party has unreasonably refused ADR will include (but are not limited to) the following: (a) the nature of the dispute; (b) the merits of the case; (c) the extent to which other settlement methods have been attempted; (d) whether the costs of the ADR would be disproportionately high; (e) whether any delay in setting up and attending the ADR would have been prejudicial; and (f) whether the ADR had a reasonable prospect of success. In that case the court held that refusal.

In the case of PGF II SA v OMFS Co. Ltd [2014] 1 WLR 1386 the CA upheld the decision of a judge to disallow a successful defendant the costs he would have been entitled to when the claimant accepted the defendants Part 36 offer dated 11/4/11 on 10/1/12, the day before trial.

The court relied on the Jackson ADR Handbook (supra) and (at para.34):

“firmly endorsed the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified, by the identification of reasonable grounds.”

The Court of Appeal also (at para.30) expressly commended the advice in the Handbookat 11.56 as to how a party who believes he has reasonable grounds for refusing to participate at a given stage and wishes to avoid a costs sanction should behave in response to a request to engage in ADR.

1. a) do not ignore the request;
2. b) respond promptly in writing giving clear and full reasons why ADR is not appropriate at the stage based if possible on the Halseyguidelines;
3. c) raise any shortage of information/evidence with proposals as to how that shortage might be overcome;
4. d) do not close off ADR of any kind and for all time.

The CA further stated: “as recognised by the weight placed on the judge’s decision in the ADR Handbook … this case sends out AN IMPORTANT MESSAGE to civil litigants, requiring them to engage with a serious invitation to participate in ADR.”

That message was applied forcefully in Garritt-Critchley v Ronan & another [2014] EWHC 1774. In that case the Claimant sought £208,000 in his letter of claim but suggested appropriate ADR such as mediation. The Defendant failed to engage in ADR after some robust correspondence which was considered in detail by the Judge:

“Both we and our clients are well aware of the penalties the court might seek to impose if we are unreasonably found to refuse mediation, but we are confident that in a matter in which our clients are extremely confident of their position and do not consider there is any realistic prospect that your client will succeed, the rejection is entirely reasonable.”

HHJ Waksman QC continued:

They then went on to reject the notion of the court directing expert evidence on the basis that since there never was any actionable claim… there was no point in an expert being called. That perhaps takes optimism to a new level, because obviously the court has to proceed upon the basis that liability may be established and quantum will be relevant. As indeed both parties did agree ultimately.

The case went to trial after C offered to settle for £10,000. After trial, but before judgment, D accepted the offer to settle for £10,000 + standard basis costs. C sought costs of the whole case on the indemnity basis. The Defendants sought to justify their refusal to mediate on the grounds that the parties were too far apart, that there was no “middle ground” and that the parties disliked each other too much to engage in meaningful dialogue. They also raised a proportionality point addressed above under that subheading.

The Judge rejected all of the Defendant’s arguments and said that this is just what mediation is for – finding solutions and helping parties get over poor relationships. He ordered the Defendant to pay costs on the indemnity basis. He further stated that even if liability issues were binary then there would be a range of outcomes on quantum. Besides the case required a Judge to assess the credibility of each side’s witnesses and this alone should have encouraged the parties to conduct a sensible risk assessment.

As to being too far apart: “Parties don’t know whether in truth they are too far apart unless they sit down and explore settlement. If they are irreconcilably too far apart, then the mediator will say as much within the first hour of mediation. That happens very rarely in my experience“.

Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No.2) [2014] EWHC 3148 (TCC) Ramsey J decided that although a refusal to mediate was prima facie unreasonable, it should not result in a costs sanction because of other relevant conduct by the refusing party who made a without prejudice save as to costs proposal. Contrast this with Lakehouse Contracts Ltd v UPR Services Ltd [2014] EWHC 1223 (Ch)where again there were conduct issues on both sides.

InLaporte v The Commissioner of Police of the Metropolis [2015] EWHC 371 (QB) the defendant, who was successful on every substantive issue, was awarded only two thirds of his costs. This was the consequence of the court’s finding that the defendant had failed, without adequate justification, to fully and adequately engage in the ADR process, notwithstanding that the outcome of such process was not certain.

In Rana v Tears of Sutton Bridge [2015] EWHC 2597 (QB) the court found that the defendant had, in all the circumstances, unreasonably failed to engage with ADR. His Honour Judge McKenna added: I am not impressed by their arguments that simply because liability was still in issue and because there was not sufficient information as to the quantification of the loss of profits claim, still less that disclosure had not taken place, an attempt at alternative dispute resolution should not have taken place.

In OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 As Sir Geoffrey Vos, Chancellor of the High Court, stated at para 29 “The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process” and a “blank refusal to engage in any negotiating or mediation process, … to seek to frustrate a claimant’s attempts to reach a compromise solution should be marked by the use of the court’s powers to discourage such conduct.”

In Thakkar v Patel [2017] EWCA Civ 117 the Court of Appeal developed PGF. Here the defendants did not ignore or refuse an offer to mediate, “but they dragged their feet and delayed until eventually the claimants lost confidence in the whole ADR process”. Jackson LJ stated: “The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction.” The court enumerated the factors that suggested there were good prospects of a successful mediation in this case and ordered the Defendants to pay 75% of the Claimant’s costs of the claim and ordered the claimants to pay the defendants costs of the counterclaim.

BUT IS THERE A CHANGE OF DIRECTION?

Briggs v First Choice Holidays and Flights Ltd [2017] EWHC 2012 (QB):This case concerned group litigation brought by a large number of tourists for damages arising from illness suffered on holiday in Turkey. The court decided that the claimants who had not become ill should have pursued their claims via mediation under an Association of British Travel Agents scheme and limited the Claimant’s costs to those that would have been incurred had the ABTA scheme been used. On appeal, however, Singh J held that “The costs judge’s conclusion that it was inherently unreasonable for the appellants to enter into a CFA rather than a voluntary mediation scheme went too far. The costs judge had erred.” The position had not yet been reached where the mere presence of ADR meant that it was unreasonable to litigate.

In Gore v Naheed [2017] EWCA Civ 369there was a dispute between neighbours about a claimant’s right of way to a shared driveway for access and the defendant’s right to obstruct the driveway to unload lorries for their wine business. The trial judge found in the claimant’s favour and ordered that the Defendants pay the claimants costs. The defendant appealed arguing that the claimants failed to engage with their invitations to mediate and therefore the judge was wrong not to have made some deduction or allowance in the claimant’s costs.

The Court of Appeal upheld the lower court’s decision and Patten LJ stated as follows:

“Speaking for myself, I have some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated….A failure to engage, even if unreasonable, does not automatically result in a costs penalty. It is simply a factor to be taken into account by the judge when exercising his costs discretion.”

Interestingly, both cases were decided before the Civil Justice Council ADR Working Group published its interim report in October 2017 on its review of existing forms of encouragement for mediation within the civil justice system in England & Wales. The Working Group was critical of the suggestion that Gore was an unsuitable case for mediation noting:

“Gore was ultimately about whether a van could park to unload in a particular place…a type of dispute ideally suited to ADR. Mediators resolve ‘complex cases in which both parties feel strongly’ all the time.”