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mediation persuasion

1 November 2013

Alternative dispute resolution ("ADR"), in particular mediation, became popular in the mid to late 1990s. The first "High Court Practice Note (Civil Litigation: Case Management)" referred to judicial control of cases and included the option to question legal representatives on whether ADR had been considered.

Times have certainly moved on, and it appears that mediation is now at the forefront of all litigators minds. For example, an idea of the scale of civil and commercial mediations can be found in CEDRs 2012 audit which estimates the annual number of mediations has been growing by approximately 15 year on year since 2010, with about 8,000 mediations being heard per year. The audit believes that a significant amount of money has been saved, in the region of approximately £2bn per year, in wasted management time, damaged relationships, lost productivity and legal fees. Indeed, if the mediations do not actually settle on the day (although the latest CEDR mediation audit for 2012 believes that mediators have reported over 70 of their cases being settled on the day), 20 normally settle shortly thereafter.

The foreword to the Jackson ADR Handbook (1st Ed.2013) believes that all members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR.

If the various references to mediation in the recent Jackson Handbook are not enough to persuade a litigator that mediation is a good idea, one can also refer to the overriding objective at Part 1.4 of the CPR which provides that a court, when exercising its case management powers, should encourage parties to use an alternative dispute resolution procedure if the court considers it appropriate and to facilitate the use of such procedure. It is, however, established wisdom that Courts do not actually have the power to order mediation if the parties do not consent to it, although the courts can seek to impose pressure on parties to mediate by making adverse costs orders in cases where a party unreasonably refuses to mediate.

For example, an unreasonable refusal to engage in mediation can have the effect of:

(a) Disabling an unwilling party from recovering costs that it might otherwise have recovered (for example Dunnett v Railtrack Plc [2002] 1 WLR 2434 and P4 imited v Unite Integrated Solutions Plc [2007] BLR 1); or

(b) Attracting an order that costs be assessed on the indemnity basis rather than the standard basis (for example Virani Limited v Manuel Revert Y Cia SA [2004] 2 Lloyds Rep 14 and the argument in Corby Group Litigation v Corby District Council [2009] EWHC 2109 Lawtel 17/8/09).

(c) The court can take unreasonable refusal to engage in mediation into account as a factor affecting the award of costs because it is an element of the parties conduct in pursuing the litigation. This principle emanates from the decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002. In Halsey, the Court of Appeal departed from the general rule that costs follow the event, with the burden being on the unsuccessful party to show why the successful party should be deprived of some or all of his costs on the grounds that he had refused to agree to ADR. That exercise involved the unsuccessful party showing the successful party acted unreasonably when it refused ADR.

There has been numerous commentary calling out for the Court of Appeal to revisit the landmark 2004 Halsey ruling post the Jackson reforms in order to give litigators an update of where the line actually lies. It has been said by some that Halsey set a marker that people have started "fudging" and therefore needs to be reset. Prior to the recent Court of Appeal decision in PGF v OMFS, case law seemed to suggest that a positive suggestion of mediation turned down by the other side is usually required in order to show unreasonableness (Vale of Glamorgan Council v Roberts [2008] EWHC 2911, Lawtel 8/12/08). In Mobiqa Limited v Trinity Mobile Limited [2010] EWCA 253, Lawtel 3/3/10, the claimant suggested mediation. The Defendant said it would consider mediation after experts reports. The Claimant subsequently discontinued the proceedings and applied for an order that the costs be disposed of differently from the usual order on discontinuance. Floyd J said that the Defendants stance in relation to mediation was "nowhere close" to justifying a departure from the usual order.

In the case of Rolf v De Guerin [2011] EWCA Civ 78, the Court of Appeal considered various issues, including the Defendants refusal to mediate. Before and after issuing proceedings the Claimant made various invitations to the Defendant to enter into settlement discussions and later, mediation, which the Defendant rejected. Although the Defendant subsequently won at trial, the Claimant argued the Defendants refusal to take part in mediation amounted to unreasonable behaviour for the purposes of CPR Part 44 and therefore, the Defendant should not be awarded its costs. The Defendant put forward reasons why it refused to mediate, which included the Defendant arguing that he wanted "his day in Court" and that he did not think he would be able to demonstrate to a mediator the Claimants poor conduct prior to the proceedings being issued. Rix LJ dismissed these reasons, finding the Defendants refusal to mediate amounted to unreasonable behaviour for the purposes of CPR Part 44(5). As a consequence, the court was entitled to exercise its discretion and make no order as to costs.

In the case of Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 (which the judge referred to in the PGF case), the court identified six possible factors which could be taken into account when assessing whether a party had unreasonably refused to mediate:

  1. The nature of the dispute, as to which the court warned that "most cases are not, by their very nature, unsuitable for mediation";
  2. The merits of the case, by which a party which reasonably believes it has a strong case might make the refusal of mediation reasonable;
  3. Whether other settlement methods have been attempted, though again the court noted that "mediation often succeeds where other settlement attempts have failed";
  4. Whether the costs of mediation would be disproportionately high;
  5. Whether any delay in setting up and attending ADR would be prejudicial; and/or,
  6. Whether mediation had a reasonable prospect of success.

The PGF case

In the PGF case, the claimant was the landlord and the defendant a tenant of three floors of office premises in the City of London. The claim was in respect of dilapidations arising out of the defendants breaches of repairing covenants. During the course of the proceedings the defendant made a Part 36 offer, to which the claimant responded with a request that the parties mediate. The defendant failed to respond. The claimants solicitors again raised the question of mediation a couple of months later to which no response was received.

The day before the trial was due to commence the Part 36 offer was accepted. The parties attended court to argue as to who ought to be liable to pay costs. PGF argued that the ordinary rules in relation to Part 36 ought not to apply because the defendant had unreasonably refused, by way of ignoring, the claimants suggestions to mediate. At first instance, when considering the question of liability for costs, Furst QC, sitting as a Deputy Judge in the Technology and Construction Court, had regard to the case of Lumb v Hampsey [2011] EWHC 2808 (QB) which concerned how the court should exercise its discretion under CPR 36.10 (5)(b).

Applying the factors set out in Halsey, Furst QC confirmed the burden rested on the claimant to demonstrate why there should be a departure from the general rule that the claimant should be liable for the defendants costs from 3 May 2011 onwards. Furst QC found the claimant had discharged the burden and held it was unreasonable for the defendant not to:

(a) Respond to the claimants suggested mediation attempts; and,

(b) Agree to mediate.

Furst QC agreed with the claimants argument and concluded there was an unreasonable refusal to mediate present in the PGF case. Departing from normal principles, set out in Part 36 of the Civil Procedure Rules, and exercising discretion, Furst QC agreed with PGF and held OMFS were not entitled to their costs, given the Defendants unreasonable refusal to mediate.

OMFS appealed (and PGF appealed for good measure). Guy Featherstonhaugh QC, instructed by Kingsley Napley for OMFS, submitted the Halsey test for unreasonableness of a refusal were to be assessed purely objectively, by reference to the material facts about the litigation at the time, so that it made no difference whether the refusing party provided or withheld its reasons at the time of the invitation. In contrast, Jonathan Seitler QC, instructed by Browne Jacobson LLP for PGF, argued that not only was the Defendants silence tantamount to a refusal to mediate, but that the silence itself was unreasonable. In support of this, Jonathan Seitler QC made substantial reference to the recently published ADR Handbook noting the courts increasing preference for, and in fact penchant for positively encouraging parties to consider ADR before taking a case to trial.

The court of appeal was persuaded by the claimants arguments, with Lord Justice Briggs stating "the time has now come for this court firmly to endorse 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…". He went on to say "There are in my view sound practical and policy reasons for this modest extension to the principles and guidelines set out in the Halsey case…." .

Moreover the court gave a glowing endorsement to the value of ADR which it says will prevent unnecessary time and expense. Briggs LJ stated, "…the parties should discuss these difficulties, and seek to narrow their differences, before those which are irreconcilable are put to the court for determination…..I can see no reason why the same would not apply to ADR, thereby saving valuable court time in the case management process." He went on to add, "A positive engagement with an invitation to participate in ADR may lead in a number of alternative directions, each of which may save the parties and the court time and resources….ADR may succeed only in part, but lead to a narrowing of the issues." This underlying notion lead the Court of Appeal to accept Jonathan Seitler QCs argument and hold that "the defendants silence in the face of two requests to mediate was itself unreasonable conduct sufficient to warrant a costs sanction…"

Notwithstanding this, the Court went on to consider whether Furst QC was right to conclude, with reference to the Halsey principles, that the defendants silence had constituted a refusal, and that refusal was unreasonable. The defendant, in response, relied heavily on the argument that the Part 36 offer it had made, which subsequently was accepted by the claimant was demonstration of the defendants belief in the strength of its claim such that mediation stood no prospect of success. The court dismissed these arguments and upheld Furst QCs decision.

The court was also asked to consider whether Furst QC had correctly exercised his discretion in ordering the defendant be deprived of the whole of its costs entitlement. The defendant submitted the Judge did not properly weigh all relevant matters in the balance whilst the claimant argued the judge ought to have gone further and ordered the defendant pay the claimants costs for the relevant period. The court was not, however, persuaded by either party in this respect.

The appeal and cross appeal were dismissed.

This case is of importance to all litigators. The case demonstrates a clear and unequivocal endorsement by the court of appeal as to the value of ADR, (including but not limited to mediation) and highlights the fact that a party who refuses to engage in the process of ADR can, and will, face costs sanctions. Briggs LJ sums this up, stating, "The courts task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which… nonetheless operated pour encourager les autres."

This article was first published in Estates Gazette

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