Mediation – the courts' approach - should encouragement or compulsion be used?

Parties reluctant to mediate have felt pressure to do so from the Courts – and have had to support their refusal with very good reasons if they want to avoid sanctions. The latest decision in the Court of Appeal has outlined a number of factors which a court is entitled to take into account in considering whether a refusal is "unreasonable". Has it done enough?

Although the concept dates back for many years, the current popularity of mediation is rooted in Lord Woolf's report, Access to Justice, which was published in 1996. The philosophy behind this report was that the existing adversarial civil litigation system was too expensive, too slow and disquieting to litigants because of the unknown quantity of both time and cost that they might need to spend. Access to Justice formed the basis of the Civil Procedure Rules 1998 (CPR) (which came into force in April 1999) and their overriding objective that the court must deal with cases justly.

By affirming the use of Alternative Dispute Resolution (ADR) as a means of resolving commercial disputes without recourse to formal litigation, it was hoped that the CPR would provide the parties with more freedom to resolve disputes by reaching their own solution, thereby providing a system that produced just results, was fair and inexpensive to the parties and was easily understood.

Mediation is arguably the most common form of ADR and consists of a structured negotiation where a neutral third party works with the disputing parties in an attempt to facilitate a settlement through both direct meetings and private discussion. It is a voluntary process which is undertaken on a confidential and "without prejudice" basis (nothing said or done in the mediation is admissible as evidence in legal proceedings up to the point when agreement is reached).

Although it is not without its critics, especially in the light of reported escalating costs, mediation can generally be regarded as a good thing. Its use is particularly suited in cases where there is a multi-party dispute or where there is a continuing business relationship between the parties.

One of mediation's biggest admirers is the court itself. The Technology and Construction Court (TCC) has been particularly proactive in promoting ADR. It is used by the court as a tool for achieving its duty to further the overriding objective of the CPR by managing cases actively and "encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure"[1]. The purpose of suggesting, and in some cases ordering, the parties to use mediation is also driven by self-interest to encourage the settlement of commercial litigation and so help limit the requirement for judicial resources, thereby freeing up the court for other more complex cases.

Compelling a party to mediate

In the case of Guinle v Kirreh[2] the court praised the success rate of mediation (which was drawn to their attention in a letter from the Centre for Dispute Resolution (CEDR) submitted by the claimants). In this case, being mindful of the overriding objective of the CPR and the fact that cases should be dealt with in ways which are proportionate to the financial position of each party, the court directed that the dispute be dealt with by mediation. This was despite the defendant's contention that the dispute in question could not be dealt with appropriately by ADR. In principle, there can be no objection to the court encouraging parties to mediate.

Many readers will be aware of the later case of Dunnett v Railtrack[3]. In this case, the court's "encouragement" went a little further. Railtrack, who had succeeded in defeating an appeal brought by Dunnett, was refused its costs on the basis that it had rejected out of hand the court's suggestion to use ADR. As a result, the court said it should therefore suffer the consequences when costs came to be decided. This case was intended by the court to send a clear message to disputing parties. In the court's own words:

"It is hoped that any publicity given to this part of the judgment will draw the attention … to the possibility that, if they turn down out of hand the chance of alternative dispute resolution when suggested by the court … they may have to face uncomfortable costs consequence".

What followed Dunnett was a period of uncertainty. For instance, it was even suggested in one case that a court will grant an ADR order in the face of objections from both parties[4]. The question of what was a "reasonable" refusal to mediate a particular dispute was considered, and unsuccessfully resolved, in a number of cases over the last few years. What was needed from the courts was some clear guidance on the subject.

The Court of Appeal steps in

A reprieve appears now to have been provided, at least in part, by the Court of Appeal in the eagerly awaited cases of Halsey v Milton Keynes General NHS Trust and Steel v Joy[5]. Recognising the significance of the issue of when cost sanctions should be imposed on the grounds of a refusal to participate in ADR, the court invited submissions from, amongst others, the Law Society and CEDR.

In the first case, Mrs Halsey issued proceedings against the NHS Trust in relation to the death of her husband arising out of the NHS Trust's allegedly negligent treatment of him. Mrs Halsey submitted that there should be no order for costs and relied on the refusal of the NHS Trust to agree to mediation. The judge decided that the successful defendant should not be deprived of any of its costs. An appeal was brought on the grounds that the judge had erred in awarding the winning party (i.e. the NHS Trust) its costs when it had refused to mediate. The appeals therefore raised the question of when the court should impose a costs sanction against a successful litigant on the ground that he had refused to take part in ADR.

The Court of Appeal stated that it had to be borne in mind that it was only in exceptional circumstances that a court should depart from the principle that a successful party should be awarded all, or some, of its costs. The court said that departure from this principle was not justified unless it was shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR. The question of whether a party had acted unreasonably in refusing ADR would include (but would not be limited to) the following:

• the true nature of the dispute – as the court said, even the most ardent of supporters of ADR acknowledge that the subject-matter of some disputes render them intrinsically unsuitable for ADR
• the merits of the case – in border-line cases, the fact that a party refused to mediate because it thought that it would win should be given little, or no weight. However, a watertight case may be viewed as a "reasonable" excuse
• the extent to which other settlement methods had been attempted – the fact that settlement offers have been made but rejected is a relevant factor in determining whether a compromise, and therefore mediation, may be successful
• whether the costs of the ADR would be disproportionately high – consideration should also be given to where the sums in stake are so small that the costs of mediating will be similar to those of litigating formally
• whether any delay in setting up and attending the ADR would have been prejudicial – if mediation is suggested late in the day, acceptance of it may have the effect of delaying trial, and
• whether the ADR had a reasonable prospect of success – perhaps the most critical "factor" is whether the successful party was justified in taking the view that mediation was not appropriate because it had no real prospect of success.

The court emphasised that in many cases it would consider a combination of the factors outlined above (which should not be regarded as exhaustive) and no single factor would be decisive.

In dismissing the appeals, the Court of Appeal said that Mrs Halsey had come nowhere near to showing that the NHS Trust had acted unreasonably in refusing mediation. It was felt that the costs of mediation would be disproportionately high when compared to the value of the claim and Mrs Halsey had not discharged her burden of proving that there was a reasonable prospect of dealing successfully with the dispute by mediation. In the circumstances, therefore, the judge had been entitled to make the finding that he had.

Their Lordships found that it was a court's responsibility to encourage rather than compel. If one, or both, of the parties expresses an unwillingness to use ADR, the court should explore the reasoning behind this. An order from the court to mediate where the parties have not already agreed to resolve all of their dispute by mediation (for an example, in a mediation clause in their contract) could fall foul of Article 6 of the European Convention on Human Rights which gives citizens the right to a fair trial.

The future of mediation?

ADR jurisdiction should not impose on the parties a mandatory regime. The whole point of mediation is that it owes so much to the fact that participation is voluntary. If both of the parties formed the view that it was inappropriate to submit their disputes to mediation, they should not be compelled to do so. In this situation, they should be entitled to continue with their court action in the ordinary way. Dragging the parties kicking and screaming to mediation will only serve to undermine the process and the success it has had to date. The most recent statistics available from CEDR confirm mediation growth with an overall increase of 35 per cent in 2003, to an all time high of 631 cases.

If, in a case where one (or more) of the parties makes it clear that it does not want to mediate and the court compels it to do so, the parties fail to reach settlement at the mediation, it is hoped that the court will accept that ADR failed and allow the parties to continue with their action in court. Inquiring into the actual conduct of the parties on the day will not only be very time consuming and costly (the very things that the CPR seeks to avoid), it will also risk undermining the "without prejudice" nature and confidentiality of the process. This should be vigorously opposed.

Of the 631 cases that CEDR say were mediated in 2003, 74 per cent were reportedly settled on the day or shortly after. Compelling a party to mediate where they do not have a genuine desire to reach the intended compromise, and therefore eradicating the voluntary nature of the process, can only have a detrimental effect on this impressive statistic. Coupled with the erosion of the without prejudice principle, the case for restricting the judiciary from doing more than simply "encouraging" the parties to use an alternative dispute mechanism in appropriate cases is well grounded.

As Judge Lloyd once put it: although ADR is positively encouraged by the TCC, the motivation for such alternatives will vary from party to party and therefore exhortation rather than coercion remains the tool to be used by the court6. Hopefully, especially in light of the Court of Appeal's recent decision, this mentality will prevail. This remains to be seen.

However, there is still one simple message: should you refuse to mediate, you'd better have a good excuse to avoid the cost consequences.

For further information please contact Adrian Bell at [email protected]

[1] Civil Procedure Rule 1.4(2)(e)

[2] Guinle v Kirreh, Kinstreet Ltd v Balmargo Corporation Ltd [2000] C.P. Rep 62

[3] Dunnett v Railtrack plc [2002] EWCA Civ 303

[4] Cable and Wireless Plc v IBM United Kingdom Ltd. [2002] EWHC 2059

[5]Halsey v Milton Keynes General NHS Trust & Steel v Joy & Halliday [2004] EWCA (Civ) 576