In this month’s potted guide, Jonathan Seitler QC guides practitioners through the basics of the law relating to alternative dispute resolution and mediation
ADR and mediation checklist
- What is ADR and mediation?
- What is the essence of mediation?
- What are the recognised advantages of ADR?
- Can a litigant ignore ADR?
- When will the court impose a costs penalty?
- What is the scope for merely “going through the motions” at a mediation?
- What is the optimum point of a dispute at which to mediate it?
- Is mediation suitable for all types of cases?
- How are the costs of a mediation allocated?
What is ADR and mediation?
Alternative dispute resolution (ADR) is a phrase describing a variety of ways to resolve disputes without a conventional court trial. There is a spectrum of dispute resolution processes, ranging from informal discussion at one end to formal adjudication at the other. The types of ADR include:
• arbitration, where a neutral person decides the case;
• early neutral evaluation, where a neutral person, usually a judge or retired judge, gives a preliminary, non-binding “steer” to the parties at an early stage as to who looks likely to win;
• mediation, where a neutral third party assists parties to work towards a negotiated settlement of their dispute, with the parties retaining control of the decision on whether or not to settle and on what terms; and
• old fashioned negotiation, usually on a without-prejudice basis, in a meeting or phone call.
Sometimes these forms of ADR can be combined. In “Med-Arb”, the parties start with mediation but if they fail to come to agreement, the process transforms into an arbitration with the former mediator assuming the role of decision-maker. The process may be modified so that parties may elect out of the procedure at the close of the mediation component, or the parties may select another arbitrator for their dispute.
Mediation is the most popular form of the more formal and stylised modes of ADR in the UK at the moment. This is particularly the case in property disputes because arbitrators in some areas of law have acquired the reputation of being prone to “cutting the cake”. If a party is entitled to a strong and clear legal remedy and is willing to wait (and take some risk) in order to obtain it, arbitration, as opposed to court action, is sometimes therefore regarded as disadvantageous.
So in many cases where lawyers mention ADR, it is mediation that they have in mind.
What is the essence of mediation?
The essence of mediation is the facilitating of negotiation towards settlement in a confidential setting. In most cases, the parties themselves will attend, often accompanied by some or all of their lawyers. It is crucial that each party has authority to settle the dispute.
The confidentiality inherent (or more usually agreed) in mediation is twofold: the mediation is confidential opposite the outside world – the parties cannot disclose what occurs in the mediation – and it is also confidential inter se in that the mediator cannot convey to one side what the other side has said in private (without the latter’s permission). Confidentiality is at the heart of the mediation process (as it is in all ADR) and save in the most unusual of circumstances, will be protected by court order: see Farm Assist Ltd v Secretary of State for the Environment, Food and Rural Affairs (No 2) [2009] EWHC 1102 (TCC).
What are the recognised advantages of ADR?
Traditional litigation is expensive, time-consuming and stressful to the individuals involved. ADR can offer the possibility of fast, early, cheaper settlement, as well as a forum for more flexible, creative solutions to disputes. Mediation, in particular allows the parties to:
• set the timetable;
• control the costs;
• maintain confidentiality;
• leave room for the preservation of relationships; and
• choose the appropriate neutral person to deal with their case. The parties can also choose the time, place, and date most convenient to them. This does not happen in litigation.
The main advantage of mediation, however, is that it appears to work in resolving disputes. In May 2016, the Centre for Effective Dispute Resolution reported in its mediation audit an aggregate settlement rate from mediations of around 86%. Additionally, it stated that 10,000 commercial mediations were performed in the preceding 12 months, an increase of 5% on 2014.
Can a litigant ignore ADR?
At its peril. Following Dunnett v Railtrack plc [2002] EWCA Civ 302, costs penalties have regularly been imposed to reflect failures to mediate when it would have been appropriate to do so.
The protocols governing pre-action conduct all now build in a requirement for parties to consider ADR. So although the court has no power to force parties to mediate – see Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 – it does have wide-ranging powers under CPR Part 1 to adjust its directions so as to encourage parties, in particular to mediate, and to apply adverse costs orders in the event of a party refusing or neglecting to take up an offer of mediation.
The court also has powers under CPR 26.4 to order a stay of litigation, to afford time to mediate: see Muman v Nagasena [1999] 4 All ER 178. In light of this, it is no longer regarded as “weak” to suggest ADR. On the contrary, it is often considered shrewd.
When will the court impose a costs penalty?
Whether the court will in fact impose a costs penalty on a party who refuses to mediate or neglects to take up an offer of mediation will depend on how egregious is the neglect or refusal.
This will in turn depend on the suitability of mediation for the particular dispute. In Halsey such suitability was said to depend on various factors, including: the nature of the dispute; the merits of the case; the track record in the case of other settlement options; the costs of mediation; the stage of the action at which it is being considered and whether there has been delay already in considering mediation; the prospects of success for mediation; whether there has been judicial encouragement for mediation in the case; whether further expert evidence is necessary and the position as regards Part 36 offers.
In PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288; [2013] 3 EGLR 16, the Court of Appeal upheld a trial judge’s decision to penalise a party in costs who was otherwise the successful party but who had previously ignored a request to mediate. It was said that, as a general rule, failure to respond to an invitation to participate in ADR is unreasonable. The court cited passages in The Jackson ADR Handbook, as also occurred in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No 2) [2014] EWHC 3148 (TCC).
In Murray and another v Bernard [2015] EWHC 2395 (Ch) a party was not penalised for having initially refused to mediate but later having relented. Any error of judgment regarding the timing of mediation was not regarded as intolerable as an error concerning whether to engage in mediation at all.
As a corollary, a party who agrees at any point to a mediation and then seeks to go back on that agreement will be unlikely to be able to resist a costs penalty. Having agreed to the mediation initially, it will be hard to then say that the mediation would not have been successful: see Leicester Circuits Ltd v Coates Brothers plc [2003] EWCA Civ 333.
For similar reasons, a party who agrees to a mediation but then does not turn up on the day is unlikely to be able to resist a costs penalty: see Gresport Finance Ltd v Battaglia [2015] EWHC 2709 (Ch).
What is the scope for merely “going through the motions” at a mediation?
Limited. In Earl of Malmesbury v Strutt & Parker [2008] EWHC 424 (QB); [2008] PLSCS 70, a costs penalty was imposed on the basis that one of the parties had taken an unreasonable stance at the mediation entirely out of line with the strength of its case. To avoid a costs penalty, therefore, a party must attend and participate genuinely in appropriate ADR.
What is the optimum point of a dispute at which to mediate it?
Subject to the need to see disclosure of documents and/or witness statements first – the necessity for which will vary from case to case – it is usually better to mediate early in the life of a dispute in order to minimise the extent to which costs themselves become a hurdle to settlement.
In Burchell v Bullard [2005] EWCA Civ 358, a party was penalised in costs for not mediating at the time that pre-action correspondence was still being exchanged. In Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002, Ward LJ provided strong encouragement to parties to mediate at an early stage: see also Bradford v James [2008] EWCA Civ 837; [2008] PLSCS 210.
Is mediation suitable for all types of cases?
Most. It is particularly suitable in property cases because whether they are between landlord and tenants or neighbouring occupiers, property disputes tend to involve people who will still need to get along with each other after the dispute is resolved. Mediation is specifically focused to bring this about. Instead of concentrating on the parties’ rights and liabilities, it concentrates on their commercial interests, and this means that a great many more issues than those directly in play in the dispute can be resolved.
Mediation is also particularly suitable to smaller-value cases where the costs of litigation will be disproportionate to the amount at stake.
The limited number of circumstances in which mediation will not be appropriate include where there is a need to have a precedent established on a point of law; or where an injunction is sought; or in relation to fraud causes where reputational issues intervene (though a contrary view was taken in Couwenbergh v Valkova [2004] EWCA 676) or where criminal sanctions are relevant.
How are the costs of a mediation allocated?
The costs of a successful mediation are up for negotiation. The costs of a failed mediation usually lie where they fall and therefore ultimately will be decided upon by the court, generally, but not always, on the basis of “winner takes all”.
Leading authorities and resources
Dunnett v Railtrack plc [2002] EWCA Civ 302
Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576
Earl of Malmesbury v Strutt & Parker [2008] EWHC 424 (QB); [2008] PLSCS 70
PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288; [2013] 3 EGLR 16
The Jackson ADR Handbook, Susan Blake, Julie Browne and Stuart Sime, Oxford University Press, 1st ed, 2013
Seitler’s leading practitioners
Sara Benbow, The Property Mediators
Louise Clark, Charles Russell Speechlys
Jason Hunter, Russell-Cooke
Jacqui Joyce, The Property Mediators
Michel Kallipetis QC, Quadrant Chambers
Brie Stevens-Hoare QC, Hardwicke
Beverley Vara, Maitland Chambers
Patrick Walker, Squire Patton Boggs
Gary Webber, The Property Mediators
Jonathan Seitler QC is a barrister at Wilberforce Chambers
