Being nice

Alternative Dispute Resolution (ADR) is an alternative to litigation. Seen twenty years ago, as touchy-feely nonsense, “being nice” to the “being nasty” of litigation, the last twenty years have seen it increase dramatically in importance.

ADR is now very much in vogue, as an alternative to using the crumbling civil courts with their extortionate fees. But the impetus to use ADR is not solely generated by the desires of the potential parties to expensive litigation to reach a compromise, but is now increasingly pushed onto the parties by the courts themselves keen to reduce pressure on their scarce resources. The principal mechanisms for doing so, are encouragement and the potential threat of a costs penalty, if that encouragement is ignored.

It is therefore a matter of some interest, to consider the criteria the court will look at when considering whether it is appropriate for the court to impose a costs penalty on a party, who has otherwise won their case, due to their failure to negotiate or use in particular a form of alternative dispute resolution: this can be mediation, but commonly in the context of personal injury claims is a joint settlement meeting.

The starting point for consideration of the law on this topic is the case of Dunnett.v.Railtrack (Practice Note) [2001] 1 WLR 2434 where the Court of Appeal gave some guidance as to the potential for costs consequences to be applied to parties who refuse to mediate.

“Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve. This court has knowledge of cases where intense feelings have arisen, for instance in relation to clinical negligence claims. But when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the court to provide.”

Some years later the issue came before the Court of Appeal again in the case of Halsey.v.Milton Keynes General NHS Trust [2004] 1 WLR 3002, which is perhaps still the leading authority on this issue. In that case the Court of Appeal established the following principles in paragraph 16 of its judgment:

The question whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. We accept the submission of the Law Society that factors which may be 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. We shall consider these in turn. We wish to emphasise that in many cases no single factor will be decisive, and that these factors should not be regarded as an exhaustive check-list.

Some of these factors are relatively straightforward in their application, others deserve a little deeper reading into the judgment, to see what the Court of Appeal had in mind and how these factors were to be applied in context. Dealing with the (b) merits of the case, the court noted at paragraph 18:

The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted reasonably in refusing ADR . If the position were otherwise, there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit. Courts should be particularly astute to this danger. Large organisations, especially public bodies, are vulnerable to pressure from claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least make a nuisance-value offer to buy off the cost of a mediation and the risk of being penalised in costs for refusing a mediation even if ultimately successful.

Turning to factor (c) and the use of other methods of negotiation, the court noted at paragraph 20:

The fact that settlement offers have already been made, but rejected, is a relevant factor. It may show that one party is making efforts to settle, and that the other party has unrealistic views of the merits of the case. But it is also right to point out that mediation often succeeds where previous attempts to settle have failed. Although the fact that settlement offers have already been made is potentially relevant to the question whether a refusal to mediate is unreasonable, on analysis it is in truth no more than an aspect of factor (f).

Turning to consider (d), I note that the factor of delay is considered in this way:-

If mediation is suggested late in the day, acceptance of it may have the effect of delaying the trial of the action. This is a factor which it may be relevant to take into account in deciding whether a refusal to agree to ADR was unreasonable.

But perhaps the most important factor in the court’s reasoning and certainly the one they devoted the most time to discussing in the judgment, was the prospect of the mediation succeeding.

23 In Hurst v Leeming [2003] 1 Lloyd’s Rep 379 , Lightman J said that he considered that the “critical factor” in that case was whether “objectively viewed” a mediation had any real prospect of success. He continued, at p 381: “If mediation can have no real prospect of success, a party may, with impunity, refuse to proceed to mediation on this ground. But refusal is a high risk course to take, for if the court finds that there was a real prospect, the party refusing to proceed to mediation may, as I have said, be severely penalized. Further, the hurdle in the way of a party refusing to proceed to mediation on this ground is high, for in making this objective assessment of the prospects of mediation, the starting point must surely be the fact that the mediation process itself can and often does bring about a more sensible and more conciliatory attitude on the part of the parties than might otherwise be expected to prevail before the mediation, and may produce a recognition of the strengths and weaknesses by each party of his own case and of that of his opponent, and a willingness to accept the give and take essential to a successful mediation. What appears to be incapable of mediation before the mediation process begins often proves capable of satisfactory resolution later.”

24 Consistently with the view expressed in this passage, Lightman J said that on the facts of that case he was persuaded that “quite exceptionally” the successful party was justified in taking the view that mediation was not appropriate because it had no realistic prospects of success.

25 In our view, the question whether the mediation had a reasonable prospect of success will often be relevant to the reasonableness of A’s refusal to accept B’s invitation to agree to it. But it is not necessarily determinative of the fundamental question, which is whether the successful party acted unreasonably in refusing to agree to mediation. This can be illustrated by a consideration of two cases. In a situation where B has adopted a position of intransigence, A may reasonably take the view that a mediation has no reasonable prospect of success because B is most unlikely to accept a reasonable compromise. That would be a proper basis for concluding that a mediation would have no reasonable prospect of success, and that for this reason A’s refusal to mediate was reasonable.

26 On the other hand, if A has been unreasonably obdurate, the court might well decide, on that account, that a mediation would have had no reasonable prospect of success. But obviously this would not be a proper reason for concluding that A’s refusal to mediate was reasonable. A successful party cannot rely on his own unreasonableness in such circumstances. We do not, therefore, accept that, as suggested by Lightman J, it is appropriate for the court to confine itself to a consideration of whether, viewed objectively, a mediation would have had a reasonable prospect of success. That is an unduly narrow approach: it focuses on the nature of the dispute, and leaves out of account the parties’ willingness to compromise and the reasonableness of their attitudes.

27 Nor should it be overlooked that the potential success of a mediation may not only depend on the willingness of the parties to compromise. Some disputes are inherently more intractable than others. Some mediators are more skilled than others. It may therefore sometimes be difficult for the court to decide whether the mediation would have had a reasonable prospect of success.

28 The burden should not be on the refusing party to satisfy the court that mediation had no reasonable prospect of success. As we have already stated, the fundamental question is whether it has been shown by the unsuccessful party that the successful party unreasonably refused to agree to mediation. The question whether there was a reasonable prospect that a mediation would have been successful is but one of a number of potentially relevant factors which may need to be considered in determining the answer to that fundamental question. Since the burden of proving an unreasonable refusal is on the unsuccessful party, we see no reason why the burden of proof should lie on the successful party to show that mediation did not have any reasonable prospect of success. In most cases it would not be possible for the successful party to prove that a mediation had no reasonable prospect of success. In our judgment, it would not be right to stigmatise as unreasonable a refusal by the successful party to agree to a mediation unless he showed that a mediation had no reasonable prospect of success. That would be to tip the scales too heavily against the right of a successful party to refuse a mediation and insist on an adjudication of the dispute by the court. It seems to us that a fairer balance is struck if the burden is placed on the unsuccessful party to show that there was a reasonable prospect that mediation would have been successful. This is not an unduly onerous burden to discharge: he does not have to prove that a mediation would  in fact  have succeeded. It is significantly easier for the unsuccessful party to prove that there was a reasonable prospect that a mediation would have succeeded than for the successful party to prove the contrary.

Most recently, the issue was the subject of a very interesting decision in the Court of Appeal, that of PGF II SA v OMFS Co 1 Ltd [2014] 1 WLR 1386 where the Court of Appeal stated the issue before it, was as follows:-

This appeal raises, for the first time as a matter of principle, the following question: what should be the response of the court to a party which, when invited by its opponent to take part in a process of alternative dispute resolution (“ADR”), simply declines to respond to the invitation in any way? An unreasonable refusal to participate in ADR has, since 2004, been identified by this court as a form of unreasonable conduct of litigation to which the court may properly respond by imposing costs sanctions: see Halsey v Milton Keynes General NHS Trust [2004] 1WLR 3002. After a general review of the progress of ADR, and mediation in particular, with the assistance of intervention by the Law Society and several bodies engaged in the development of ADR, this court laid down non-exclusive guidelines for deciding whether, in particular cases, a refusal to participate in ADR could be shown to be unreasonable. Those guidelines have stood the test of time, and the crucible of application in subsequent reported cases. A common feature of most of them, including the two cases reviewed in the Halsey case itself, was that the refusing party had communicated its refusal to the inviting party, with succinct reasons fordoing so.

It is worth noting that in that case a serious proposal for mediation had been made:

…By a separate letter the claimant invited the defendant to take part in an early mediation. The letter assumed that the defendant would wish to review the claimant’s disclosure, and that a meeting and exchange of information might usefully take place between experts, before a mediation commenced. The claimant offered to send the defendant its Section 18 valuation. Numerous specific dates in May and June 2011 were proposed and additions were made to a previously notified list of suggested mediators. The letter concluded by seeking the defendant’s agreement to mediate, and an explanation for any refusal. It sought confirmation as to documents and information which the defendant might wish to see before mediation, an exchange of dates and the defendant’s list of proposed mediators. It was, overall, a thorough, carefully thought through and apparently sensible mediation proposal, taking full account of the likelihood that the defendant, which had not been in occupation of any part of the Building for several years, would wish to obtain further information before taking part.

In the event, the Court extended the Halsey guidelines as follows:

In my judgment, 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, 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. I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism. There may also be cases where the failure to respond at all was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made, but in such cases the onus would lie squarely on the recipient of the invitation to make that explanation good.

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, which concerned reasoned refusals, provided in prompt response to the request to participate in ADR. The first is that an investigation of alleged reasons for refusal advanced for the first time, possibly months or even years later, at the costs hearing, where none were given at the time of the invitation, poses forensic difficulties for the court and the inviting party including, in particular, the question whether the belatedly advanced reasons are genuine at all. The manner in which this issue was debated both before the judge and on this appeal is illustrative of those difficulties.

Since the PGF case was handed down by the Court of Appeal I have argued this point successfully once in the High Court, for a paying party, where at the start of a judicial review claim a roundtable meeting was offered by the claimant in correspondence to ventilate all issues and explore options for settlement: at the time of the hearing 12 months later, that offer had never been responded to, and so the successful party was only awarded 75% of its costs, despite winning on every issue in the substantive claim at a hearing.

So this point can and is making a difference to awards of costs, but the principles noted in the case law above, are not applied in a vacuum: each case will turn on its own facts.

What is crucial is to lay the groundwork early with a detailed and reasonable offer of ADR in whatever mode is thought appropriate, with proposals, an agenda, dates for the ADR to take place, the identity of potential mediators if appropriate and to force the recipient to explain why they think ADR is not appropriate, if that is indeed their position.

The Halsey guidelines should be clearly expressed and referred to, forcing any response to deal with the proposal in a structured way. If they do not do so, then an argument on costs will have a greater chance of success.

In such circumstances, even if a case ultimately fails, “being nice” will not be just its own award.

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