To mediate or not to mediate… refuse at your peril… and other ADR developments

The English courts have been encouraging parties to seek to settle their disputes via alternative dispute resolution (ADR) for close to 30 years.

ADR comes in a wide range of different formats including early neutral evaluation, expert determination, negotiation, conciliation and mediation. It is this last format, which has gained the greatest prominence that is the main subject of this article.

What is mediation?

For those who have not come across mediation, it is a confidential process whereby a neutral third party (the mediator) assists the parties explore the issues in dispute and the options for settlement, with a view to the parties agreeing a settlement. Importantly, mediation allows the parties more creativity and flexibility over the terms of settlement than litigating in court with the parties retaining control over the outcome rather than having a solution imposed on them.

According to the Centre for Effective Dispute Resolution (CEDR) in its 2021 Audit, the overall success rate of mediations is high with 93% of mediations resulting in settlement on the day (72%) or shortly after the mediation (21%). Interestingly, the CEDR Audit has seen this percentage increase from 89% in 2018, which was itself up from 86% in 2016. Between 2018 and 2020 CEDR reports that the number of civil and commercial mediations in England and Wales increased by 38% to some 16,500 per year.

The consequences of refusing to mediate

It has long been established that a refusal to mediate could give rise to costs sanctions.

Where the party refusing to mediate goes on to win at trial, the usual sanction is that the court will decline to make the usual costs order in favour of the successful party with each party bearing their own costs from the date of refusal.

Where a party refuses to mediate and then loses at trial the court has held that the usual sanction is that the losing party pays the successful party’s costs on the indemnity basis from the date of receipt of the offer to mediate.

In Halsey v Milton Keynes General NHS Trust [2004] Dyson LJ held that it was for the unsuccessful party to show that the successful party had acted unreasonably in refusing to mediate and set out what became known as the Halsey principles to help to determine what amounted to an unreasonable refusal. Subsequent cases have shown that reasons such as “it’s an all or nothing case” or “the parties are too far apart” are unreasonable.

Although famously the court in Halsey considered that ADR could not be ordered on the basis that such an order would breach the right to a fair hearing under Article 6 of the European Convention on Human Rights (see Compulsory ADR below), for a number of years parties have found themselves ordered by the court to consider ADR. Indeed, there are numerous cases where parties who failed to do so have been penalised in costs, including the recent case of DSN v Blackpool FC [2020].

In DSN the defendant was heavily penalised for refusing to engage with the claimant in discussions over ADR following a direction from the court to give serious consideration to ADR. The defendant unsuccessfully sought to argue that ADR would be futile as it had a complete defence to the claim. The following extract from the judgment gives a good insight into the current thinking of the court in this area and the reasons why refusing to mediate can be so dangerous:

“No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money. Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought. The costs of an action will not always be limited to financial costs, however. A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties which a settlement could spare them.”

Compulsory ADR

Perhaps it is unsurprising given the above, and the general trend in recent years for the courts to encourage parties to consider ADR, that the Civil Justice Council recently published a report titled “Compulsory ADR”, which looked at the legality and desirability of compulsory ADR.

The conclusion of the report is that, contrary to the views expressed in Halsey, should a court order parties to engage in ADR it would not infringe their Article 6 right to a fair hearing.

Following the publication of the report, the Master of the Rolls, Sir Geoffrey Vos, gave his support for the conclusion adding, “as I have said before, ADR should no longer be viewed as “alternative” but as an integral part of the dispute resolution process; that process should focus on “resolution” rather than “dispute””.

It remains to be seen how the report’s conclusion will be implemented, but it seems clear that ADR will play an ever more important role in dispute resolution and parties who refuse to engage will do so at their peril.

If you have a dispute and would like more information about mediation or any form of ADR then please contact Daden Hunt or another member of the Litigation and Dispute Resolution Team.