Beware the Consequences of Failing to Consider ADR

In a recent decision the Court of Appeal refused to order the unsuccessful claimant to pay the defendant’s costs of an appeal because the defendant had refused to contemplate Alternative Dispute Resolution (ADR). Lord Justice Brooke (with whom Lord Justice Robert Walker and Lord Justice Sedley agreed) specifically stated that he hoped any publicity given to this part of the judgment would draw the attention of lawyers to their duties to further the overriding objective, which include encouraging parties to use ADR, and if they turn down “out of hand” the chance of ADR when suggested by the court, they may have to face “uncomfortable costs consequences”.

Background

The claimant’s appeal was against the judgment of Judge Graham Jones in the Cardiff County Court in December 1999. The trial judge dismissed the claim against the defendant, Railtrack plc, for damages for negligence arising out of the death of three of the claimant’s horses in 1996 on the Swansea to London railway line. The gate separating the railway line from the claimant’s field had been left open, shortly after the defendant’s contractors had replaced the gate. The horses had wandered onto the railway line and been killed by an express train. The claimant claimed £9,000, being the agreed value of the horses, and also damages for post-traumatic stress disorder (as she had seen the mangled remains of at least two of her horses on the railway line after the accident).

The claimant’s (former) legal advisers, at the time of the trial, had limited the way in which her claim was pursued. The trial judge rejected her claim on liability and found that the defendant had met its statutory duty of care. The trial judge added that if the claimant had any real concerns about the gate, she should have taken the matter further with the defendant than the one conversation she had with one of the defendant’s workmen.

The claimant was given leave to appeal on liability (and the defendant cross-appealed on the judge’s comments that if she had succeeded on liability, she would have been entitled, in principle, to recover damages for post-traumatic stress disorder).

Settlement Discussions

Before the appeal was heard, the defendant made an offer to pay £2500 to the claimant in full and final settlement of all her claims including interest and costs. It appears that a further offer of £2,500 was subsequently made but the claimant did not consider this to be a reasonable or fair offer.

Before granting the claimant leave to appeal, Lord Justice Schiemann advised the claimant to explore the possibility of ADR. The claimant referred this suggestion to the defendant who turned it down and was not even willing to consider it.

Decision

The Court of Appeal held that, on the facts of the case as limited by the claimant’s former legal advisers at the trial, there was no material on which the trial judge could have found in favour of the claimant on liability. In those circumstances the appeal was dismissed and the cross-appeal was not considered.

The defendant then asked the court for an order that the claimant pay its costs. The defendant argued that as the successful party and because the claimant had rejected its offer to settle the case before the appeal, it should be entitled to its costs of the appeal.

The Court of Appeal rejected this request and made no order as to costs. The Court of Appeal acknowledged that ADR had not been suggested until after the trial. However once it had been suggested by Schiemann LJ, the defendant should not have dismissed it out of hand. In the circumstances, the settlement offers that had been made would not be taken into account.

When questioned by the court as to why it would not contemplate ADR, the defendant stated it was because ADR would necessarily involve the payment of money and the defendant was not willing to contemplate payment over and above that which had already been offered. The Court of Appeal was highly critical of this stance and said that it showed an apparent misunderstanding of the purpose of ADR. The court stated that skilled mediators are now able to achieve a result satisfactory to both parties in many cases, beyond the power of lawyers and courts to achieve. For example, sometimes all the claimant really seeks is an apology and the money side of the matter falls away.

Implications

Although this case involved a relatively small sum of money being sought and the Court of Appeal clearly felt sympathy for the claimant in the way her case had been pursued at trial, this judgment nevertheless highlights the necessity for lawyers and parties to consider ADR.

The Court of Appeal’s decision is the latest in a trend of cases which serve to warn both lawyers and parties about the failure to consider ADR. In Cowl & Others v Plymouth City Council [2001] EWCA Civ 1935 Lord Woolf gave the judgment of the Court of Appeal and stated in the context of a judicial review that “both sides must by now be acutely conscious of the contribution alternative dispute resolution can make to resolving disputes in a manner which both meets the needs of the parties and the public and saves time, expense and stress”. Lord Woolf also stated that the failure to adopt ADR, in particular when public money is involved, is “indefensible”. In the earlier case of Paul Thomas Construction Limited v Hyland & Another (Technology and Construction Court, 8 March 2000) an indemnity costs order was made against a party which failed to consider ADR. Recent cases indicate that the test for awarding indemnity costs is lower than it used to be. The parties’ conduct, both before and during proceedings will be closely considered by the courts when making costs orders.

This latest judgment in the Dunnett case was only a matter of time and the refusal to contemplate ADR, particularly if suggested by the court and at a stage before costs have started to flow, may lead to adverse costs consequences, as happened in this case.

© Herbert Smith 2002

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