Cowl Delivers Crucial Message to Parties Involved in Disputes

Recent caselaw has delivered the clear message that alternative methods of dispute resolution should be carefully considered at all stages of a dispute. Failure to do so can lead to devastating consequences for the recovery of costs in any subsequent litigation.

All businesses must remain aware of the need to actively consider ADR (Alternative Dispute Resolution) and the potentially serious costs consequently of not doing so.

Lawyers and legal advisors have always fallen into one of two camps: either pro or anti-ADR. Some lawyers believe that to propose mediation (which is the most popular form of ADR) is a sign of weakness and that its use is over-hyped. This cynical view which is partly borne out of ignorance of the process or in some cases fear, (at least in private practice), of a drop in revenue for litigation departments is very quickly being eradicated by a relentless drive from the judiciary to elevate ADR to the top of the dispute resolution agenda. Very recent caselaw has delivered a knock out blow to the anti-ADR camp.

The foundations for this drive are set out in the CPR (Civil Procedure Rules 1998) which were spawned in April 1999 by Lord Woolf when he carried out the most widescale reform of the civil justice system for over one hundred years. The rules state that ADR must be considered at six different stages of the life cycle of litigation, which are:

The introduction of codes of best practice (Pre-Action Protocols) also underline that ADR should be considered before proceeding are commenced.

Caselaw is now developing to support the CPR and its Protocols to the extent that it has recently reached a crescendo promoting the use of ADR on an unqualified basis:

The Court of Appeal emphasised that it had powers to take a strong view with any party reluctant to engage in mediation by imposing orders for indemnity costs and ordering that a higher rate of interest be paid on any damages awarded.

The Court emphasised the need to comply with Pre-Action Protocols and to reasonably explore ADR. One party became obstructive when ADR was proposed and failed to comply with the Pre-Action Protocol for Construction and Engineering Disputes. Despite the proposal of mediation and the contents of the Protocol the unco-operative party took an aggressive stance, was exceedingly heavy handed and unco-operative and clearly breached the Protocol Practice Direction. In view of such wholly unreasonable behaviour, the unnecessary commencement of litigation and the failure to explore ADR, costs were awarded against the party on an indemnity basis.

Disputes should be resolved with the minimum involvement of the courts. To achieve that objective the court might hold on its own initiative an inter-partes hearing at which the parties would be asked why a complaints procedure, or some other form of ADR had not been used to resolve or reduce the issues in dispute. The Lord Chief Justice stated that "insufficient.attention was paid to the paramount importance of avoiding litigation whenever possible". He stated that both sides must be acutely conscious of the contribution ADR could make to resolving disputes in a manner which both met the needs of the parties and the public and save time, expense and stress. Further it was stated that "sufficient should be known about ADR to make the failure to adopt it, in particular when public money was involved, indefensible".

Cost sanctions likely to flow from a blunt refusal to consider ADR. The claimant appealed against the original judgment. At the hearing at which permission to appeal was granted, the court told the parties that they should attempt ADR. The defendants simply refused to consider ADR and the matter proceeded to appeal. The appeal was dismissed (ie, the defendant won) but received no costs award. The Judge stated "CPR1.4 states that the court should further the overriding objective of the CPR by encouraging the parties to use ADR. Furthermore, CPR1.3 stated that the parties were required to help the court in furthering the overriding objective. Parties and their lawyers should, therefore, ensure that they are aware that it was one of their duties to fully consider ADR, especially when the court has suggested it and not merely to flatly turn it down. To flatly turn down ADR could place the party doing so at risk of adverse consequences in costs. In this case, given that the defendant’s refusal to consider ADR had occurred prior to the costs of the appeal having been incurred, no order as to costs will be made in the appeal". The court also made it clear that whilst ADR was not likely to become mandatory in England and Wales it could be ignored no more than a Part 36 Offer to settle.

A clear message has been delivered. Businesses must consider seriously whether ADR is appropriate in every case rather than litigating in a blinkered fashion. ADR is not a panacea for all ills, but if a particular form of ADR is appropriate it offers a very high prospect of cost effective and speedy resolution of that dispute. Failure to actively consider ADR will result in a winning party running the risk of failing to recover any of its legal costs which in most cases will lead to a pyrrhic victory, ultimately, of little value.