UK: Mediation: Refuse And Be Damned?

Last Updated: 3 March 2003
Article by Benjamin Beabey


Lord Woolf’s Reforms to the Procedural Rules governing litigation ("the CPR"), introduced in April 1999, were designed to streamline the litigation process, reduce delay and costs and, in general, provide ‘access to justice’ for all. At the same time, however, the Reforms looked beyond the Court precincts to encourage parties to explore other means of settling their disputes. Commercial disputes were and are frequently subject to arbitration agreements, the law in this area having been regularised by the Arbitration Act 1996. Parties who include arbitration clauses in commercial contracts or who agree to refer disputes to arbitration continue to recognise the benefits of resolving their disputes in private and the value of a binding arbitration.

Increasingly, parties have also recognised the benefits of alternative dispute resolution whereby a dispute can be settled with the assistance of an independent third party who, while unable to impose a solution on the parties, can facilitate both parties finding a mutually acceptable solution to their dispute. As far back as 1996, Waller J said, in a practice statement, that the settlement of claims by way of ADR can:

  • save costs;
  • reduce delay;
  • preserve existing and ongoing commercial relationships and market reputations;
  • provide a much wider range of settlement solutions than those offered by the Court; and
  • make a substantial contribution to the more efficient use of judicial resources. Waller J’s comments remain at the forefront of the judiciary’s thinking today when considering ADR.

The law

Both existing practice requirements and recent case law have highlighted the role of ADR in modern litigation in the right circumstances.

The Pre-Action Protocol for defamation, for example, requires both parties to provide evidence to the Court that alternative means of resolving a dispute have been considered. The same Protocol refers to the possibility of resolving a dispute by way of determination by an independent third party or by mediation or any other form of ADR. There is a prima facie duty on both parties to consider settling their dispute without recourse to the Court and increasingly the Court may make enquiries of the parties at a later stage as to what efforts were made to settle a claim without the need to litigate.

Waller J’s sentiments are reflected throughout the CPR. For example, in the Guides to the Chancery and Queen’s Bench Divisions and the Commercial Court, the Rules confirm his comments and encourage both parties to consider the use of ADR. Solicitors are also required to inform their clients about the most cost-effective means of resolving a dispute, including the possibility of ADR.

ADR is a voluntary means of settling a dispute, whereas litigation is necessarily imposed upon the Defendant against its will. The general view is often that ADR requires a desire by both sides to find a mutually acceptable solution to a dispute. Where one party is reluctant to mediate, then, until recently, all hope of relying on ADR was often considered lost and a case would progress as usual to Court.

It is not uncommon, however, for media defendants, perhaps after publication of an apology (either agreed or unilaterally) to consider the residual issues of costs and damages as suitable for mediation yet for their adversary claimants to be reluctant to explore ADR, preferring to rely upon a tried and tested route through the Courts. There are, obviously, clear costs benefits in resolving a dispute at an early stage by way of ADR rather than allowing a matter to drag on through the litigation process to trial. Mediation also offers a less public forum for settlement and, while this may be seen as unattractive by reluctant parties, it is easily overcome by the fact that any mediated settlement can include appropriate confidentiality terms, thus alleviating a Claimant’s desire to have his day in Court. Notwithstanding the general view that ADR requires a common desire to participate, some recent case law has shown the Court as favouring a much more ‘hands-on’ attitude towards the possibility of settlement outside the litigation process, whatever the views of a reluctant party.

The first section of the Allocation Questionnaire, which is automatically sent to both parties by the Court after a Defence in any action is filed and which allows parties for the first time to identify proposed witnesses, anticipate costs and suggest a forward-looking timetable for the litigation process, asks "Do you wish there to be a one-month stay to attempt to settle the claim, either by informal discussion or by Alternative Dispute Resolution?". The fact that this is the first question asked of both parties by the Court at this stage speaks for itself.

Recent case law re-affirms the Court’s desire to reduce delay and minimise recall to the Courts. A series of recent cases has shown the Court’s firm commitment to mediation and the requirement on both parties to explore all other avenues by which a claim, of whatever nature, could be settled without litigation.

Lord Woolf, sitting in the Court of Appeal in Frank Cowl and Others -v- Plymouth City Council1, referred to the "paramount importance of avoiding litigation whenever this is possible". Although this case involved the use of public funds (by way of judicial review), Lord Woolf outlined the general principles underpinning the obligation on parties to explain what steps have been taken to resolve a dispute before turning to the Courts. The Court held, in Frank Cowl, that judicial review proceedings should not proceed where a significant part of the issues between the parties could possibly be resolved outside the litigation process. The Court of Appeal’s judgment referred to an "unfortunate culture in litigation of this nature of overjudicialising the processes … involved". It was felt too much attention was focused on argument about what had occurred in the past rather than consideration of the future. The Court held that, in today’s litigious environment, "sufficient should be known about ADR to make the failure to adopt it, in particular when public money is involved, indefensible". Lawyers were to be "under a heavy obligation to resort to litigation only if it is really unavoidable".

Subsequent case law re-affirmed the views expressed in Frank Cowl and widened the Court’s consideration beyond cases that involved the expenditure of public funds. In Dunnett -v- Railtrack plc2, the Court of Appeal considered the position of a successful party (Railtrack) where, following a victory at first instance and a victory in resisting an appeal, it became apparent that Railtrack had refused to consider an earlier suggestion from the Court to attempt mediation. Although mediation was not considered before the trial at first instance, in giving permission to appeal to the unsuccessful Ms Dunnett, the Trial Judge, Schiemann LJ, advised Ms Dunnett to explore the possibility of settling her dispute with Railtrack by way of ADR. This suggestion was put to Railtrack but was apparently rejected, and Ms Dunnett’s appeal proceeded. Again, Ms Dunnett lost on appeal, and she had also further ‘lost’ by rejecting a Part 36 Offer from Railtrack to accept £2,500 inclusive of interest and costs and, later, an alternative offer of allowing withdrawal from the appeal without any costs penalty against her.

Despite Ms Dunnett’s clear defeat, the Court of Appeal refused to make any costs order in Railtrack’s favour. The Court took into account Railtrack’s refusal to contemplate mediation before costs began to be incurred in dealing with the appeal. Although Railtrack had predicted the outcome of the trial and the appeal accurately and had successfully resisted Ms Dunnett’s claim, the ruling was a clear sign from the Court of Appeal that a refusal to mediate in appropriate circumstances could come back to haunt a successful party.

The Court has wide powers under CPR Part 44 to exercise its own discretion when making orders as to costs, whatever the outcome of litigation. In the earlier case of Dyson and Field -v- Leeds City Council3, the Court of Appeal had already warned of adverse sanctions that could flow where a party was reluctant to mediate, and this was revisited in Frank Cowl. In Dunnett, the Court penalised a party which was not only reluctant or refused to mediate in a doubtful case, but which was also wholly successful in terms of the substantive findings of the Court on the merits of the case. Understandably, the Dunnett decision came in for some criticism and was viewed in some quarters as overly punitive. It was feared that the case law could impose a requirement on parties to mediate unsuitable cases and could be viewed as precluding parties from exercising their right to fair hearing for fear of costs penalties if the offer of mediation, whatever the circumstances, was rejected. In Dunnett, Brooke LJ commented that Railtrack had misunderstood the purpose of ADR and the possibility that skilled mediators can achieve results quite beyond the powers of lawyers and Courts. Brooke LJ reminded lawyers that "if they turn down out of hand the chance of ADR, when suggested by the Court, as happened on this occasion, they might have to face uncomfortable costs consequences". In Dunnett, the possibility of resolving the dispute by way of ADR was first suggested to the parties by the Court. However, the CPR imposes a duty on both parties and their legal representatives to further its overriding objectives. Although Dunnett did not make mediation compulsory, it did remind lawyers that the same or similar costs penalties could be imposed for a failure to consider or use ADR even absent the Court’s direction in a particular case to do so.

In Hurst -v- Leeming4, the situation arose where the unsuccessful Claimant (after his professional negligence action against the Defendant (a barrister) had been dismissed) submitted that he should not be required to meet the Defendant’s costs because he previously invited the Defendant to mediate the claim but the Defendant had refused.

The unsuccessful Claimant clearly saw parallels in Dunnett and looked to the Court to penalise the successful Defendant because of his refusal to mediate both before and after proceedings had been issued.

The Defendant said he refused to mediate because of:

  • the legal costs already incurred in meeting the allegations and the threat of proceedings;
  • the seriousness of the allegations of professional negligence against him;
  • the total lack of substance of the claims made against him;
  • the lack of any real prospect of a successful outcome of the mediation proceedings; and
  • the obsessive character of the Claimant, as revealed by his history of litigation and his response to the explanation for the Defendant’s conduct already provided.

The Court had an opportunity to consider the previous case law and the requirements of, in this case, the Professional Negligence Pre-Action Protocol, to decide whether the Defendant was justified in refusing to mediate, particularly where the attitude and character of the Claimant made it very unlikely that a mediation would ever succeed. The Court could weigh up how these factors ought to impinge on the usual costs order requiring the Claimant to pay towards the Defendant’s costs. The question, in essence, was when would it be reasonable to refuse an offer of mediation and still avoid any adverse costs consequences, should the matter come to Court.

The Judge held that it was not a proper reason to refuse to mediate simply because heavy costs had already been incurred by both parties. Also, it was not a proper reason to refuse to mediate simply because the allegations complained of were serious. These factors could not support a refusal to mediate alone, but could be taken into account in the mediation itself. Similarly, even if one party believed his/her case to be watertight, this was no justification for a refusal to mediate, as this is often the "frame of mind of so many litigants" anyway. The crucial factor for the Judge was whether, judged objectively, the mediation had any real prospect of success. The Judge found that the Defendant was right to reject the Claimant’s earlier offers of mediation in the particular circumstances of this case.

Clearly, the Hurst case is helpful to parties who are reluctant to mediate and who have concerns over the Court’s powers to impose significant costs sanctions on those who have refused to mediate even if ultimately successful at trial. The Judge in Hurst (Mr Justice Lightman) nevertheless issued a strong warning, which must be borne in mind whenever a party passes up the opportunity to explore ADR. The Judge said:

"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 penalised".

The Judge in Hurst went on to say that:

"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 does often 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".

It was not lost on the Judge in Hurst that:

"What appears to be incapable of mediation before the mediation process begins often proves capable of satisfactory resolution later".

In Hurst, the Court found that the unsuccessful Claimant had to accept that his case was "hopeless". The particular circumstances allowed the Judge to accept that mediation "had no real prospect of getting anywhere". There was, therefore, no reason why the successful Defendant ought to be penalised or deprived of the recovery of his full entitlement to costs from the unsuccessful Claimant.

In essence, the case law up to Hurst made it clear that, despite the Court’s desire, enforced by way of costs sanctions, to see parties exploring all alternative forms of dispute resolution where appropriate, if an objective assessment showed that a mediation could not be seen to have any real prospect of success, then a party rejecting a request to mediate ought not to be penalised. Nevertheless, when faced with an offer of mediation, refusal remained, in the Judge’s opinion "a high-risk course to take".

A couple of more recent cases have shed light on the Court’s current approach to mediation. In Cable & Wireless -v- IBM United Kingdom Limited 5, the Court re-affirmed its commitment to mediation. This case concerned contractual commitments between Cable & Wireless and IBM to mediate in case of dispute. A dispute arose and Cable & Wireless refused to mediate and questioned the enforceability of the mediation clause in the contract. The Judge, Colman J, held that there was a contractual commitment between Cable & Wireless and IBM to mediate, and the parties were required to do so. In Cable & Wireless, the Judge highlighted the importance of the Court’s active case management role in requiring both parties to further the CPR’s overriding objectives, particularly when considering ADR. He found that, were the Courts to decline to enforce a contractual reference to ADR, then this would be to "fly in the face of public policy as expressed in the CPR and as reflected in the judgment of the Court of Appeal in Dunnett -v- Railtrack".

Colman J, in Cable & Wireless, reminded the parties that "mediation as a tool for dispute resolution is not designed to achieve solutions which reflect the precise legal rights and obligations of the parties, but rather solutions which are mutually commercially acceptable at the time of the mediation".

This Court again interpreted the CPR to require parties to honour commercial and contractual commitments to mediate disputes and, in any event, to give proper and serious consideration to the possibility of settling any form of litigation by way of ADR.

Most recently, in Société Internationale de Telecommunications Aeronautiques SC -v- Wyatt Co (UK) Ltd & Ors6, at a hearing on costs, it was held that a law firm had acted entirely reasonably in refusing to mediate with one of the Defendants to the main action.

The Claimant in the main action successfully won its claim concerning a multi-million dollar staff share reward scheme. One of the Defendants in that claim simultaneously sued the law firm. The law firm was held to have acted properly and was not liable in any way. At a costs hearing in November 2002, it was held that the law firm had been "dragooned, browbeaten and bullied" towards mediating with the Defendant. It was suggested that the Defendant hoped that the law firm might contribute to a settlement of the main action itself rather than confining the proposed mediation to a settlement of the claim between them. The Judge held that, in light of this, the law firm properly and entirely reasonably refused on three occasions to join in a mediation. As well as successfully defeating the claim against it, the law firm was held to have acted reasonably in refusing to mediate and therefore it ought not to be deprived of its rightful contribution to its own costs from the unsuccessful Defendant. In ruling against the argument that a refusal to mediate by the law firm ought to mean the loss of its chance to recover its costs, the Judge considered five particular matters as sufficient reason to refuse to mediate. These were, in summary:

  • The first invitation to mediate did not allow sufficient time for the law firm’s legal team to get to grips with the issues in the main action as well as the claim brought by the Defendant against it and a substantial mediation, even a couple of months away, "would have been a most inconvenient and unwelcome distraction";
  • The only reason why the law firm was invited to mediate was so that pressure could be brought to bear on it to make a large contribution towards the settlement of the main action (to which it was not a defendant);
  • The Defendant did not view the real reason for the mediation session (including all parties to the main action as well) as a means to settle its claim against the law firm;
  • The pressure from the Defendant on the law firm to join in a mediation of the main action was at least "disagreeable and off-putting". It was an attempt by the Defendant to "browbeat and bully" the law firm;
  • The law firm had been told by the Defendant that the mediator (of the main action mediation) was already "motoring" against them (the law firm).

The Judge held that despite the repeated requests to mediate from the Defendant, these were to be seen as "self-serving invitations (demands would be a more accurate word)" and it would be a "grave injustice" not to allow the law firm to recover its costs of the proceedings.

Lessons from the case law

The obvious day-to-day commercial and practical pressures faced by the Court system will inevitably be taken into account by Judges when considering how best to encourage parties first to explore alternative means of resolving their dispute which would extricate their case from Court time and resources.

The Courts are increasingly suggesting ADR to parties (as occurred in Dunnett) and reminding them of their ongoing obligations under the CPR and various Pre-Action Protocols to explore ADR to the full. It is increasingly common to find Directions Orders including a requirement for both parties to use their ‘best endeavours’ to mediate a settlement whether or not this has been sought by either party. When faced with an Order of the Court (either sought or imposed), then obviously the parties must approach ADR in the spirit of the overriding objective of the CPR and give it due attention as required by the Court’s Order. However, the introduction of ADR (in the absence of any Court-led intervention) remains a tactical tool which can be applied, often with good results, but which nevertheless requires careful consideration.

There will be occasions when the entirety of a claim or certain residual elements of a claim remain to be settled and where either side to the litigation considers mediation as an effective way to bring about a settlement. If that is the case, then, increasingly, the offer of mediation will be introduced in open correspondence and the opponent party may be invited to explore all extra-judicial avenues to settle the claim. The invitation to mediate will no doubt refer to the dangers in costs terms of refusing to try ADR whatever the merits of the case. This invitation should not, however, be made too late in the day, as it will be reasonable to reject it if made too close to trial.

Parties should not invite their opponent to mediate if, on their own part, there is no intention to pursue ADR with due enthusiasm or if it is seen merely as an aggressive move to put pressure on that party for some ulterior motive. Again, refusal to mediate in these circumstances is likely to be seen as reasonable.

Mediation can offer much more, in most cases, than the Court. It allows both parties to agree terms which are often unobtainable in negotiation between the parties themselves or their solicitors without the help of the mediator. The introduction of an impartial third party, combined with the physical separation of the Claimant and Defendant camps during the mediation process itself, introduces a calming and unemotional influence. Active case management means that the Courts will inevitably support any reasonable proposals for both parties to try to settle their dispute by way of ADR and, for the sake of a one-month (or greater) delay, it is likely that the Court will entertain an application, even in the face of cynical or outright reluctance from the opposing party, for a stay in the proceedings to allow for ADR. This breathing space in the litigation often bears fruit.

Each case must, of course, be considered on its own merits. As much as the Treasury, the Court Service and the growing industry of mediators and ADR organisations would endorse strong judicial warnings (in costs) against refusing to explore ADR, a balancing body of case law has emerged, which, on particular facts, has found a refusal to mediate as perfectly reasonable. In this case, costs penalties are unlikely to follow.

Particular facts or circumstances may make mediation an alternative with no real or objective prospect of success. More generally, mediation may be an inappropriate means to deal with a particular dispute, in which case a refusal to mediate will come with impunity. However, ringing in the ears of clients and lawyers alike must be Mr Justice Lightman’s warning that refusal is "a high risk strategy" and that any party "refusing to proceed to mediation may be severely penalised".

Refuse and be damned? Perhaps not. Refuse at your peril? Perhaps so.

1 [2001] EWCA Civ 1935; The Times 8 January 2002
2 [2002] EWCA Civ 302, (2002) 2 All ER 850
3 Unreported, 29 November 1999
4 [2002] EWHC 1051(ch), (2002) CILL 1892
5 [2002] EWHC 2059
6 [2002] EWHC 2025 (ch)

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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