Local Government Law - Costs Sanctions on Refusing ADR

Originally published June 2004

Alternative Dispute Resolution (ADR) is now well-established and positively encouraged in all suitable cases. On 23 March 2001 the former Lord Chancellor, Lord Irvine, pledged that Government Departments will go to court only as a last resort and that Government legal disputes will be settled by mediation or arbitration whenever possible.

Lord Woolf giving judgment in the Court of Appeal on 14 December 2001 in Cowl and others v. Plymouth City Council indicated the 'heavy obligation' of lawyers acting in a public law dispute where there is a suitable alternative dispute resolution mechanism 'to resort to litigation only if it is really unavoidable'. And the Department for Constitutional Affairs points out that:

'For some time it has been Government policy that disputes should be resolved at a proportionate level, and that the courts should be the dispute resolution method of last resort. Although ADR is independent of the court system, a judge can recommend that parties involved in litigation enter into it. The court may also impose cost sanctions if it decides that one or more of the parties has been unreasonable in refusing to attempt ADR.'

It was this latter issue (i.e. when should the court impose a costs sanction against a successful litigant on the ground that he has refused to take part in ADR) that was before the Court of Appeal on 11 May 2004 in Halsey v. Milton Keynes General NHS Trust and Steel v. Joy and Another [2004] EWCA (Civ) 576. Judgment was given by Dyson LJ. The Court noted (amongst other things) that Rule 1.4 (1) of the Civil Procedure Rules (CPR) requires the court to further the 'overriding objective' of enabling the court to deal with cases justly per Rule 1.1 by 'actively managing cases' which (by CPR 1.4(2)(e)) includes 'encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure'. The Court of Appeal noted that whilst ADR is defined in the Glossary to the CPR as the '[c]ollective description of methods of resolving disputes otherwise than through the normal trial process' nevertheless in practice 'references to ADR are usually understood as being references to some form of mediation by a third party'.

Whilst the Court of Appeal took the view that '[a]ll members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR' and the 'form of encouragement may be robust' nevertheless it considered that the role of the court 'is to encourage, not to compel'.

Dyson LJ noted that per CPR 44.3.2 '[i]f the Court decides to make an order about costs - (a) 'the general rule is that the unsuccessful party will be ordered to pay the cost of the successful party'; but (b) the court may make a different order'. Also (per CPR 44.3(4)) in deciding what order if any to make about costs 'the court must have regard to all the circumstances', including (amongst other things) 'the conduct of all the parties'. Nevertheless, the Court of Appeal pointed out that:

'In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR.'

Dyson L.J. indicated that the Court would endeavour in the judgment to provide some guidance as to the factors to be considered by the court in deciding whether a refusal to agree to ADR is unreasonable. Whilst the Court of Appeal noted (per Brooke LJ in Dunnett v Railtrack plc [2002] EWCA Civ 303) that a mediator may well be 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' and that a mediator 'may be able to provide solutions which are beyond the powers of the court to provide', nevertheless Dyson LJ indicated that the Court accepted the submission by the Law Society that: 'mediation and other ADR processes do not offer a panacea, and can have disadvantages as well as advantages: they are not appropriate for every case'. Consequently, the Court of Appeal did not accept the submission on behalf of the Civil Mediation Council that there should be a presumption in favour of mediation.

Whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. The Court of Appeal accepted the submission of the Law Society that factors which may be relevant to the question whether a party has unreasonably refused ADR will include (non-exhaustively):

1. the nature of the dispute;
2. the merits of the case;
3. the extent to which other settlement methods have been attempted;
4. whether the costs of the ADR would be disproportionately high;
5. whether any delay in setting up and attending the ADR would have been prejudicial;
6. whether the ADR had a reasonable prospect of success.

The Court considered each of these in turn but emphasised that in many cases no single factor will be decisive and that those factors should not be regarded as an exhaustive check-list.

As to public bodies and the ADR pledge referred to above, the Court of Appeal disapproved the decision on costs of Lewison J in Royal Bank of Canada v. Secretary of State for Defence [2003] EWHC 1841 where the judge had considered that failure to abide by the formal ADR pledge given on the part of the Government jusitified a decision that the Ministry of Defence should not recover any further costs from the claimant. In the instant case Dyson LJ said that the judge was wrong to attach such weight to the ADR pledge which was 'no more than an undertaking that ADR would be considered and used in all suitable cases'. Furthermore, the Court of Appeal could see no basis for the court to discriminate against successful public bodies when deciding whether a refusal to agree to ADR should result in a costs penalty.

The Court of Appeal in Halsey may have removed some of the hysteria from the ADR/court litigation debate. For whilst the Court recognised that mediation has a number of advantages over the court process, equally the role of the court is to encourage and not to compel. And compulsion would be likely to be regarded as an unacceptable constraint on the right of access to the court and consequently a violation of Article 6 of the European Convention on Human Rights (right to a fair trial). Halsey also contained some helpful clarification of the factors that may be relevant to the issue of whether a party has unreasonably refused ADR.