UK: "Arbitrate, Don’t Litigate"

Last Updated: 7 July 2014
Article by Jonathan Haydn-Williams

Jonathan Haydn-Williams' article was recently posted on the website of the Chartered Institute of Arbitrators at the following link, www.ciarb.org/news/ciarb-blog/arbitrate-dont-litigate.php. It suggests a solution to the difficulties facing anyone seeking to bring a claim of less than £1/4 million against banks, financial institutions, insurance companies and the like.

It is said that, many years ago, a disgruntled litigant used to walk up and down in front of the Royal Courts of Justice, wearing sandwich boards declaring "Arbitrate, don't Litigate". I don't know what bitter experience led him to declare his preference for arbitration in that way, but I suspect that, were he still alive and litigating today, the problems caused in the last year by some of the Jackson "reforms"  would have led him to dust off his boards and head for the Strand.

It's not that all the Jackson changes are bad. The introduction of pre-CMC disclosure reports and the menu of different disclosure options offered to the parties and the courts seem good ideas which, if well applied in practice, could result in more cost effective use of disclosure. Other changes, however, are flawed and have been made worse by courts not practising what they preach in applying the new rules in a disproportionate manner, whilst in the next breath criticising parties and their lawyers for not behaving proportionately.

When Andrew Mitchell uttered the "F" word (but not, he says, the "P" word) in Downing Street after a stressful day in the office, he unleashed chains of events which have led to the "F" word being uttered in other locations by politicians, policemen and lawyers alike (especially solicitors who have just missed deadlines by only minutes).

The decision of the Court of Appeal to refuse an extension of time to Mr Mitchell's libel lawyers for lodging a costs budget has achieved notoriety and is not in need of repetition here. What is less clear, and likely to be a source of uncertainty and satellite litigation for a long time to come, is whether that "one strike and you're out" approach is to be replicated when other deadlines are missed for the first time, perhaps by a short margin and with reasonable excuse. An outbreak of common sense amongst some of the first-rung judiciary is welcome, but does not remove the uncertainty.

Costs budgeting may not be a bad idea in principle, but a ruthless attitude to its enforcement is not the way to turn it into a successful policy. The judicial justification for tough enforcement is that it is in the interests of other court users. However, who are those court users?

The Jackson reforms' removal of recoverability of success fees and After the Event (ATE) insurance premiums from losing defendants means that most ordinary people can no longer afford to bring – or to take the risk of bringing – claims against banks, financial institutions, insurance companies and the like, unless their claim is worth more than about £1/4 million. That is because – once you allow a discount for settlement – the Jackson addition of the success fee and ATE premium, on top of the usual slug of a claimant's irrecoverable costs, may well render the claim not financially viable.

Given the scandalous practices that emerged in the aftermath of the 2008 financial crisis and are still emerging, this so-called reform is retrograde and regrettable. The position pre-1 April 2013 was far from perfect, but the baby has been thrown out with the bathwater.

Meanwhile, Russian oligarchs remain free to use the English courts to fight out disputes arising in their homeland. "Free" is an apt word as, apart from issue fees and the like, it is English and Welsh taxpayers who meet the costs of the judges and court facilities – the very taxpayers who are now effectively denied access to their own courts in Business to Consumer ("B2C") disputes.

The "patch" of one way costs shifting was applied to personal injury and fatal accident claims, for the very reason that someone realised, late in the day, the adverse affects of non-recoverable success fees and ATE premiums. But, rather than dealing with the problem at its root, the patch was applied to those types of claim only and then with the bizarre result that a Russian oligarch can now bring an unsuccessful personal injury claim in the English courts and not have to pay a rouble of adverse costs to the winning defendant.

What can arbitration do to help?

International arbitration is well catered for in the UK and there are new LCIA rules in the offing. It would be better if the oligarchs were persuaded to use international arbitration with a London seat, instead of the High Court. The Court already has the means at its disposal to achieve this: the Practice Direction on Pre-Action Conduct provides that, when making costs orders, a court may take into account unreasonable refusal to consider Alternative Dispute Resolution (ADR) and may require evidence that the parties considered some form of ADR. Arbitration is one of the options for ADR specified in the Practice Direction.

Use of domestic arbitration has fallen away during the 30 years since I qualified as a solicitor. That is due partly to the advent of adjudication in construction disputes and partly, perhaps, to the increased use of mediation (which is often viewed, incorrectly, as an alternative to arbitration). But the unimaginative pursuit of "White Book" arbitration, which one saw in the 1980s and later, is, in my view, also to blame.

The present turbulence in the civil courts in the wake of the Jackson reforms, and the lack of access to those courts for ordinary people, presents an opportunity for domestic arbitration to reinvigorate itself – or rather for a body such as the Chartered Institute of Arbitrators (CIArb) to do so.

I suggest, therefore, that the CIArb should produce a set of "off the shelf" arbitration rules for B2C disputes. Features could include:

  • Maximum claim of £500,000
  • One way costs shifting, removing the need for a claimant to obtain ATE insurance
  • A maximum costs award against the respondent equal to one third of damages awarded
  • No need for costs budgeting
  • Outcome confidential, unless otherwise agreed
  • Appeals and references to the courts to be limited to the greatest extent possible
  • Compulsory early, time-limited mediation
  • Arbitrator and mediator to be appointed by CIArb
  • Arbitrator's and mediator's fees to be set by CIArb at reasonable rates. Payable by the respondent up front, with discretion of the Arbitrator to require up to half of them to be reimbursed by an unsuccessful claimant, unless the claimant provides proof of insufficient means
  • Procedures to be streamlined, with "adverse" disclosure limited to what the Arbitrator considers necessary to do justice once data access requests and other methods of obtaining documentation have been exhausted.

The main advantage of such arbitration rules to a "consumer" claimant would be the removal of the risks of becoming liable for:

  • the respondent's legal costs if the claim is lost, or
  • a large ATE insurance premium if the claim is won.

Claimants will still have potential liability for their own legal costs, but – in the case of claims with reasonable prospects of success – they should be able to find lawyers willing to act on a "no win, no fee" or "no win, lower fee" basis. In larger claims, litigation funding might be available.

I would hope that respondent businesses would also be encouraged to opt for such arbitration rules by reason of:

  • confidentiality of outcome
  • capping of a costs award against the respondent
  • streamlining of procedures
  • the possibility of a court taking an unreasonable refusal to arbitrate into account when awarding costs.

If my suggestions of one way costs shifting and costs capping were adopted, the arbitration rules could only be agreed in a binding way after a dispute had arisen (Arbitration Act section 60). They could nonetheless be specified in contracts on the basis that the parties would have to confirm the use of them once a dispute had arisen. That approach should also cover any concern about the arbitration clause being an unfair contract term under the Unfair Terms in Consumer Contracts Regulations 1999.

If B2C arbitration rules were prepared and published, along the lines I have suggested, I would hope for less use of the "F" and "L" words and more of the "A" word.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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