UK: A New Impetus For ADR Before Issue?

Last Updated: 8 October 2009
Article by Tony Allen

The new provisions in the Pre-action Conduct Practice Direction

On 6 April 2009, the old Practice Direction to the Protocol was replaced by the new Pre-action Conduct Practice Direction (the PCPD).  This article looks in detail at the changes made and asks whether the changes made will encourage the more frequent use of mediation before proceedings are issued.

One of the bugbears of the standard form of wording in all the Pre-action Protocols (PAPs) and also their old Practice Direction (PD) in dealing with ADR was the payoff phrase:

It is expressly recognised that no party can or should be forced to mediate or enter into any form of ADR.

This is a phrase which originated in the first Construction and Engineering Protocol and was cut and pasted into all other the PAPs by the 41st amendment to the CPR, with effect from April 2006.  The problem with that wording was that it may have represented the position as it was thought to be in 1999, but this was before the Court of Appeal's decisions in Dunnett v Railtrack and Halsey v Milton Keynes NHS Trust.  It was always a summary devoid of actual authority, and was rendered even less accurate by Halsey, when, despite being obiter dicta, the Court specifically approved the use of ADR Orders in the form set out in Appendix 7 of the Admiralty and Commercial Court Guide, and also the "Ungley" Order, used in clinical negligence cases and regarded as apt for other types of cases.  But the ratio of Halsey, following Dunnett, also warned parties that costs sanctions under CPR 44.5 can be imposed even on a successful party, make that wording seriously misleading.  Of course none of these amount to being "forced" to mediate or use ADR, but the possibility of costs sanctions is a real one and hardly to be minimised in the airy dismissal of concern about not mediating which those words represent, bearing in mind also its position (as the last comment about ADR).

The news is that the new PCPD has removed these words from the section in which it deals with ADR, and in several other respects treats ADR very differently, in a broadly welcome and positive way.  The odd thing currently is that the offending phrase still features in all the other PAPs.  We are told that there is a review of the PAPs being undertaken, and it can only be assumed (or hoped) that this phrase will disappear during that review.

So what does the new PCPD actually say both generally and about ADR?  It starts by setting out its aims, as being to:

1.1

(1) enable parties to settle the issue between them without the need to start proceedings (that is, a court claim); and
(2) support the efficient management by the court and the parties of proceedings that cannot be avoided.

1.2

These aims are to be achieved by encouraging the parties to –
(1) exchange information about the issue, and
(2) consider using a form of Alternative Dispute Resolution ('ADR').

These are the aims of the PCPD and not the PAPs themselves.  Notably, the aims are to be achieved by encouraging the use of ADR, specifically stated as such at the outset of the PCPD.

Contrast the language at the beginning of the superseded PD to the PAPs, which starts: 

1.3

Pre-action protocols outline the steps parties should take to seek information from and to provide information to each other about a prospective legal claim.

1.4

The objectives of pre-action protocols are:
(1) to encourage the exchange of early and full information about the prospective legal claim,
(2) to enable parties to avoid litigation by agreeing a settlement of the claim before the commencement of proceedings,
(3) to support the efficient management of proceedings where litigation cannot be avoided.

The difference is immediately discernible.  Whereas the old PD was subordinate to the PAPs, first spelling out the consequences of not complying with the relevant PAP, and then moving on to deal with claims not covered by any PAP, the new PCPD establishes itself as the overall authority for all pre-action conduct.  It talks of the aims of the Practice Direction rather than the aims of the Protocols, and the PAPs are in effect all subject to the PCPD.

ADR is now defined as being alternative dispute resolution, and is the collective description of methods of resolving disputes otherwise than through the normal trial process.  This reappears from the glossary but is now a definition rather than a description.  Whether the "normal trial process" included all pre-trial process (including for instance settlement by Part 36 offer) remains unexplained.  When 90% of cases settle, it raises the question as to whether trial is indeed "normal". 

Parties will now be expected to comply "with this PD or any relevant PAP", compliance determining both directions for case management and costs orders.  Para. 4.4 gives as an example of non-compliance that a party "has...unreasonably refused to consider ADR", referring to the provisions of Para 8 of the PCPD and the similar provisions in each PAP about ADR.  Para. 8 contains what presumably will become the standard provision in all the PAPs.  This reads:

8.1

Starting proceedings should usually be a step of last resort, and proceedings should not normally be started when a settlement is still actively being explored. Although ADR is not compulsory, the parties should consider whether some form of ADR procedure might enable them to settle the matter without starting proceedings. The court may require evidence that the parties considered some form of ADR (see paragraph 4.4(3)).

...

8.3

The Legal Services Commission has published a booklet on 'Alternatives to Court', CLS Direct Information Leaflet 23 (www.clsdirect.org.uk) which lists a number of organisations that provide alternative dispute resolution services. The National Mediation Helpline on 0845 603 0809 or at www.nationalmediationhelpline.com can provide information about mediation.

8.4

The parties should continue to consider the possibility of reaching a settlement at all times. This still applies after proceedings have been started, up to and during any trial or final hearing.

So, instead of informing parties that they cannot be "forced" to use ADR, the rather more accurate version of the PCPD provides that "although ADR is not compulsory, the parties should consider whether some form of ADR procedure might enable them to settle the matter without starting proceedings."

The language of "last resort" is still used about the issue of proceedings, but there is a small quibble on wording which has been preserved from the old PD, namely the comment that:

"proceedings should not normally be started when a settlement is still actively being explored".  The emphasised words do not cover the situation where settlement ought to be explored, and this is a concept to be added to cover the situation where both (or all) parties fail to try to settle.

Para 8 gives the usual list of non-exhaustive options for "resolving the matter without starting proceedings", but interestingly varied from the old PD.  Now the order is:

  • Discussion and negotiation (still not clearly classified as a form of ADR – and in my view, rightly so);
  • Mediation;
  • Early neutral evaluation (ENE);
  • Arbitration, referring particularly to consumer disputes.

The old PD listed:

  • Discussion and negotiation
  • Early neutral evaluation (and then)
  • Mediation

Two points can be made about the change.  The old PD was alphabetical and bore no relationship to comparative practice, in that mediation far outstrips ENE in use.  Secondly, arbitration did not feature in the old PD.  Because it is an adjudicative process, it is often argued as not being true ADR in the UK (whereas it has always been regarded as ADR in the US).  Its consumer status probably explains the change.

The parties should continue to consider the possibility of reaching a settlement at all times. This still applies after proceedings have been started, up to and during any trial or final hearing.

The payoff to para. 8 is far better than the old "no forcing ADR", providing a reminder of the continuing duty to consider settlement, by saying:

8.4   The parties should continue to consider the possibility of reaching a settlement at all times. This still applies after proceedings have been started, up to and during any trial or final hearing.

What are the consequences of non-compliance?  These are spelt out in Para.4.  Saying that the court will look at the overall effect of non-compliance, para.4.6 lists the following possible sanctions:

(1)

staying (that is suspending) the proceedings until steps which ought to have been taken have been taken;

(2)

an order that the party at fault pays the costs, or part of the costs, of the other party or parties (this may include an order under rule 27.14(2)(g) in cases allocated to the small claims track);

(3)

an order that the party at fault pays those costs on an indemnity basis (rule 44.4(3) sets out the definition of the assessment of costs on an indemnity basis);

(4)

if the party at fault is the claimant in whose favour an order for the payment of a sum of money is subsequently made, an order that the claimant is deprived of interest on all or part of that sum, and/or that interest is awarded at a lower rate than would otherwise have been awarded;

(5)

if the party at fault is a defendant, and an order for the payment of a sum of money is subsequently made in favour of the claimant, an order that the defendant pay interest on all or part of that sum at a higher rate, not exceeding 10% above base rate, than would otherwise have been awarded.

These are a somewhat fuller range of sanctions than in the old PD, making it clear firstly that a costs sanction can even be imposed for non-compliance in small claims track cases.  Most interesting for ADR is the concept of specifying stay of proceedings as a sanction.  This is the only one which is not specifically a sanction in favour of one party based on the default of another.  This may well come into play in cases where both parties unreasonably fail to use pre-issue ADR, as happened for instance in McMillen Williams v Range.  The court has always had the power stay under CPR 26.4, but this formulation sharpens the focus of the court's power.

The only other specific references to ADR are the requirements for claimants and defendant to propose what (if any) type of ADR they propose.

So these provisions are better than the standard form in the PAPs and the old PD.  We shall see what happens to the PAPs in the course of the review being undertaken to their wording.  Will the new wording make any difference to use of ADR prior to issue?  Will it encourage District Judges and Masters to take a tougher stance over finding and penalising unreasonable failure to mediate before issue of proceedings?  It should do so, with the change in balance made by the new wording, but I am not yet convinced that it will, certainly not in the absence of a firm steer from the Court of Appeal in an appropriate case.  There has been little evidence of firm policing of party responsibilities under the PAPs since their introduction ten years ago, which means that the "front-loading" dividend has never properly been captured.  The PAPs are there to make pre-issue settlement as attainable as possible.  Procedural judges should, of their own initiative, be raising with parties whether ADR has been tried pre-issue and where they are dissatisfied with the answers given by either or both party, they should consider sanctions.  It is not enough for judges to wait for the point to be taken by a party not at fault.  The overriding objective requires a balance in affording access to the courts to take account of allocation of resources as between all users.  Why should parties who have not attempted to settle in accordance with their obligations under the PAPs take up court time and thus slow down access to trial for those who have met their obligations?  If there is any criticism to be made of the new PCPD, it is in assuming that there will always be a defaulter and an innocent.  It is just as likely that both or all parties will prefer not to use ADR properly before proceedings are issued.

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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