The Court of Appeal has renewed the pressure to mediate, emphasising the importance of Halsey, reports Tony Allen
The Court of Appeal's decision in Halsey v Milton Keynes NHS Trust [2004] EWCA (Civ) 576 undoubtedly reinforced robust judicial recommendations to mediate, as in Commercial Court alternative dispute resolution (ADR) orders. Some thought the judgment made it safe to reject an inter-party offer of mediation with impunity, particularly if offered before proceedings are started.
More recently, the Court of Appeal in Burchell v Bullardand others [2005] EWCA Civ 358, decided in April 2005, has shown this to be a false reading, generating renewed pressure on parties to mediate.
A dispute arose over building work done by the claimant for the defendants. In May 2001, the claimant's solicitors wrote a letter of claim proposing mediation before proceedings were issued. The defendants' building surveyor replied: 'The matters complained of are technically complex and, as such, mediation is not an appropriate route to settle matters.'
Proceedings were issued for £18,318, with a counter-claim for £100,815, which led to the roofing sub-contractor being joined. At the trial in May 2004, the judge awarded the claimant £18,327 plus costs on his claim and the defendants £14,373 plus costs on the counter-claim. The claimant was thus entitled to £5,025 net. He also awarded the claimant £79.50 against the roofer, ordering the claimant alone to pay the roofer's costs. The claimant bravely appealed the costs awards with permission from a single Lord Justice.
Before the appeal, the claimant proposed mediation under the Court of Appeal mediation scheme. The defendants' advisers responded: 'We do not see that involvement of the Court of Appeal mediation scheme would be necessary or appropriate.'
At no stage did a judge order or recommend that mediation be tried, even at the appeal permission stage. Burchell involved only inter-party offers to mediate, like the conjoined appeals of Halsey and Steel v Joy and Halliday. The key offer of mediation in Burchell was made before issue, when judges have no jurisdiction to make an ADR order at all.
On the costs issue, the Court of Appeal found that the judge's approach was flawed and ordered the defendants to pay the claimant 60% of the global costs of claim and counter-claim and 60% of the claimant's liability for the part 20 defendant's costs. The global costs were put at £185,000, characterised by the court (in the light of the modest net sums involved) as 'an horrific picture'.
The court forebore from imposing any additional sanction on the defendants, as their intransigence pre-dated Dunnett v Railtrack [2002] 2 ALL ER 850 and Halsey. The appeal order was nevertheless tough. At trial, the claimant's net loss was more than £130,000 and the defendants' loss about £30,000. The net outcomes were almost exactly reversed by the appeal, even without any sanction for refusing to mediate.
However, Lord Justice Ward warned that the profession must take no comfort from this apparent generosity. 'Halsey has made plain not only the high rate of a successful outcome being achieved by mediation but also its established importance as a track to a just result running parallel with that of the court system. Both have a proper part to play in the administration of justice. The court has given its stamp of approval to mediation, and it is now the legal profession which must become fully aware of and acknowledge its value. The profession can no longer with impunity shrug aside reasonable requests to mediate. The parties cannot ignore a proper request to mediate simply because it was made before the claim was issued. With court fees escalating, it may be folly to do so.'
Lord Justice Rix added: 'The court is entitled to take an unreasonable refusal into account, even when it occurs before the start of formal proceedings: see rule 44.3(5)(a) of the Civil Procedure Rules 1998.'
The court then applied, for the first reported time, some of the factors identified in Halsey as to how to approach sanctioning a refusing party, even though the defendants were net losers overall, despite their partially successful counter-claim. Parties that refuse to mediate or negotiate and then effectively lose are usually penalised now by being ordered to pay indemnity costs (see Virani v Manuel Revert [2003] EWCA Civ 1651 and Painting v Oxford University [2005] EWCA Civ 161). Nevertheless, taking the Halsey approach, the court accepted that the onus (as per Lord Justice Dyson in Halsey to be 'not an unduly onerous burden to discharge') is on the party seeking a sanction to show that it should be imposed.
Analysing the defendants' refusal to mediate, the court studied the four main Halsey factors:
The Court of Appeal concluded that the claimant discharged the burden of proving that the defendants' refusal to mediate was unreasonable, with timing alone saving them from an explicit sanction. The defendants were ordered to pay the costs of the appeal, following their refusal to mediate.
What is 'success' at mediation? Most mediations generate settlement. Where they do not, this is because parties choose not to settle, not because the process is inherently flawed.
Mediation has proved itself many times, though confidentiality usually prevents headlines. Its value to the judiciary is aptly described in Burchell when Lord Justice Ward talks of 'the high rate of a successful outcome', and its importance as a parallel track to the courts. Regardless of settlement, mediation represents 'a track to a just result', testing a case to make sure it is worth litigating, getting parties to check whether their prospects of success are indeed 'watertight', or focusing issues to prevent having to recast a case after the trial starts.
Where mediation has been tried, the trial judge can assume that the parties have been tested in a rigorous process run by an independent neutral, and are both committed to their positions and alive to adverse consequences where their judgement proves wrong.
Lords Justice Ward and Rix have clarified that pre-trial requests to mediate cannot be ignored, particularly with escalating court fees. Lawyers are also reminded of the relevant pre-action protocol requirements to consider ADR before issue. The front-loading required by the protocols can be costly in construction cases, and parties who refuse to encash the benefits of it by declining to mediate on the strength of knowledge attained through front-loading face high risks. Even if early mediation does not immediately settle a case, a sensible timetable towards settlement can be planned.
Two dicta about mediation should be on every litigator's desk now: 'All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR' &150; Lord Justice Dyson in Halsey. And: 'The profession can no longer with impunity shrug aside reasonable requests to mediate' - Lord Justice Ward in Burchell.
Solicitor Tony Allen is a director of the Centre for Effective Dispute Resolution
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