In a landmark decision handed down by the Court of Appeal on 11 May 2004, it was decided that the courts do have jurisdiction to impose costs sanctions against successful litigants on the grounds that they refused to engage in Alternative Dispute Resolution (“ADR”).

Upon invitation by the Court of Appeal, ADR Group was granted permission to intervene and make oral submissions in the co-joined appeals of Halsey –v- Milton Keynes NHS Trust and Steel –v- Joy. Michel Kallipetis Q.C. and Philip Bartle Q.C. of Littleton Chambers were instructed to represent ADR Group. The Law Society gave oral submissions. CEDR and the Civil Mediation Council provided written submissions.

The key areas of the judgement were as follows:

Court Orders

The Court of Appeal acknowledged that parties sometimes need to be encouraged by the court to embark on mediation. The court approved of those court orders which encouraged mediation and it is likely that as a result of this decision more such orders will be made.

The court referred to the various ADR orders ranging from those with the strongest form of encouragement (Admiralty and Commercial Court Guide, Appendix 7) to those with a less strong form of encouragement. In the latter category, the court singled out an order devised by Master Ungley, which is used frequently in clinical negligence cases, although the court could not see any reason why such an order could not be used more routinely in other litigation. The relevant parts of this order provide:

“The parties shall by consider whether the case is capable of resolution by ADR. If any of the parties considers that the case is unsuitable for resolution by ADR, that party shall be prepared to justify that decision at the conclusion of the trial, should the judge consider that such means of resolution were appropriate, when he is considering that appropriate costs order to make.

The party considering the case unsuitable for ADR shall, not less than 28 days before the commencement of the trial, file with the Court a witness statement without prejudice save as to costs, giving the reasons upon which they rely for saying that the case was unsuitable.”

The court was of the view that this order (a) recognises the importance of encouraging the parties to consider whether the case is suitable for ADR and (b) it is calculated to bring home to them that, if they refuse to even consider that question, they may be at risk on costs even if they are ultimately the successful party.

The court did however emphasise that even those orders which fall into the category of the strongest form of encouragement are not orders compelling parties to undertake ADR. This position will be welcomed by many practitioners, although one should tread with caution if ignoring this ‘encouragement’.

The court was at pains to point out that where a successful party refuses to agree to ADR despite the court’s encouragement, that is a factor which the court will take into account when deciding whether the refusal was reasonable.

Unwilling parties

The Court of Appeal decided that the courts do not have jurisdiction to order truly unwilling parties to mediate and in so doing relied on Article 6 of the European Convention on Human Rights. In reaching this decision the court was of the view that nothing would be achieved by compelling a truly unwilling party to mediate because it would only add to the costs to be borne by the parties and possibly delay the time when the court determined the dispute and may even damage the perceived effectiveness of the ADR process.

However, the court went further by saying that it was not enough for a party to simply express opposition to ADR. If the judge (on the evidence currently before the court) considered that the case may be suitable for ADR, enquiries should be made by the judge into the resistance to engage in ADR. This presents a significant hurdle for practitioners: be prepared to given a well reasoned response to the judge for your client’s refusal to engage in ADR on the understanding that the reasons will most probably be reviewed when the question of costs arises. An outline of areas for consideration when determining if it is reasonable to refuse a proposal of mediation was provided and is discussed below.

This element of the judgement is encouraging in that the court is very clearly leaving the decision to mediate with the parties and their legal advisers. If a party truly does not wish to mediate they do not have to but they must be prepared to explain their decision to the court with the understanding that if their reasons for turning down an offer to mediate are not held to be reasonable then they may be penalised on costs.

Cost sanctions and the unreasonableness to engage in ADR
Central to the whole judgement was the thorny and predictably difficult subject of “reasonableness of a refusal to mediate” and which party has the burden of proving if such a decision was reasonable or unreasonable. The question of reasonableness impacts directly on costs recoverable at the conclusion of a trial. The current rules provide that a successful party may be deprived of some or all of his costs on the grounds that he refused to agree to ADR – this is an exception to the general rule that costs should follow the event.

The Court of Appeal decided that the burden is on the unsuccessful party (the party who proposed mediation) to show why there should be a general departure from the rule. The unsuccessful party needs to satisfy the court that the successful party (the party who refused the offer to mediate) acted unreasonably in refusing to engage in ADR. The Court of Appeal provided guidance as to some of the factors that should be considered by the court in deciding whether a refusal to agree to mediation is unreasonable, whilst emphasising that in many cases no single factor will be decisive, and that these factors should not be regarded as an exhaustive check-list:

a. the nature of the dispute
b. the merits of the case
c. the extent to which other settlement methods have been attempted
d. whether the costs of the ADR would be disproportionately high
e. whether any delay in setting up and attending an ADR would have been prejudicial
f. whether the ADR had a reasonable prospect of success.

In providing this guidance the court modified the observations set down by Lightman J in Hurst –v- Leeming, but importantly did not overturn that judgement. Although the question of whether a mediation had a reasonable prospect of success would often be relevant to the reasonableness of the refusal, it was not necessarily determinative of the fundamental question which is whether the successful party acted reasonably in refusing to engage in ADR. The Court was of the view that this test was not an unduly onerous burden on the unsuccessful party as they were not being required to prove that the mediation would in fact have succeeded.

The Court did not accept that, as suggested by Lightman J, it is appropriate for the court to confine itself to a consideration of whether viewed objectively, a mediation would have a reasonable prospect of success. This approach appeared to leave out the parties willingness to compromise and the reasonableness of their attitudes.

In the course of the judgement the Court of Appeal also decided in more detail:

- All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR
- Mediation is an effective process and that most cases are suitable for mediation
- Public bodies should not be treated any differently to other litigants. Irrespective of whether or not one of the parties is a public body to which the Government’s ADR pledge applies, the parties will still be subject to the same test, namely that if a case is suitable for ADR, then it is likely that the party refusing to engage in the process will be acting unreasonably
- The court accepted and acknowledged the integrity and confidentiality of the process and confirmed that parties are entitled in an ADR to adopt whatever position they wish, and if as a result the dispute is not settled, that is not a matter for the court.

The implications of this judgement are likely to be far reaching and this article only touches on the surface of a number of very important issues addressed in this landmark judgement. The European Commission is currently drafting an ADR Code and Directive (ADR Group is a member of the working party) and this judgement will be of interest to those countries and organisations engaging in business in the UK.

Two final points in summary:
1. The Courts in the UK do not have jurisdiction to compel parties (unwilling or not) to engage in mediation.
2. The Courts do have jurisdiction to impose an adverse costs order where a party unreasonably declines to mediate.