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When is it Reasonable to Refuse ADR?

Those routinely involved in contentious matters are well aware of the importance of considering alternatives to going to court. It is abundantly clear that the courts will not look kindly on a litigant who makes no effort to settle its dispute by other means. The prominence given to Alternative Dispute Resolution (ADR) techniques has however led to concerns that another tactic is being developed in parallel, namely vexatious use of ADR. This occurs where one of the parties tries to stymie the other party’s recourse to court by trying to insist on ADR being used in circumstances where it is not, or no longer, appropriate. This could be in circumstances where settlement attempts have been utterly fruitless, where there is no real prospect of the ADR being a success or where there is a very strong risk that costs or time spent on ADR will be entirely wasted.

Dealing with such a situation is difficult in today’s climate in view of the possible costs consequences of failing to use ADR and it is against this background that the Court of Appeal has given some welcome guidance for litigants on when it may be reasonable to refuse ADR. The Court of Appeal also held that it is inappropriate for the courts to compel unwilling parties (including public authorities) to submit a dispute to ADR. However, let there be no doubt: the judgment gives broad support for the use of ADR, and mediation in particular. It also confirms the court’s role actively to encourage ADR.

The Appeals

The judgment was given in two appeals (Halsey v Milton Keynes General NHS Trust and Steel v Joy [2004] EWCA 576) brought by the unsuccessful parties in two cases after the successful parties, who had declined to mediate, were not penalised in costs. The Court of Appeal dismissed both appeals. A number of cases, some conflicting, have followed the Court of Appeal’s decision in Dunnett v Railtrack Plc [2002] All ER 850 which highlighted the necessity for lawyers and litigants to consider ADR, failing which a successful party might be penalised in costs. Given the uncertainty about when a successful party should be so penalised, the Court of Appeal took the opportunity to review this area and give guidance on the relevant factors to be considered. The importance of the judgment was emphasised by submissions being accepted from four interveners to the appeals, namely, the Law Society, the Civil Mediation Council, the ADR Group and the Centre for Effective Dispute Resolution.

Judicial Encouragement of ADR

Lord Justice Dyson, giving the judgment of the court, summarised the various ways in which the Civil Procedure Rules (CPR) encourage the use of ADR. The overriding objective in Part 1 of the CPR includes an obligation on the court to manage cases actively and this includes “encouraging the parties to use an ADR procedure if the court considers that appropriate”. The court guides which are published by the different divisions of the High Court also encourage the parties to consider ADR and judges in the Commercial Court routinely make “ADR orders” which provide the strongest form of encouragement, while stopping short of actually compelling ADR.

While the judgment supports judicial encouragement (which may be “robust”) for the parties to enter into ADR, Dyson LJ held that to make mediation compulsory for unwilling parties would be an “unacceptable obstruction to the right of access to the court” under Article 6 of the European Convention on Human Rights. Even if a court does have jurisdiction to make such an order, it would, he said, be inappropriate for the court to exercise it. The judgment further noted that one of the key features of ADR processes is that they are procedures entered into voluntarily by the parties. The role of the court, Dyson LJ reiterated, was to encourage, not to compel.

Costs Sanctions

Dyson LJ noted that to deprive a successful litigant of some or all of his costs on the grounds that he had refused to agree to ADR is an exception to the general rule that costs should “follow the event”, namely the unsuccessful party should pay to the successful party his costs of the action. The judgment emphasises that the burden is on the unsuccessful party to show why there should be a departure from the general rule.

Such a departure is not justified unless the unsuccessful party shows that the successful party acted unreasonably in refusing to agree to ADR.

Factors to be Considered

The Court of Appeal held that whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. Dyson LJ specifically rejected the submission made by one of the interveners, the Civil Mediation Council, that there should be a presumption in favour of mediation. Relevant factors include (but are not limited to) the following:

• the nature of the dispute. Dyson LJ accepted that ADR is not appropriate in all cases. He acknowledged that there are cases in which the parties require the court to determine issues of law or construction, set a binding precedent or give injunctive or other relief, but most cases, he said, are not by their very nature unsuitable for ADR;
• the merits of the case. If a party reasonably believes he has a strong case this is relevant to the question of whether he has acted reasonably in refusing ADR. The court should be astute to the danger of claimants seeking to use the threat of costs sanctions to extract a settlement where the claim is without merit. However, this will only provide justification where the party refusing ADR reasonably believes his case is “watertight”, for example, where the party would have succeeded in an application for summary judgment;
• other settlement methods have been attempted. This is a relevant factor although the Court of Appeal noted that mediation often succeeds where previous attempts to settle have failed;
• the costs of the mediation would be disproportionately high. This factor may be taken into account, for example, where the sums at stake in the litigation are comparatively small. As the Court of Appeal acknowledged, a mediation can sometimes be at least as expensive as a day in court;
• delays. If mediation is suggested close to trial and acceptance would delay the trial then this factor may be taken into account; and
• whether the mediation had a reasonable prospect of success. The Court of Appeal said this will often be relevant to the reasonableness of the decision to refuse to mediate. It acknowledged that it may sometimes be difficult for a court to decide this question. However, it has again placed the burden on the unsuccessful party to show that there was a reasonable prospect that the mediation would have been successful. This is not an onerous burden to discharge and it would, Dyson LJ said, be fairer and easier than for the successful party to prove the mediation would not have succeeded.

Refusal to Mediate in the Face of Judicial Encouragement

The Court of Appeal considered that another relevant factor was whether the court had encouraged the parties to agree to ADR. Dyson LJ stated that the stronger the judicial encouragement, the easier it would be for the unsuccessful party to discharge its burden of showing that the successful party’s refusal was unreasonable. Therefore, although the court must not compel parties to undertake ADR, if it has robustly encouraged ADR, then a party who refuses runs a higher risk of being penalised in costs for that reason alone.

Comment

Clearly each party must be careful in considering the possible utility of ADR, whether it makes or receives an offer of mediation or other technique. As Dyson LJ put it: “All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR”. This judgment provides some useful guidance as to when it may be reasonable to refuse such a proposal. The judgment confirms that the burden of proof is on the unsuccessful party and, while it continues the trend of cases strongly encouraging mediation, it marks a clear rejection of any role for the court in compelling litigants to attempt ADR. It also appears to shift the balance somewhat in favour of a successful party who has refused to mediate. That party will receive his costs unless it can be shown by the unsuccessful party there is justification to depart from the general rule. The judgment is therefore a reminder that there is are limits to the use of ADR.