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The Costs of Mediation

In spite of the enthusiasm of the courts for greater use of mediation, there is surprisingly little guidance in the civil procedure rules on the question of the costs of mediations.

Should, for example, the costs of unsuccessful mediations be treated as forming part of the costs in those proceedings? Alternatively, should mediations be treated as discreet elements which, although taking place within proceedings, are separate from and independent of the substantive proceedings? In the latter case, even though the court might have encouraged the parties to embark upon the mediation process, it may be argued that the costs incurred should, in the absence of agreement between the parties to the contrary, be borne by each party equally in the event that the mediation is unable to resolve the issues between the parties.

The second question which is not addressed specifically in the CPR is how far, if at all, a party should be penalised in costs if that party refuses to agree to mediation?

Costs of Unsuccessful Mediations

There is general agreement that the costs of successful mediations should be dealt with as part of the agreement arising from the mediation. The real problem arises only where the mediation is unsuccessful and no provision has been made for payment of the costs. In such circumstances, does the final costs order in the substantive proceedings include the costs of the mediation?

It is understood that the question of the costs of mediations which take place prior to the commencement of proceedings was considered at a meeting chaired by Lord Justice May in November 2001. There it was considered that the costs of failed mediations in such circumstances should be irrecoverable, but that the costs of mediations which took place during the course of proceedings could be recovered as part of the costs of the action, but this would ultimately be a matter for the trial judge.

There is some evidence that some judges are dealing with the costs of unsuccessful mediations by-way of directions at the time the parties are encouraged to embark upon the path of mediation. In some cases, 'costs in the case' are applied to the costs of the mediation so that these costs are picked up by the eventual successful party. Judges have also been known to require the reasons for the failure of a mediation to be reported to them. There are significant difficulties with such orders simply because they appear to ignore the fundamental nature of a mediation - its proceedings are privileged.

Generally, nothing that is said or written in a mediation may be used in court or may even be referred to in court. To demand reasons why the mediation failed inevitably requires the parties to recite, even if only in outline, matters which should not be referred to in court proceedings. It would seem that orders such as these are improper and should be discouraged. The only information a court should receive about a mediation is whether it was successful or not. In the latter case, it should simply be informed that the parties were unable to agree. In Haisey v Milton K.eynes NHS Trust [2004] Costs LR 393, the Court of Appeal made it clear that parties in a mediation are entitled to adopt whatever position they wish and if, as a result, the dispute is not settled, that is not a matter for the court. It held: "...if the integrity and confidentiality of the process is to be respected, the court should not know, and therefore should not investigate, why the process did not result in agreement".

Similarly, if costs of mediation are to be recovered by a successful party at the end of the day, the paying party will have every right under the CPR to raise issues as to the conduct of his opponent during the mediation in the context of arguing whether or not the costs claimed are reasonable. Once again, a costs judge will have to investigate such allegations by examining exactly what transpired in the mediation in order to assess the merits of the paying party's conduct argument.

As a consequence, it is submitted that the costs of mediations should either be agreed between the parties at the time of the mediation or they should not form part of the overall costs of the proceedings. If one party does agree to pay the costs of the mediation, the figure payable should be agreed at the time the mediation takes place so that an ascertainable figure is agreed and paid. This will avoid any problems of confidentiality should the costs of the substantive proceedings be decided by detailed assessment.

Whatever may be the most practical and realistic solution, there is an urgent need for revision to the CPR so that practitioners are given positive guidance on how costs of mediations should or should not be treated.

Costs Penalties for Refusal to Mediate

Valuable guidance has now been given on the appropriateness of penalising in costs a party who has refused to mediate. In

Haisey v Milton Keynes General NHS Trust


Steel v Joy and Halliday

[2004] Costs LR 393, both heard on 11 May 2004, the question was considered in detail by the Court of Appeal.

CPR 44.3(2) allows the court to make a different order about costs from the general rule that an unsuccessful party will be ordered to pay the costs of the successful party. Rule 44.3(4) requires the court to take into account all the circumstances when deciding what order to make about costs and this includes the conduct of the parties.

In deciding that the burden is on the unsuccessful party to show why there should be a departure from the general rule by depriving a successful party of all or part of its costs on the grounds that ADR was refused, Dyson LJ gave some guidance as to the factors that should be considered by the court in deciding whether such a refusal to agree to ADR is unreasonable.

Whilst emphasising that regard must be had to all the circumstances of each particular case when deciding whether refusal to mediate was unreasonable, the court accepted the Law Society's submissions that the relevant factors include:

  • The nature of the dispute (for example, one party may want the court to decide a point of law and thus create a binding precedent);
  • The merits of the case;
  • The extent to which other settlement methods have been attempted;
  • Whether the costs of ADR would be disproportionately high (particularly important where sums at stake in the litigation are relatively small);
  • Whether any delay in setting up and attending the mediation would have been prejudicial;
  • Whether the ADR had a reasonable prospect of success. In this case, the burden should be on the unsuccessful party to show that there was a reasonable prospect that the mediation would have been successful.

Each of these factors is examined in more detail in the judgment.

The court indicated that the burden of showing that the successful party's refusal was unreasonable would be more easily discharged by an unsuccessful party if it could be shown that the court gave encouragement to mediate. The stronger the encouragement, the easier it would be for the unsuccessful party to show that the refusal was unreasonable.

In each of the cases before the court, the appeals were dismissed on their facts. The court was not persuaded in either case that the refusal of the successful party to mediate amounted to unreasonable conduct so as to deprive the respective successful parties of their costs.

The ADR Pledge

In Halsey, one of the issues was the ADR pledge on the part of the government in March 2001 that all departments and agencies of the government would consider and use ADR 'in all suitable cases wherever the other party accepts it'. In Royal Bank of Canada v Secretary of State for Defence [2003] EWHC 1841 (Ch) Lewison J had placed considerable weight on this formal pledge. The Court of Appeal concluded that the judge was wrong to place such weight to the pledge, which it stated was no more than an undertaking that ADR would be considered and used in all suitable cases. If it was shown that a particular case was not suitable for ADR, a refusal to agree to ADR does not breach the pledge. If a case is suitable for ADR, then it is likely that a party refusing it will be acting unreasonably irrespective of the pledge. The court concluded: "It is, therefore, difficult to see in what circumstances it would be right to give great weight to the ADR pledge."

The Academy of Experts, The Expert & Dispute Resolver
Michael Bacon
Autumn 2004

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