For argument’s sake

Should the courts be forcing unwilling parties into mediation by penalising their costs? Steve Morris reports

Arguably the single most important change in the litigation landscape during the past decade has been the extremely successful emergence of mediation as a tool for effective dispute resolution.

Use of the mediation process is now so widespread that it is hard to believe it is only a few years since the process was being trialled in the Central London County Court, with a half day’s mediation with a trained Centre for Effective Dispute Resolution (Cedr) mediator and use of the court’s facilities being offered for £25 per party. If any court made the same offer now, it would be unable to cope with the demand.

At the time the response was disappointing, despite the fact that approximately 80 per cent of the parties who used the process during the trial period settled their dispute as a result.

In a very short space of time, the use of mediation has increased dramatically and the process itself has rapidly evolved. Parties can now choose from a wide selection of mediators and areas of specialisation. Mediation is used to resolve discrete parts of a dispute and ever more imaginative and flexible solutions are being created to bring legal proceedings to an early conclusion.

No one can rationally view the development of mediation as being anything other than beneficial to clients and the process of litigation generally, which, by the early 1990s, was in drastic need of reform. However, with the recent appearance of judicial authority for cost penalties to be levied against parties that unreasonably refuse to mediate, we have quickly found ourselves at an important juncture for the process of mediation. It is one that will determine how the process is perceived and utilised in the future.

In the case of Dunnett v Railtrack (2002), the principle was established that an adverse costs order could be made against a successful party if that party had refused to mediate. The decision in the case, concerning damage caused when a horse strayed on to a railway line, was widely considered to constitute much-needed ammunition for those parties involved in litigation who were genuinely trying to negotiate a settlement rather than end up at trial. However, there were others who pointed out that the decision put pressure on parties to attend (and pay for) mediation whether they wanted to or not, and this risked compromise being encouraged rather than justice.

Those in the latter camp were able to take comfort from the fact that in Dunnett, Railtrack, the party that was penalised, had turned down the offer of mediation after it had been specifically suggested by the court. Consequently, Railtrack was deemed to have failed to assist the court in furthering the overriding objective in accordance with Civil Procedure Rule 1.3.

With the judgment in Hurst v Leeming [2002], however, the Dunnett principle was substantially broadened when Mr Justice Lightman set out some of the bases for determining whether an action was suitable for mediation and gave examples of circumstances in which a court would be likely to hold that a refusal to mediate would be unacceptable.

The case concerned an action by Mr Hurst, a solicitor, for professional negligence against Mr Leeming, a barrister. The claim was dismissed and Leeming applied for his costs, but Hurst argued that Leeming should not be awarded his costs because he had refused to mediate. Judge Lightman found in Leeming’s favour, but only because of the particular “character and attitude” of Hurst. He cited examples of circumstances in which a rejection of mediation would be acceptable, including the scenario of a party being faced with a delusional or patently unreasonable opponent, or one who had nothing to lose by going to mediation because he was bankrupt. Judge Lightman made it clear that this case was exceptional and it would, for example, no longer be satisfactory to refuse to mediate by arguing that large costs had already been incurred or that the allegations being made were serious.

Of more concern was the fact that it was expressly stated by the judge that the strength of a party’s case was not necessarily a good enough reason not to mediate. “The fact that a party believes that he has a watertight case is no justification for refusing mediation,” he said.

The decision in the subsequent case of Watson Wyatt v Max-well Batley (2002) supported a party that refused to mediate because its opponent had tried to bully it into mediation. However, the simple fact remains that a party that succeeds at trial but which refused media-tion because of the strength of its case, may well face costs sanctions against it.

Although there is little doubt that the penalisation of parties that act unreasonably is to be welcomed, it is important to be careful that the purpose of mediation is not lost in an overwhelming desire to encourage the use of the mediation process come what may.

As a rule, claimants do not issue proceedings wanting to recover a proportion of their claim; they want it all because that is what they consider they are entitled to. Although it is theoretically possible for a mediation to result in a claimant obtaining the whole of their claim and costs, it is fair to say that much more frequently, the result achieved is a ‘halfway-house plus a bit’ settlement. The party that leaves the mediation ostensibly as the successful party may well feel that they have nevertheless been short-changed by the exercise, particularly if the feeling exists that they were unduly pressurised into accepting an offer by a system that pays little attention to the evidence.

The success of mediation in the past decade has been built upon the fact that when mediation first came to these shores, it was an exclusively mutual process. It offered a means by which two parties that both wanted to avoid going to trial could resolve their dispute in a much more flexible and constructive environment than the traditional, inflexible, (and often unsuccessful), without prejudice meeting. Consequently, the percentage of cases that settle as a result of mediation remains at an impressive 80 per cent.

Parties go to mediation because it works, and it works because the parties attending the mediation want it to work. Without that mutual willingness, mediation will not satisfactorily resolve the dispute. If, as the recent case law indicates, we are heading to a position where mediation becomes practically obligatory, inevitably, one of the great selling points of mediation – the fact that it works – will be eroded as more parties simply go to mediation in order to pay lip service to the process to protect themselves from adverse costs penalties. This risk is all the more real given the fact that the court cannot look into what actually happened at the mediation due to its without-prejudice nature.

In such circumstances, just as the success of mediation has become a self-fulfilling prophecy because it attracts parties that want to settle, so it may just as quickly see its success rate and attraction plummet as parties treat it simply as another step in the action, failing to prepare for the day properly and attending with no intention of compromise.

We find ourselves at a significant crossroads. Straight on is the destination of obligatory mediation. The mediation process in England and Wales has come a long way in a short space of time and has been a huge success, but the courts must be wary of disregarding the cornerstone of mediation’s success. After all, mediation has succeeded as a form of alternative, not compulsory, dispute resolution.

Steve Morris is a litigation partner at Halliwell Landau