There can be no doubt that the courts now give every encouragement to parties to mediate. Today that encouragement comes not just from the words of the Judges, but from the actual court rules themselves. And, as we explain, the judicial arm is extending into comment on the behaviour of parties during the mediation itself.
Following the commencement of a claim, one of the first acts of the court is to send out an Allocation Questionnaire (“AQ”), which asks a number of procedural questions about the claim. As of 1 April 2008, the AQ has been amended to ensure that the parties give serious consideration to attempting to resolve their disputes through ADR. Previously the AQ asked whether the parties wanted to have a one-month stay of proceedings in order to allow settlement discussions to take place, now its requires that the parties make “every effort to settle the case before the hearing.” Legal representatives must explain to their clients, the need to try to settle, the options available and the possibility of costs sanctions if they refuse to try to settle. If a party does not want to enter into settlement negotiations, it must be prepared to explain why to the court.
The consequences of unreasonable conduct
There have, as you would expect, been further cases over the past 12 months which have reinforced the court’s determination to promote ADR and mediation. In Earl of Malmesbury v Strutt & Parker1 the Courts went as far as to consider the conduct of the parties during the mediation. In the main claim, the Judge had held that S&P were liable. However, when it came to the question of costs, S&P argued that the usual order should not apply. In particular, S&P claimed that the claimants should be treated as the unsuccessful party because they only recovered a small fraction of their claim. Further, the claimants’ exaggeration made mediation impossible. S&P also said that the claimant failed to comply with the pre-action protocol. That claim was rejected. The Judge felt that the claimants had given a sufficient indication of how the claim was put.and that S&P had taken an “over-critical attitude and looked for difficulties.”
Usually, what happens at a mediation is confidential. Here the parties had waived their right to confidentiality. When mediation was proposed, the solicitors for the claimants said that there must be a without prejudice meeting between solicitors first and that a refusal to do so was tantamount to a refusal to mediate. They further said that it was essential that at the meeting each solicitor had instructions as to the maximum to be offered or the minimum to be accepted. As the Judge said, “this was a curious lead in to a mediation”. Nevertheless, the meeting did take place. However this mediation failed, in the view of the Judge, because of the attitude of both sides, who as they did at trial, both resolutely argued their own case. He noted that:
“in these circumstances, where the failure to mediate was due to the attitudes taken on either side, it is not open to one party ... to claim that the failure should be taken into account in the order as to costs...”
There was a further mediation before the quantum hearing. Having considered the offers made at this mediation, the Judge felt that the claimants’ position was both unrealistic and unreasonable. Had the claimants made an offer which better reflected their true position, the mediation might have succeeded. The Courts have not previously had to consider the situation where a party has agreed to mediate but then has taken an unreasonable position in that mediation. In the view of the Judge:
“...a party who agrees to mediation but then causes the mediation to fail by reason of his unreasonable position in the mediation is in reality in the same position as a party who unreasonably refuses to mediate. In my view it is something which the Court can and should take account of in the costs order in accordance with the principles considered in “Halsey”2
Although the quantum of the claim was substantially reduced, the position was not that simple as the claimants had, in establishing negligence, “where it mattered most” achieved a considerable victory. The claimants had won on liability and had recovered substantial damages, but S&P had succeeded in cutting down the sum awarded to a fraction of what was claimed. As the action proceeded, and more became known about the claim, the claimants’ belief in their claim should have diminished until by the trial they should have realised that it had no real chance of recovering the full sums claimed. Accordingly, some costs should be deducted to reflect that the claimants had sought so much more than they recovered. After carrying out a balancing exercise, the Judge decided it would do justice to order that S&P pay the claimants 70% of the liability costs. In relation to quantum, at the time the mediation took place, substantial costs had already been incurred. Therefore, taking into account the claimant’s conduct at the mediation, the Judge decided that justice would be done by reducing the claimants’ costs by 20%.
The confidentiality of the mediation process
HHJ Kirkham had to consider the confidentiality of the mediation process, in Cumbria Waste Management Ltd and Lakeland Waste Management Ltd v Baines Wilson3. In contrast to the Malmesbury case, the Cumbria case revolves around a situation where one party at a mediation was not prepared to waive privilege. There had in fact been two mediations, with different mediators, arising out of the 2001 foot and mouth outbreak. Cumbria had sued DEFRA for £4.5 million but settled at mediation for £3.9 million. Lakeland sued DEFRA for £1.72 million but settled through mediation for £1.4 million. Both Cumbria and Lakeland had instructed solicitors Baines Wilson (“B&W”) to advise and negotiate on the service agreements between DEFRA and themselves, and they now brought proceedings against B&W alleging professional negligence which had caused them to lose the difference between their invoiced claims (plus presumably interest) and the settlements which emerged from the mediation. The claimed that they had acted reasonably in settling but that the discounts they had been forced to concede were as a result of B&W’s negligent advice.
Perhaps unsurprisingly, B&W sought disclosure of a wide range of documentation relating to the mediations. However, Judge Kirkham was of the view that here it was the defendant to the original claims who was seeking protection from disclosure and not the claimants. Therefore DEFRA had not waived without prejudice privilege about what happened at the mediation. There were public policy reasons why DEFRA should be entitled to assert that privilege and it was are entitled to protect from disclosure material which may affect them in other disputes.
That said, the Judge went on to consider the extent and force of the confidentiality provision in the mediation agreement . This is not a topic previously covered by direct authority. Reference was made to the 2006 textbook Confidentiality by Toulson & Phipps. Among the passages from the book used in the judgment is the following:
Mediation and other forms of dispute resolution have assumed unprecedented importance within the court system since the Woolf reforms of civil procedure. Formal mediations are generally preceded by written mediation agreements between the parties that set out expressly the confidential and “without prejudice” nature of the process. However, even in the absence of such an express agreement, the process will be protected by the “without prejudice” rule...”.
Accordingly Judge Kirkham concluded that documents within a mediation should be protected from disclosure:
“In my judgment, whether on the basis of the without prejudice rule or as an exception to the general rule that confidentiality is not a bar to disclosure, the court should support the mediation process by refusing, in normal circumstances, to order disclosure of documents and communications within a mediation.”
Mediation in Europe
And it is not just in the English Courts that mediation is being encouraged. In April 2008, the European Parliament approved a directive on mediation in civil and commercial disputes some four years after it was first proposed. Member States will be required to implement the Directive within three years of its adoption. The directive has been drafted as a part of the European Union’s objective of providing better access to justice and encouraging the use of mediation across Europe.
The purpose of the directive is to encourage the use of mediation as a cost-effective and quicker alternative to civil litigation, for cross-border commercial disputes. Vice- President Jacques Barrot said:
“Mediation can provide cost-effective and quick extrajudicial resolution of disputes in civil and commercial matters through processes tailored to the needs of the parties. Agreements resulting from mediation are more likely to be complied with voluntarily and help preserve an amicable and sustainable relationship between the parties.”
Whilst in many respects, the objects of the directive will be familiar to those in the UK, they are well worth setting out:
- The Directive obliges Member States to encourage the training of mediators and the development of, and adherence to, voluntary codes of conduct and other effective quality control mechanisms concerning the provision of mediation services;
- The Directive gives every Judge in the EC, at any stage of the cross-border proceedings, the right to suggest that the parties attend an information meeting on mediation and, if the Judge deems it appropriate, to invite the parties to have recourse to mediation. However, mediation remains voluntary;
- The Directive enables parties to give an agreement concluded following mediation a status similar to that of a Court judgment by rendering it enforceable;
- The Directive does not apply to arbitration, adjudication or expert determination; and
- The Directive ensures that mediation takes place in an atmosphere of confidentiality and that information given or submissions made by any party during mediation cannot be used against that party in subsequent judicial proceedings if the mediation fails. This provision is essential to give parties confidence in, and to encourage them to make use of, mediation.
In May of this year, the Master of the Rolls, Sir Anthony Clarke4 said this:
“In conclusion, it seems to me then the power exists for the courts to regularise mediation and to make it an integral part of the litigation process. That is not to say that in every case it will be desirable. The court must be sensitive to this when assessing whether to make a standard direction with a mediation order in it. There is no reason why it cannot do this. Equally it is not to say that it will or ought to succeed in every case. It is of course a cliché that you can take a horse to water but whether it drinks is another thing entirely. That it is a cliché does not render it the less true. But what can perhaps be said is that a horse (even a very obstinate horse) is more likely to drink if taken to water. We should be doing more to encourage (and perhaps direct) the horse to go to the trough. The more horses approach the trough the more will drink from it. Litigants being like horses we should give them every assistance to settle their disputes in this way. We do them, and the justice system, a disservice if we do not.”
These words may have been spoken with a velvet glove as it were. However every party to litigation should be aware of the consequences of failing to make use of the assistance offered by the courts to try and resolve their dipsutes.