ADR offers: the new costs weapon

Wherever you turn at the moment, it seems hard to avoid the relentless push towards mediation. The issue even made it on to Radio 4’s Today programme at the end of April. Former Supreme Court president Lord Neuberger highlighted the need for a ‘breathing space’ before parties rush into commercial disputes stemming from the coronavirus pandemic, an influx of which could overwhelm the courts.

Guidance from the Cabinet Office last month took a similar theme, urging companies to avoid ‘destructive’ litigation resulting from the pandemic. The government said it would ‘strongly encourage’ parties to resolve emerging contractual issues through mediation and negotiation, before they ‘escalate into formal intractable disputes’.

But the drive to mediate is powered by more than just fine words falling down from on high. Three recent cases have provided a very real economic incentive for parties to say ‘yes’ to mediation, because the price of saying ‘no’ has become rather costly.

On 30 April in Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd & Anor [2020] EWHC 1050 (Comm), the successful defendant was penalised in costs for refusing to mediate. Judge Halliwell found that, given the long history between the parties, a mediation would have had ‘a reasonable prospect of success’. Instead, the defendant’s failure to engage with the claimant had encouraged his ‘sense of grievance’, meaning that the defendant had ‘brought the litigation on itself’. The judge disallowed a period of the defendant’s costs as a result.

The new approach of vigorously meting out punishment whenever one side refuses to engage in ADR does carry danger

The previous month, there were two cases bearing the same message. In BXB v Watch Tower Bible and Tract Society Of Pennsylvannia (2020) EWHC 656 (QB) on 11 March, Mr Justice Chamberlain awarded indemnity costs to the successful claimant. He cited the defendant’s ‘silence in the face of an invitation to participate in ADR’ and its failure to comply with a court order that it must explain its reasons for not engaging.

Nine days later, on 20 March, a claimant who beat his own offer at trial was awarded the extra bonus of indemnity costs for an extended period because – you guessed it – the defendant had failed to engage in ADR. In this case, DSN v Blackpool FC (2020) EWHC 670 (QB), Mr Justice Griffiths was unimpressed with the defendant’s ‘inadequate’ reasons for refusing to mediate.

‘They were, simply, and repeatedly, that the defendant “continues to believe that it has a strong defence”,’ tutted Griffiths. He added: ‘No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution… Settlement allows solutions that are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money.

‘Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought.’

The judge added: ‘The costs of an action will not always be limited to financial costs. […] A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties, which a settlement could spare them.’

So it is becoming increasingly clear that judicial efforts to get parties to negotiate rather than litigate are moving away from the carrot towards the stick. You now need a seriously good reason to refuse to engage with the opposing party in settlement discussions. So is that a bad thing? There are undeniable benefits to mediation – the most obvious being that it is quicker and cheaper than litigation. It is also considered less stressful for parties and is confidential, which is often attractive. Even in areas that have traditionally been seen as impossible to mediate, such as clinical negligence, strides are now being made. For example, the Register of Mediators jointly set up by the Association of Personal Injury Lawyers, the Motor Accident Solicitors Society and the Forum of Insurance Lawyers earlier this year is receiving some positive feedback from those who have used it.

But the new approach of vigorously meting out punishment whenever one side refuses to engage in ADR does carry danger. Taking a long-term view, resolving significantly more disputes outside the courts could ultimately stifle the development of the law – as we have seen in areas such as shipping, where arbitration is common. But perhaps more immediately, it locks and loads offers to negotiate, which now have greater strategic value as a costs threat – particularly for weak claims. Let us hope that judges will be on their guard against what could become an onslaught of cynical ADR offers.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs (www.lawgazette.co.uk/litigation-funding). For subscription details, tel: 020 8049 3890