Ioannis Alexopoulos and Oliver Brooks assess cases that offer guidance on when mediation is appropriate

In light of the risk of adverse costs orders, before proceeding to trial many litigants have been going through the motions of alternative dispute resolution (ADR) as a matter of course without any genuine intent to settle.

This not only entails unnecessary cost and delay, but also undermines confidence in the process of ADR.

This has been exacerbated by some recent case law in which judgments have depended on the individual facts of the case and successful parties have failed to recover their costs because they refused to consider ADR.

In Dunnett v Railtrack PLC [2002] 2 All ER 850, the courts cited their obligation under Civil Procedure Rule 1.4 to encourage ADR and for parties to assist them in fulfilling this.

However, by contrast in Hurst v Leeming [2002] EWHC 1051 (CH) and Valentine v Allen [2003] EWCA Civ 915, even though the successful parties refused to consider ADR, because of the particular circumstances they were still awarded their costs by the court.

Last month, the situation was helpfully clarified by the combined judgment of the Court of Appeal in Halsey v Milton Keynes General NHS Trust and Steel v Joy and Another.

On the facts of both cases, the court found that the unsuccessful claimants had failed to discharge the burden of proving that the successful parties had acted unreasonably in refusing ADR.

In doing so, the court took the opportunity to provide clear and comprehensive guidance on 'a question of some general importance: when should the court impose a costs sanction against a successful litigant on the grounds that they have refused to take part in alternative dispute resolution'.

This judgment will now be the essential reference for all parties contemplating the costs consequences of refusing a proposal to undertake ADR before proceeding to trial.

The court's judgment has taken into account the realities of ADR.

It acknowledges that although it may be appropriate for the courts to encourage parties to embark on ADR, it is not possible to oblige truly unwilling parties to refer disputes to mediation.

This will amount to an unacceptable obstruction on their rights of access to the courts.

Furthermore, it 'would achieve nothing except to add to the costs borne by the parties, possibly postpone the time when the court determines the dispute and damage the perceived effectiveness of the ADR process'.

The threat of adverse costs orders has been tempered by the court noting that an order depriving a successful party of all or some of its costs on the grounds that it refused to agree to ADR is an exception to the general rule that costs follow the event.

The burden will be on the unsuccessful party to show why there should be a departure from the general rule.

The unsuccessful party must show that the successful party acted unreasonably in refusing to agree to ADR.

In deciding whether a party has acted unreasonably in refusing ADR the court will consider the following factors:

- The nature of the dispute.

The court noted that not all disputes are suitable for ADR - for example, those involving a matter of law or construction, allegations of fraud or a situation where a binding precedent is needed.

- The merits of the case.

The courts should be aware of the fact that large organisations are vulnerable to pressure from claimants who have weak cases and invite mediation as a tactical ploy.

If parties reasonably believe that they have a strong case, that may be relevant to the issue as to whether they reasonably refused ADR and may be sufficient justification for refusal to mediate.

However, a party's unreasonable belief that its case is watertight is no justification for refusing mediation.

- The extent to which other settlement methods have been attempted.

The fact that a settlement offer has been rejected may be potentially relevant in showing that one party is making efforts to settle and that the other has unrealistic views on the merits of its case.

- Whether the costs of ADR would be disproportionately high.

Where the sums at stake are small various forms of ADR can be at least as expensive as litigation.

- Whether the delay involved by ADR would be prejudicial.

If mediation is suggested only late in the day, acceptance of it may have the effect of delaying the trial and may be prejudicial.

- Whether ADR had a reasonable prospect of success.

The burden will be on the unsuccessful party to show that there was a reasonable prospect that ADR would have been successful.

This approach should focus beyond the nature of the dispute to the parties' willingness and reasonableness.

Account should also be taken of any encouragement to agree ADR given by the court.

The court also took the opportunity to address the March 2001 ADR pledge made by the Lord Chancellor, whereby all government departments and agencies made the commitment that 'alternative dispute resolution will be considered and used in all suitable cases wherever the other party accepts it'.

This has been referred to in Halsey and previous cases, most notably The Royal Bank of Canada v Secretary of State for Defence [2003] EWHC 1841, with the suggestion that '...

the court should be particularly disposed to make an adverse costs order against a successful public body on the grounds that it refused to agree to ADR'.

In its judgment the court addressed this point and found it was '...difficult to see in what circumstances it would be right to give great weight to the ADR pledge'.

It appears that despite the Lord Chancellor's pledge, public bodies will not be treated any differently from other litigants.

Regardless of their level of enthusiasm for ADR, all litigators will benefit from the guidance provided by the Court of Appeal in this clear judgment in which not only the Law Society intervened, but also the Civil Mediation Council, the ADR Group and the Centre for Effective Dispute Resolution.

If the judgment leads to any decrease in ADR it will be because the process is being entered into with more discrimination, rather than simply as a matter of course.

While likewise, parties who are certain that ADR is inappropriate can be more confident of their costs position when proceeding straight to trial.

Ioannis Alexopoulos is a partner and Oliver Brooks is an assistant solicitor in the litigation group at City-based law firm DLA