Litigation Practitioners' Update May 2006

Recapitulation

The Civil Procedure Rules, the Commercial Court Guide, the Queen’s Bench and Chancery Guides, and the various Pre-Action Protocols all seek to encourage parties and prospective litigants to consider ADR as early as possible in their disputes.

Civil Procedure Rule 1.4 - Court's duty to manage cases (to further the overriding objective):- "Active management includes ... 1.4.(2)(e) encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure".

Civil Procedure Rule 26.4 - Party may in its allocation questionnaire ask for a stay to try to settle the case by ADR or other means.

Use of pre-action protocols - Both Claimants and Defendants lettters should state whether they are prepared to try mediation/adr (Praction Direction - Protocols).

Civil Procedure Rule 44.3 - (when deciding what order to make about costs) the court must have regard to the conduct of the parties before or during proceedings including compliance with pre-action protocol.

Civil Procedure Rule 44.5(3) - (when deciding the amount of costs) the court must have regard to the conduct of the parties in particular "the efforts made, if any, before and during the proceedings in order to try to resolve the dispute".

In Dunnett v Railtrack PLC [2002] EWCA Civ 303; [2002] 2 All ER 850, the Court of Appeal disallowed Railtrack's costs notwithstanding that they had been successful on appeal. Brooke LJ (with whom Robert Walker and Sedley LJJ agreed) said at [15]:-

"It is to be hoped that any publicity given to this part of the judgment of the court will draw the attention of lawyers to their duties to further the overriding objective in the way which is set out in CPR Pt 1 and to the possibility that, if they turn down out of hand the chance of alternative dispute resolution when suggested by the court, as happened on this occasion, they may have to face uncomfortable costs consequences".

In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 1 WLR 3002, the Court of Appeal stated at [11] and [31]:

"All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR. But we reiterate that the court's role is to encourage, not to compel. The form of encouragement may be robust ... a party who .. simply refuses to embark on the ADR process at all would run the risk that for that reason alone his refusal to agree to ADR would be held to have been unreasonable, and that he should therefore be penalised in costs".

• Whether the dispute is unsuitable for ADR, for example cases of commercial fraud or other commercially disreputable conduct, or where a point of law needs to be resolved.
• Whether a party has the reasonable belief that he has a strong case and therefore ought not to be pressurised into negotiating.
• Whether there have been other efforts to settle.
• Whether the costs of mediation would be disproportionately high.
• Whether mediation would delay the trial of the action.
• Whether the mediation had a reasonable prospect of success.

In Yorkshire Bank v RDM Asset Finance [2004] ADR.LR 06/30 Mercantile Court in Leeds, HHJ Langan QC sitting as a High Court judge adjusted the costs award by 15% because the defendant's conduct in refusing to mediate was unreasonable and because mediation had had a reasonable chance of success.

In Reed Executive Plc v. Reed Business Information Ltd [2004] EWCA Civ 159, March 3, 2004, CA, Jacob L.J. (having found that it was not unreasonable in that particular case for a party to refuse to try ADR) stated [13]:-

"a good and tough mediator can bring about a sense of commercial reality to both sides which their own lawyers, however good, may not be able to convey".

Recent events

6 April 2006 Practice Direction - Protocols
A new paragraph 4.7:-

"The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation, and if so, endeavour to agree which form to adopt. Both the Claimant and Defendant may be required by the Court to provide evidence that alternative means of resolving their dispute were considered. The Courts take the view that litigation should be a last resort, and that claims should not be issued prematurely when a settlement is still actively being explored. Parties are warned that if the protocol is not followed (including this paragraph) then the Court must have regard to such conduct when determining costs. It is not practicable in this protocol to address in detail how the parties might decide which method to adopt to resolve their particular dispute. However, summarised below are some of the options for resolving disputes without litigation:

• Discussion and negotiation
• Early neutral evaluation by an independent third party (for example, a lawyer experienced in that field or an individual experienced in the subject matter of the claim)
• Mediation—a form of facilitated negotiation assisted by an independent neutral party

The Legal Services Commission has published a booklet on 'Alternatives to Court', CLS Direct Information Leaflet 23 (www.clsdirect.org.uk/legalhelp/leaflet23.jsp), which lists a number of organisations that provide alternative dispute resolution services. It is expressly recognised that no party can or should be forced to mediate or enter into any form of ADR."

Each subject-specific pre-action protocol contains similar directions

Recent cases

In Daniels v Commissioner of Police for the Metropolis [2005] EWCA Civ 1312, CA, having compared the defendant's refusal to negotiate at all with the situation in Halsey, at [31] Dyson LJ said:-

"If defendants, who routinely face what they consider to be unfounded claims, wish to take a stand and contest them rather than make payments (even nuisance value payments) to buy them off, then the court should be slow to characterise such conduct as unreasonable so as to deprive defendants of their costs, if they are ultimately successful."

In Burchell v Bullard [2005] EWCA 358, (2005) BLR 330, CA, the Claimant offered mediation both before and during proceedings, but this was refused on the grounds that the case was too complex. Ward LJ said this was "plain nonsense". Held: defendants' refusal to mediate was unreasonable, although no costs sanction would be imposed because this happened a year before Dunnett's case. At [43] (Rix LJ agreeing) he said:-

"The profession can no longer with impunity shrug aside reasonable requests to mediate. The parties cannot ignore a reasonable request to mediate simply because it was made before the claim was issued. These defendants have escaped the imposition of a costs sanction in this case but defendants in a like position in the future can expect little sympathy if they blithely battle on regardless of the alternatives."

In Vahidi v Fairstead House School Trust Ltd [2005] EWCA Civ 765, CA, in a claim for stress at work the Court of Appeal at [27] observed that as the courts have settled many of the principles in this area there is no reason for expensive litigation and that such disputes should be mediated.

In Venture Investment Placement Ltd v Hall [2005] EWHC Ch 1227; [2005] ADR.LR 05/16 an injunction was granted by HHJ Reid QC to prevent a party in a failed mediation disclosing privileged information about the conduct of the mediation and assertions of things said during the process.

In RBG Resources PLC (in liquidation) v Rastogi [2005] ADR.LR 05/24 a fraud action was discontinued against the defendant. At a costs hearing Lightman J only allowed the defendant 60% of his costs on the standard basis because he had been unreasonable during negotiations to settle the matter, including his insistence that the liquidators of the claimant company make a public statement of exoneration and apology. This was was something they were unable honestly or reasonably to do, in the light of the merits of the case.

In Hickman v. Blake Lapthorn and Another [2006] EWHC 12 (QB); [2006] ADR.LR 01/17 one of two defendants had refused to negotiate or enter into mediation and it was argued that he should pay all the claimant's costs from that time. Jack J held that the test was whether that defendant's conduct had been unreasonable. In this case although there had been a somewhat optimistic assessment of the case, a decision was made by the insurers not to offer more than they thought the case was worth, and that decision was not unreasonable.

Note: a useful source of recent cases is the free Nationwide Acedemy for Dispute Resolution UK site at:- http://www.nadr.co.uk/articles/articles.php.