Article - Commercial Dispute Resolution

Alternative Dispute Resolution - An Update

The use of Alternative Dispute Resolution by litigators, commonly known as ADR, has increased substantially recently.  This could be attributable to litigators appreciating that their client wishes to have their dispute resolved as quickly and cheaply as possible and may wish to preserve their commercial relationship.  Alternatively, the Courts have approved the use of ADR and have recently punished litigants who refuse to submit to ADR to resolve their dispute.

Since April 1999, and the introduction of the Civil Procedure Rules 1998 ('CRP'), the Court have an inherent power to further the 'overriding objective' in Part 1 which includes five objectives in order to deal with cases justly:

  • To ensuring that parties are on an equal footing;

  • To save expense;

  • To deal with cases proportionately;

  • To ensure that cases are dealt with expeditiously and fairly; and

  • By only allotting an appropriate share of the Courtís resources.

Lord Chancellor felt that this could be achieved by the Court promoting mediation but this required a marked change in the attitudes of litigators and litigants as they have to re-evaluate the use and role of mediation.  This was encouraged by the Court ordering penalties against parties who refuse to mediate.

It would also appear that a party who refuses to mediate could be ordered to pay the other side's costs on an indemnity basis rather than the standard basis.  This can have serious cost consequences for the party who refuses to mediate.

Cost Consequences For Failing to Mediate

In the case of Dunnett v Railtrack plc [2002] 2 All ER 850, Mrs Dunnett sued Railtrack and lost.  She obtained leave to refer the matter to the Court of Appeal but the Court suggested mediation.  Unfortunately, Railtrack refused to refer the matter to mediation and the appeal was dismissed by the Court of Appeal.  However, the Court of Appeal refused to order that Mrs Dunnett pay their legal costs as it had refused to mediation.

ADR Clauses in Agreements

In Cable & Wireless v IBM United Kingdom Ltd [2003] EWHC 316 (Comm), Cable & Wireless ('C&W') refused the offer of IBM United Kingdom Ltd ('IBM') to refer the matter to mediation to determine the meaning of a clause in a contract, despite that contract containing a dispute resolution clause which required the parties to "attempt in good faith to resolve the dispute or claim through an ADR procedure Ö".  C&W argued that this was an agreement to negotiate and therefore unenforceable under English law.  The Court disagreed and told C&W that the clause was an enforceable agreement which obliged the parties to go through the ADR process.

Is it ever safe to refuse?

Since the judgment in Cable & Wireless v IBM United Kingdom Ltd [2003] EWHC 316 (Comm), some parties who have refused to mediate have been dealt with more leniently by the Court.  It would therefore appear that the chances of safely refusing to mediate are higher, for example, where there is "no realistic prospect of success". That is difficult to define, but may include circumstances where:

  • A party offers mediation, but has no genuine desire to settle;

  • Mediation would be a completely hopeless exercise;

  • The party offering mediation has been guilty of such delay that imposing it on the other side would be unfair;

  • The attitude of the other side (e.g., vexatious/bankrupt Claimants) justifies refusal;

  • A party applies unreasonable pressure on its opponent; or

  • The offer of mediation is made too early or too late in the proceedings to be useful.

This is not necessarily an exhaustive list, but is based on recent case law.  Each case is, however, decided on its own facts and therefore it will be difficult to predict when it is safe to refuse to refer the matter to mediation.

Successful Resolution by ADR

Statistics are difficult to find but one report has suggested that approximately 80% of mediations in England and Wales result in a settlement on the day or shortly afterwards.

Conclusion

The use of mediation appears to be on the increase and this can only be good for clients.  However, it is important to note that not all matters are suitable for mediation but an unwillingness to mediate may involve significant penalties being imposed by a Court.  Therefore, it is important to consider these consequences before refusing to refer the matter to mediation.

Article First Published: 12 April 2005

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