14 DISPUTE RESOLUTION
Traditionally, dispute resolution meant resort to the courts with the attendant delay, costs and frequently unsatisfactory results. Especially in a construction setting, the complexity of disputes has inevitably increased the expense and delay of both litigation and arbitration. There is increasing interest in various other ways in which these conflicts can be resolved. Such possible avenues are known collectively as Alternative Dispute Resolution (ADR).1 The current trend towards an alternative form of dispute resolution originated in the United States, where a number of court-related factors contributed to the development of ADR, including: The constitutionally guaranteed right to jury trial for “suits at common law”; The absence of any general system of “fee-shifting” in civil litigation, so that each party must bear its own costs regardless of the outcome; The absence of any national system of judicature; The poor quality of some judges, due to low pay and/or erratic selection procedure (including election); and Congestion of the court system. The “conventional” dispute resolution model is the one most frequently accomplished through the court system and, as described by Martin Shapiro,2 involves an adjudicatory type court process where you have “(1) an independent judge applying (2) pre-existing legal norms after (3) adversarial proceedings in order to achieve (4) a dichotomous decision in which one of the parties was assigned the legal right and the other found wrong”.3 Shapiro, however, points out that, when reviewed against various countries and their courts, this model “fits almost none of them”.4 Needless to say, this is the usual manner of dispute resolution and the most intense and rigorous. On the scale of dispute resolution methods this one ranks at the top, not in terms of effectiveness but rather in terms of exhaustiveness. The obverse of this is where the potential litigants just sit down and sort out their differences and reach an amicable solution to the dispute. In between are all manner of variants. A review of the various forms of dispute resolution shows that following close behind court-based litigation are arbitration, adjudication, mediation and other related methods. A short compendium of other ADR forms is as follows:5 Judicial The parties make written submissions to a judge who then gives an Appraisal: appraisal of the likely outcome should the matter go to trial. It is for the parties to agree whether or not the appraisal is to be binding. High-Low Prior to the arbitration the parties agree the parameters of the Arbitration: settlement. If the award is within the parameters, it is binding. If it is outside the parameters, the higher or lower limit set by the parties applies, whichever is the nearer. Adjudication: This is akin to Judicial Appraisal but the submissions are made to a neutral third party, rather than to a judge. The third party is usually chosen on the basis of expertise in the matter in dispute. Adjudication can encompass oral submissions or site visits. The decision is usually binding but not necessarily final. Adjudication has also become increasingly common in the construction industry. This is as a result of the statutory right to adjudicate under the Housing Grants, Construction and Regeneration Act 1996. Part II of the Act, which came into force on 1 May 1998, provides that construction contracts (as defined) must contain an adjudication procedure that complies with section 108 of the Act. If the contract contains no adjudication provisions or those provisions fall short of those required by the Act, the statutory Scheme for Construction Contracts applies. Expert Determination: This can be used to resolve a discrete matter. Usually the expert will investigate and report upon the matter. Reliance upon submissions made by the parties is, therefore, not essential. The decision is usually binding. Where the parties have agreed that the expert’s determination will be final and binding, then, in the absence of an agreement as to specific grounds upon which the determination may be challenged, the courts will interfere with the determination only in limited circumstances, such as fraud or a failure on the part of the expert to follow his instructions.6 And now the additional area of “error” can be added. In this regard there has been some development in this area, and in Shafi v Rutherford7 an expert determination was set aside because the expert appointed to resolve the amount to be paid for a share of a business did not correct errors in the accounts on which the valuation was based. In relation to challenging an expert’s determination on the basis of “error” is Walton Homes Ltd v Staffordshire CC,8 where the court refused to grant an order that an expert determination by a surveyor was “manifestly erroneous” where the surveyor had not manifestly erred in rejecting an interpretation of a clause that was commercially absurd. This case seems to indicate the court’s reluctance to allow challenges to expert determinations on the basis of error. Then, in Ackerman v Ackerman,9 the court held that an expert’s departures from express or implied procedural instructions had not been material because his decision had been inevitable and his determination was not otherwise invalidated by the nature of the departures, which had not had a significant effect on him in reaching his decision. Thus, the extent to which an error of law made by the expert is open to review by the courts is perhaps qualified. Mediation: Mediation involves the introduction of a neutral third party, the mediator, whose purpose is to assist the parties in reaching a negotiated settlement. There are two main forms of mediation – facilitative and evaluative. In facilitative mediation, the mediator remains neutral throughout. In evaluative mediation, the mediator may express a view or make a recommendation where this will assist the parties with their negotiations. Mediation- The parties use mediation to attempt to reach a negotiated settlement Arbitration: but, should that not prove possible, a decision is imposed upon them in respect of any unresolved issues. The parties decide whether one person is to act as both mediator and arbitrator or whether the roles are to be split. Many find this method compromises both the mediator and the arbitrator, but despite that it is occasionally used in terms of having the mediator, upon settlement, be “commissioned” as an arbitrator solely for the purpose of converting the settlement into an “Agreed Award” or a “Consent Award”. Conciliation: The terms “mediation” and “conciliation” are often used interchangeably. However, in the UK conciliation is usually regarded more as an evaluative than as a facilitative approach. For example, under the ICE Conditions parties may refer their dispute to conciliation and, in the event of a conciliated settlement not being reached, the conciliator has the power to make a “recommendation” for the settlement of the dispute. Executive This process involves a mediator sitting as a panel with an executive Tribunal: from each party who has not been personally involved in the dispute. The panel hears submissions from each party. Thereafter, the executives retire with the mediator to negotiate a settlement. Neutral This is similar to Expert Determination. It is usually restricted to Fact-Finder: specific issues within an overall dispute and is not binding in that the fact-finder does not usually make an award. Unfortunately, arbitration comes a close second to litigation in terms of complexity and cost. Where arbitration was once the “golden child” of dispute resolution, it has today, in construction settings, become almost as bad, if not worse, than a full court trial in terms of not just cost but also time expended with the added burden of having to pay the arbitrator(s). Unfortunately, litigation is involuntary, in the sense that when a party is sued it has to participate in the process whether it likes it or not or else suffer the consequences, e.g. judgment in default. Mediation, however, is a completely voluntary process. Moreover, mediation is a process of assisted negotiation, as compared to the rigid nature of litigation with its strict rules of procedure and evidence governing the steps leading to, and the conduct of, the trial. Mediation is entirely flexible and can be adapted to meet the particular needs of the parties and the circumstances of the case. It has the added benefit that the parties must do more than passively submit to the process, they must actively participate in the negotiation process, thus leading to a successful outcome that does not need to be enforced but rather will be complied with voluntarily. Further, while court decisions are imposed and are binding upon the parties, mediation provides for a settlement that is arrived at by the parties themselves with the assistance of the mediator. Mediation normally takes place on the basis that the process is not binding upon the parties and is entirely without prejudice unless and until the parties enter into a written settlement agreement at the conclusion of the mediation. Another factor against litigation (as is also the case in arbitration) is that it is adversarial, and thus has a tendency to drive the parties further apart. Moreover, at the conclusion of litigation there is usually a “winner” and a “loser”. With mediation, a mutual desire to settle the dispute by negotiation is a prerequisite. The process, therefore, tends to bring the parties closer together. Furthermore, there is no “loser” in a negotiated settlement voluntarily agreed by both parties. Litigation is a backward-looking process. It is a retrospective enquiry aimed at ascertaining the truth about facts relevant to the dispute to which legal principles are then applied. The judgment of the court is a pronouncement on who was “right” and who was “wrong” in relation to past events. Although that same dispute will be the initial focus of mediation, the parties to mediation are able to introduce into the negotiations any issues they wish. These might be other events in the past which did not materialise into a full-blown dispute but which have left one or both of the parties feeling aggrieved, or there might be problems in the future which one or both of the parties anticipate may arise. Mediation, therefore, enables the parties to reach a settlement, which addresses much wider issues than just their strict legal rights in relation to some past event. This can be very valuable, particularly where the parties are, or wish to be, in a continuing relationship, as is common in the construction industry.10 Most importantly, while litigation usually mandates that the remedies available to a successful party are limited to damages, with mediation there are no limits to the bases upon which the parties can agree to settle. For the proponents of mediation, its great advantage over litigation lies not just in its relative speed and low cost but in its flexibility and creativity and in the opportunity it offers for achieving a positive outcome for all parties. The vast majority of legal proceedings settle before trial, often at a very late stage and only after significant costs have been incurred. If a claim is going to settle anyway, a mediated settlement is a means of obtaining a swifter and more satisfactory settlement than would otherwise occur. Arbitration, which was supposed to be a better substitute for court litigation, is a process whereby disputes are determined by a private tribunal chosen by the parties. So long as the arbitrator acts properly there is usually no appeal from the arbitrator’s award, which will be enforced by the courts. In the UK, rather than use of the UNCITRAL Model Law on international and commercial arbitration (“The Model Law”) or other forms of rules, the Arbitration Act 1996 applies.11 Section 1 of the Act states: “The provisions of this part are founded on the following principles, and shall be construed accordingly– The objective of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense; The Parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; In matters governed by this part of the Act the court should not intervene except as provided by this part.” Despite the Arbitration Act there is a sharp decline in the number of cases being referred to arbitration, partly due to previous dissatisfaction with pre-1996 arbitration, which has led to arbitration clauses in contracts still being struck through as a matter of course, but principally due to the impact of adjudication.12 An interesting development is the introduction of the “100-day scheme”, devised by the Society of Construction Arbitrators in 2004. This was meant to bridge the gap between adjudication and arbitration and under this scheme the arbitrator is required to make its award within 100 days of the date on which the statement of case is delivered to the arbitrator, or to the other party, whichever is the later. “Parties can agree to arbitrate once a dispute has arisen, or more commonly they may agree to refer future disputes to arbitration should the need arise. Section 6(1) of the Arbitration Act recognises this distinction and defines an ‘arbitration agreement’ as ‘an agreement to submit to arbitration present or future disputes’. The definition does not restrict arbitration to merely contractual disputes, and could include a range of matters such as tortious claims. There are limits to the kinds of dispute which may be ‘arbitrable’ for example criminal matters cannot be settled privately by arbitration.”13 Interestingly, when grappling with whether there is an agreement to arbitrate, section 6(2) of the Act states that a reference to an agreement that does contain an arbitration clause constitutes a valid agreement to arbitrate. In Aughton Limited v MF Kent Services Limited,14 the court held that merely referring to a standard form contract, which contained an arbitration clause, did not amount to an agreement to arbitrate and that the parties needed to include a written agreement to arbitrate in their primary agreement. The advent of section 6(2) solves this problem. An arbitration agreement must be in writing, but this is interpreted widely and includes any method of recording the agreement such as electronically or on tape. The agreement to arbitrate need not be complicated. In Arab African Energy Corporation Limited v Olieprodukten Nederland BV,15 the words “English Law – arbitration, if any, London according ICC rules” were held to constitute a valid arbitration agreement which provided for arbitration in London under the ICC rules in accordance with English law. However, as to what constitutes an “arbitration agreement” within the meaning of the Arbitration Act 1996, the court in Aughton Ltd (formerly Aughton Group Ltd) v MF Kent Services Ltd16 stated: “… the Court held that merely referring to a standard from contract which contained an arbitration clause did not amount to an agreement to arbitrate and the parties need to include a written agreement to arbitrate in their primary agreement.” (Note that this has now been resolved by section 6(2)). And in Kruppa v Benedetti,17 the court took the position that a dispute resolution clause which provided that, in the event of any dispute, the parties would endeavour first to resolve the matter through Swiss arbitration, failing which the English courts would have non-exclusive jurisdiction, was not an arbitration agreement within the meaning of the Act in that the clause did not set out the number, identity and appointment method of arbitrators, the requirement to submit finally to a binding arbitration was absent and the clause’s envisaged two-stage process was inconsistent with its being an arbitration clause. But in Mi-Space (UK) Ltd v Lend Lease Construction (EMEA) Ltd,18 the parties agreed in a subcontract that disputes would be referred to arbitration with the Dispute Review Board acting as arbitrator. The court held that the agreement amounted to an agreement to refer disputes to arbitration. The arbitrator(s) may either be chosen directly by the parties, or appointed by an appointing body. Most agreements provide a basis where, if the parties cannot agree an arbitrator by a specific time, an appointing body may do so, and failing that there is always resolution to the courts to appoint. Once selected, however, the arbitrator(s) or tribunal are subject to section 33 of the Arbitration Act, which states that they are to: “Act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.” Normally in the UK, an arbitrator obtains its powers from the agreement between the parties and the applicable rules and the Arbitration Act 1996. The Act provides the arbitrator with a wide range of powers and section 38 sets out the general powers of the arbitrator. Section 38(1) states that: “The parties are free to agree on the powers exercisable by the arbitral tribunal for the purposes of and in relation to the proceedings.” The balance of the section goes on to give examples of the powers that might be exercised, unless otherwise agreed by the parties, including: “The power to order a claimant to provide security for costs. The power to inspect, photograph, preserve or take samples of any property being the subject of the proceedings. The power to direct that witnesses be examined on oath. The power to order the preservation of any evidence.” Other sections of the Arbitration Act contain specific powers, as follows: “Section 37: Unless otherwise agreed, the tribunal has the power to appoint experts, legal advisers or technical assessors. Section 39: The parties are free to agree that the tribunal shall have power to make a provisional award. Section 41: The parties are free to agree that the tribunal shall, in the event of one party’s failure to do something or delay, have the power to make peremptory orders and dismiss claims if that default continues.” Further provisions of the Act provide, for example in section 34(1), that the arbitral tribunal shall decide on procedural and evidential matters, subject to the parties’ agreement, and then in section 34(2) a list of procedural and evidential matters is set out which includes the exchange of “pleadings, disclosure of documents, the application of the strict rules of evidence and whether or not the tribunal should take the initiative in ascertaining the facts and the law”. Like a court judgment, an arbitrator’s award is final and binding on the parties unless they agreed to the contrary. Indeed, section 66 of the Act provides that the award may, with leave of the court, be enforced as if it were a judgment of the court, but the ability of a party to challenge the award is extremely limited. Further, upon issuing the award the arbitrator becomes functus officio and its duties and powers come to an end. Another type of award arises when the parties come to a settlement, either through mediation or otherwise, and when this occurs the arbitrator may issue a consent award, which records the parties’ agreement. Awards of this type are then enforceable by the courts just like any other arbitral award. Further, section 49 of the Arbitration Act allows the arbitrator to award simple or compound interest unless otherwise agreed by the parties. What makes this different is that normally a court can only award simple interest and very rarely does the court have the power to award compound interest. While arbitration generally follows what appear to be court-like processes, there are many variants, such as “document only arbitrations” in which there are no face-to-face evidentiary proceedings and the arbitrator makes an award based upon the written submissions of the parties. Another variant is “Amiable Compositeur” or “Ex aequo et bono”, in which the arbitrator acts in a way to resolve the dispute and may, within certain limits, disregard the strict legal or contractual requirements in order to arrive at a fair and equitable solution. Another variant is what is called “Final offer or last offer”, or sometimes is referred to as “High-Low” arbitration. Each party submits its final offer in monetary terms to the arbitral tribunal. The tribunal must then select one or the other and make an award on that basis. The tribunal may not modify either party’s offer and each party is put in a position where it hopes the offers will be close together. Needless to say, any of these methods, if successful, will satisfy the parties to the dispute, but again litigation and arbitration are quite costly and time consuming. This leads to mediation. Although parties in dispute and their advisers have often regarded mediation and litigation as being mutually exclusive, in fact mediation can, and often does, take place after proceedings have commenced. Indeed, this is now expressly contemplated under the Civil Procedure Rules (CPR). Mediation can prove a positive benefit to the litigation process for a number of reasons. First, it can set a timetable for the litigation. There is often an impetus to settle a claim before reaching a particular stage in the litigation. Often that stage will be a point where significant further expense will be incurred, for example, disclosure of documents or exchange of expert evidence. Second, the mediation will define the initial issues for the litigation, although, as pointed out above, there are often others that emerge. Third, the fact that litigation has been commenced enables the parties to put a value on the success of the mediation. If the parties know, at least in general terms, how long it will take for the proceedings to come to trial, how much is at stake and how much it will cost in lawyers’ fees, expert fees and in their own time and effort, then it enables the parties to make an assessment of how much a negotiated settlement is worth to them.19 In Mona Al-Khatib v Abdullah Masry and others,20 the court directed that the parties should be invited to engage in mediation under the Court of Appeal scheme. Although the first mediation failed, due in part to the fact that the mediator was one proposed by the scheme administrator, Lord Justice Thorpe supervised the appointment of an alternative mediator. Following the cases resolution Lord Justice Thorpe stated: “From the point of view of the Court of Appeal it supports our conviction that there is no case, however conflicted, which is not potentially open to successful mediation, even if mediation has not been attempted or has failed during the process. It also demonstrates how vital it is for there to be judicial supervision of the process of mediation.”21 In Hurst v Leeming,22 Hurst was attempting to sue his counsel (Leeming) for negligent advice. Hurst had proposed mediation to Mr Leeming who declined the offer but cited five reasons for doing so. Mr Justice Lightman considered whether the reasons given were sufficient for refusing mediation and divided them into “unacceptable reasons” and “acceptable reasons”: Unacceptable reasons for declining mediation: The level of costs already incurred in the action. The fact that a claim is for serious allegations of professional negligence. The strength of the case – here it was even agreed that Mr Hurst had no case or claim against Mr Leeming yet Mr Justice Lightman stated that even if you have a “watertight case this is no justification for refusing mediation”. Acceptable reasons (in this particular case): The character of the party proposing mediation. Here, Mr Hurst was considered to have been so personally affected by the actions that his judgment had been seriously disturbed and was incapable of a balanced evaluation of the facts. Mr Justice Lightman wrote that the critical factor is: “whether, objectively viewed, a mediation had any real prospect of success … if the court finds that there was a real prospect, the party refusing may be severely penalised. Further the hurdle in the way of a party refusing to proceed to mediation is high”. Then, in Dunnett v Railtrack,23 Railtrack won their case at first instance. On giving leave for appeal Schiemann LJ suggested that Miss Dunnett “explore the possibility of Alternative Dispute Resolution”. Miss Dunnett referred this to Railtrack who instructed their solicitors to refuse. The matter proceeded to appeal and Railtrack won again. On the issue of costs the court referred to CPR1.3 (the parties’ duty to further the overriding objective of using ADR) and CPR1.4 (the duty of the court to further the overriding objective by active case management). They also raised the fact that turning down ADR flat was not a reasonable ground for refusal. Lord Justice Brooke commented, “A mediator may be able to provide solutions which are beyond the powers of the court to provide”. He added that, if lawyers “turn down out of hand the chance of alternative dispute resolution when suggested by the court, they may have to face uncomfortable cost consequences”. Here, the fact that Railtrack turned down the offers of mediation without anything more made it more difficult to establish that they had acted reasonably. In Halsey v Milton Keynes NHS Trust,24 the claimant proposed mediation on a number of occasions, both before and after the issuance of any claim and the defendant refused these offers primarily because they believed they did not have a claim to answer. After the defendant won at trial, the court considered whether the defendant should be denied all, or part, of its costs because of the refusal to participate in mediation. The Court of Appeal refused to penalise the successful parties in each case, who had declined to mediate, but made it clear that it had the power to do so, giving some guidance as to how courts should approach such issues. The court noted that “the value and importance of ADR have been established within a remarkably short time. All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR”. While it was felt that courts could not positively order mediation against the wishes of an intransigently opposite party, it can make ADR “Orders” of the kind long since used in the Commercial Court (the form used in Kinstreet v Balmargo25 and Shirayama v Danovo26 which both involved reluctant parties). Thus, where any party refuses to mediate after judicial recommendation, this itself may be enough to justify sanctions. The court affirmed the views expressed in Dunnett v Railtrack,27 modified the observations of Lightman J in Hurst v Leeming28 and provided additional comments about mediation. The important headline comments were: All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR. The court could not compel mediation although it could make orders encouraging parties to mediate. Where an order of this kind has been made then the test for declining mediation will be higher. The court provided six factors, which may be relevant to the question of whether a party has unreasonably refused ADR. Those factors include (but are not limited to): The nature of the dispute; The merits of the case; The extent to which other settlement methods have been attempted; Whether the costs of the ADR would be disproportionately high; Whether any delay in setting up and attending the ADR would have been prejudicial; and Whether the ADR had a reasonable prospect of success. The first significant case after Halsey was Yorkshire Bank, Clydesdale Bank Asset Finance Ltd v RDM Asset Finance Ltd, John Broadhurst,29 where the defendant was held to have unreasonably refused to engage in mediation. The court also believed that mediation would have had a reasonable prospect of success. It was, therefore, appropriate to reflect that in the costs order. Then, in Royal Bank of Canada Trust Corporation Ltd v Secretary of State for Defence,30 despite being subject to the Lord Chancellor’s Departments pledge to settle cases by ADR techniques whenever the other side agreed to it, the defendant refused several requests to mediate. Mr Justice Lewison believed that the dispute was suitable for ADR and as such made no order as to costs of the proceedings. This case, therefore, places more emphasis on the government “pledge”, which Halsey states should not be distinguished. However, as Mr Justice Lewison believed that this dispute was suitable for ADR, this would probably have been significant enough for the same decision to be reached, even after Halsey. Then, in Burchell v Bullard,31 a dispute arose over the construction of two large extensions to a private home and, as a result, payment was not forthcoming. Prior to issue the claimant suggested that, “to avoid litigation the matter be referred for ADR through a qualified construction mediator”. The defendant’s surveyor, however, responded that the “matters complained of are technically complex and as such mediation is not appropriate”. Burchell issued for £18,000 and the Bullards’ counterclaim exceeded £100,000. Burchell was successful but the Bullards won just over £14,000 on the counterclaim. Following adjustments Burchell received £5,025. A discussion and appeal on costs then ensued. Ward LJ stated: “First, a small building dispute is the kind of dispute which lends itself to ADR. Secondly, the merits of the case favoured mediation …. the stated reason for refusing mediation that the matter was too complex is plain nonsense. Thirdly, the costs of ADR would have been a drop in the ocean compared with the fortune spent on this litigation.” He then went on to admonish the legal profession: “… The [legal] profession can no longer with impunity shrug aside reasonable requests to mediate … I draw attention, moreover to para 5.4 of the pre-action protocol for Construction and Engineering Disputes which expressly requires the parties to consider at a pre-action meeting whether some form of AD procedure would be more suitable than litigation.” More recent developments include Laporte v Commissioner of Police of the Metropolis,32 where, despite successfully defending proceedings, the court found that the police commissioner failed, without adequate reason, to engage in ADR. The case also considered the decision in PGF II SA v OMFS Co 1 Ltd,33 where the court extended the guidelines set out in Halsey regarding whether a refusal to engage in ADR should result in a cost penalty. The court found that silence in the face of an invitation to participate in ADR was in itself unreasonable regardless of whether there was a good reason not to engage in ADR – endorsing the advice of S Blake, J Browne and S Sime in the ADR Handbook and finding that there were sound practical and policy reasons for a modest extension to Halsey [paragraphs 34–40]. The court considered the following: The practical issues imposed on a court faced with the prospect of investigating the reasons for a refusal to participate in ADR for the first time at a costs hearing (i.e. after the fact it is difficult for the court to establish whether the reasons for refusal were genuine); A failure to provide reasons for a refusal to participate in ADR defeats the objective of encouraging parties to participate in ADR. Parties should discuss the reasons for objecting to ADR so as to narrow their differences; and The policy of proportionality. The court also found that it would be perverse to regard silence in the face of an offer as anything other than a refusal. Also decided that a Part 36 offer does not necessarily reflect a party’s “bottom line” and, therefore, the difference between the parties’ positions could not reasonably be regarded as insurmountable by recourse to ADR. It further found that a finding of unreasonable conduct by refusal to participate in ADR did not automatically result in a cost penalty. It should be noted that Halsey did not recognise that the court might go further and order an otherwise successful party to pay all or part of the unsuccessful party’s costs. While the court has the power to do so, a cost sanction should be reserved for serious and flagrant failures to engage in ADR such as in circumstances where the court has encouraged the parties to do so and this is ignored. Here, the court rejected the defendant’s assertion that mediation had no reasonable prospect of success at the time proposed by the claimant due to the unavailability of expert reports considered essential to the success of the mediation as they had not raised this point at the time of rejecting the proposal (thus preventing the other party from potentially expediting access to the required reports). An analysis of PGF II provides the following suggestions should a party wish to decline a request to engage in ADR on the basis that they have reasonable grounds to refuse: Do not ignore the request; Respond promptly giving clear and full reasons for the refusal; If lack of evidence is an obstacle to mediation, canvass this with the other party and give consideration as to whether the information can be obtained; Do not close off the exploration of ADR processes at a later date. Then, in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C41) Ltd,34 Ramsey J considered the Halsey criteria and the view that, generally, disputes requiring the determination of a point of law have been considered unsuitable for ADR. However, in BAE, the court found that even a dispute involving a matter of contractual construction can be suitable for ADR. In this instance, the point of contractual construction would not affect the continuing relationship between the parties and was only relevant to the determination of the dispute itself. The fact that BAE believed it had a strong case was found to be a factor that carried some, but limited, justification for not mediating, as the belief, although reasonable, was outweighed by other circumstances. In considering whether a mediation had a reasonable prospect of success the court cannot merely consider the position taken by the parties as this approach ignores the ability of a skilled mediator to find a middle ground. The reasonable prospect of the success of a mediation can be assessed by the court objectively. (It should be noted that as of this writing an appeal is outstanding.) What should be noted is the “slight extension” of Halsey in PGF II while the other cases point towards the court’s increasingly outward support of ADR. Whilst the above cases represent various examples of the English courts outwardly supporting ADR and making clear that any failure to explore all ADR options, before resorting to litigation, may lead to penalties, it should be noted that one recent case appears to represent something of an exception to this trend. In Gore v Naheed,35 a dispute between neighbouring landowners involving complex issues of land law and rights of way, the Court of Appeal unanimously allowed a claimant its costs despite its refusal of, or failure to engage with, the defendant’s offer to mediate. Patten LJ sated that he had “some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated”. The court went on to explain that a failure to engage in ADR – even if unreasonable – does not automatically lead to costs penalties; rather, it is a factor to be taken into account by judges in exercising their costs discretion. In Cable & Wireless v IBM,36 Cable & Wireless had an “escalating” ADR clause in their agreement with IBM and, after a dispute arose, IBM tried to proceed to mediation under the terms of that clause. Cable & Wireless refused on the view that the ADR clause “imposed no more than an agreement to negotiate … and an agreement to negotiate is not enforceable in English law”. The court wrote: “… parties who enter into an ADR agreement must be taken to appreciate that mediation as a tool for dispute resolution is not designed to achieve solutions which reflect the precise legal rights and obligations of the parties, but rather solutions which are commercially acceptable at the time of the mediation.” “… For the courts now to decline to enforce contractual references to ADR on the grounds of intrinsic uncertainty would be to fly in the face of public policy as expressed in the CPR and as reflected in the judgment of the Court of Appeal in Dunnett v Railtrack [2002] EWCA Civ 2002.” Then, in Thakrar v. Ciro Citterio Menswear plc,37 the court was faced with the enforceability of mediation settlement agreements. Here, the parties had signed an agreement, which successfully resolved a mediation between them. Because the agreement might have preferred one shareholder over unsecured creditors, the Court of Appeal refused to approve the order, on the issue of enforceability, and, thus, after further review of the agreement, it was declared enforceable and unconditional and the Vice-Chancellor wrote: “I have no hesitation in concluding that the compromise arising from the mediation is one which the court can and should uphold. There can be no question but that the mediation was genuine and the resulting agreement arrived at on a proper commercial basis.” Recent cases move the issue forward and in Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd,38 the court determined that a dispute resolution clause requiring the parties to resolve a dispute by “friendly discussions in good faith” was enforceable. Indeed, the court took the view that “where commercial parties have entered into obligations they reasonably expect the court to uphold those obligations”. Finally, in Wah v Grant Thornton International Ltd,39 the court considered and set out the test for determining whether a contractual provision setting out the requirements for the conciliation of disputes prior to arbitration was sufficiently clear and certain to be given binding effect and held that cases would be considered on their own terms rather than the court ticking off the minimum ingredients for validity. In Leicester Circuits Ltd v Coates Brothers Plc,40 both parties had agreed to mediate and had also agreed on the date of mediation and the appointment of the mediator. Two days prior to the mediation Coates withdrew. In its defence Coates raised the argument that mediation was a form of negotiation, which came to nothing and that there was no real prospect of a successful resolution of the issues. However, Lord Justice Judge commented that: “the whole point of having mediation, and once you have agreed to it, proceeding with it, is that the most difficult of problems can sometimes, indeed often are, resolved … having agreed to mediation it hardly lies in the mouths of those who agree to it to assert that there is no realistic prospect of success.” There are several Commercial Court cases which have dealt with this issue. In Midland Linen Services Ltd v Yap and Others, the court held that “[i]n exercising its discretion under CPR 36 a court should endeavour to come to a determination that was fair and just in all the circumstances and could consider the circumstances of the offer and willingness of the parties to enter into mediation”. In this instance, however, it was believed that the atmosphere between the parties would not have enabled a successful outcome and that the respondent had been inconsistent and uncertain in their approach to mediation. Corenso (UK) Ltd v The Burnden Group Plc: while this was a dissenting judgment, specific reasons were given. In this matter the successful claimant was entitled to its costs despite not having taken up the defendant’s offers of mediation. The judge considered that the requirement for the parties was to engage in ADR, and other forms of ADR, such as negotiations, could discharge this obligation. In addition, he took the view that the defendant had not proposed mediation with any real conviction. Here, the parties showed some willingness to sort out the issues but couldn’t agree which form of ADR to use and, thus, there was no absolute refusal to mediate. The court in the case of Vallentine v Allen & Others took a similar view as that in Corenso, and it was felt that the respondents had made real efforts to settle the case on a reasonable basis, which were not only generous but were also refused by the appellant. In addition, a negotiation meeting had failed and the respondent had expressly stated that they were prepared to have a roundtable meeting. Owing to their attempts to negotiate and put forward settlement proposals, the actions of the respondent were not held to be unreasonable in declining to mediate. Then, in SITA v Wyatt Ltd and others (Maxwell Batley Part 20 defendant), a “Part 20” claim failed completely. However, Wyatt Ltd submitted that Maxwell Batley should be deprived of their costs as, on three occasions before trial, they declined to participate in mediation. Mr Justice Park made an order entitling Maxwell Batley to their assessed costs. In refusing to deprive Batley their costs Mr Justice Park noted five specific and distinguishing points, the most important being that Wyatt did not want Batley to participate in the mediation to help resolve issues between them but to put pressure on a third party. The other points related to shortness of time in arranging the mediations and the aggressive manner in which Batley were asked to participate. In conclusion, Mr Justice Park commented that “the circumstance of this case are totally unlike those in the two cases referred to (Dunnett and Hurst)”. Then, in Swain Mason v Mills & Reeve,41 the claimants had at various stages proposed mediation or any other appropriate form of alternative dispute resolution. At two of the hearings before him, furthermore, Peter Smith J had encouraged the parties to consider mediation. At all stages, however, the defendant declined to participate, taking the stance that the claim was entirely without merit. The trial judge held that the defendant had acted unreasonably in its refusal to mediate. On appeal, the court took objection to this finding on the following grounds: “1) First, the judge had in terms found that the defendant had been ‘vindicated’ in its assessment of the strength of the claimants’ case so far as breach of duty was concerned. Thus its position, maintained throughout, had been shown to be justified on a matter which would have been (and was) determinative of the case in its favour. 2) Second, quite what ‘weaknesses’ in the respective cases would have been revealed in a mediation is not explained by the judge. I note that it is also not said that, if identified, their revelation could have led to a mediated settlement. 3) Third, I do not understand why avoidance of ‘collateral reputational damage’ to the defendant should have been considered a relevant factor in this case, counting against the defendant. A settled professional negligence claim is capable, in some instances, of leaving behind reputational damage. Some professional defendants may, entirely reasonably, wish publicly to vindicate themselves at trial in respect of claims which will have been publicly aired by the commencement of proceedings. It is a matter for them. It would be unfortunate – speaking generally – if claimants in cases of this kind could be encouraged to think that such a consideration as identified by the judge could enhance their bargaining position.”
CHAPTER 14
Dispute resolution
Conventional model
Litigation versus arbitration versus mediation
Arbitration
The Arbitration Act 1996
The arbitration process
The arbitrator
The award
Arbitration variations
Mediation during the litigation/arbitration process
Refusing to mediate
Enforceability of ADR agreements and mediation settlement agreements
Withdrawing from mediation
Refusing to mediate – no cost consequences