ARBITRATION, TRIBUNAL ADJUDICATION AND ALTERNATIVE DISPUTE RESOLUTION

Law is one method of resolving disputes when, as is inevitable, they emerge. All societies have mechanisms for dealing with such problems, but the forms of dispute resolution tend to differ from society to society. In small-scale societies, based on mutual co-operation and interdependency, the means of solving disputes tend to be informal and focus on the need for mutual concessions and compromise to maintain social stability. In some such societies, the whole of the social group may become involved in settling a problem, whereas in others, particular individuals may be recognised as intermediaries, whose function it is to act as a go-between to bring the parties to a mutually recognised solution. The common factor remains the emphasis on solidarity and the need to maintain social cohesion. With social as well as geographical distance, disputes become more difficult to deal with.

It should not be thought that this reference to anthropological material is out of place in a book of this nature. It is sometimes suggested that law itself is a function of the increase in social complexity and the corresponding decrease in social solidarity; the oppositional, adversarial nature of law being seen as a reflection of the atomistic structure of contemporary society. Law as a formal dispute resolution mechanism is seen to emerge because informal mechanisms no longer exist or no longer have the power to deal with the problems that arise in a highly individualistic and competitive society. That is not to suggest that the types of mechanisms mentioned previously do not have their place in our own society: the bulk of family disputes, for example, are resolved through internal informal mechanisms without recourse to legal formality. It is generally recognised, however, that the very form of law makes it inappropriate to deal adequately with certain areas, family matters being the most obvious example. Equally, it is recognised that the formal and rather intimidatory atmosphere of the ordinary courts is not necessarily the most appropriate one in which to decide such matters, even where the dispute cannot be resolved internally. In recognition of this fact, various alternatives have been developed specifically to avoid the perceived shortcomings of the formal structure of law and court procedure.

In its 1999 Consultation Paper, Alternative Dispute Resolution, the Lord Chancellor’s Department (LCD) redefined ‘access to justice’ as meaning:

That extremely useful Consultation Paper also set out the following list of types of alternative dispute resolution (ADR) mechanisms:

• Arbitration is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer or may be an expert in the field of the dispute. He will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.

• Early neutral evaluation is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.

• Expert determination is a process where an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.

• Mediation is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When mediation is successful and an agreement is reached, it is written down and forms a legally binding contract unless the parties state otherwise.

• Conciliation is a procedure like mediation but where the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation.

• Med-Arb is a combination of mediation and arbitration where the parties agree to mediate, but if that fails to achieve a settlement, the dispute is referred to arbitration. The same person may act as mediator and arbitrator in this type of arrangement.

• Neutral fact finding is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.

• Ombudsmen are independent office-holders who investigate and rule on complaints from members of the public about maladministration in government and, in particular, services in both the public and private sectors. Some Ombudsmen use mediation as part of their dispute resolution procedures. The powers of Ombudsmen vary. Most Ombudsmen are able to make recommendations; only a few can make decisions which are enforceable through the courts.

• Utility regulators are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

While ADR is usually regarded as referring to arbitration and mediation and the operation of the Ombudsman scheme, this chapter will extend this meaning to allow an examination of the role of the various administrative tribunals that exercise so much power in contemporary society.

A number of alternatives to court proceedings have already been listed, but the two most common, or certainly the two that most immediately spring to mind when the topic of ADR is raised, are mediation and conciliation, and as a consequence, although distinct, they are dealt with together.

12.2.1 MEDIATION

Mediation is the process whereby a third party acts as the conduit through which two disputing parties communicate and negotiate, in an attempt to reach a common resolution to a problem. The mediator may move between the parties, communicating their opinions without their having to meet, or alternatively the mediator may operate in the presence of the parties, but in either situation the emphasis is on the parties themselves working out a shared agreement as to how the dispute in question is to be settled.

The small claims mediator settles the majority of disputes over the telephone without the need for either party to attend court, consequently reducing time and expense. However, if necessary, face-to-face mediation can be arranged, either on court premises or elsewhere as deemed appropriate. In the event of the parties not being able to reach a settlement at the mediation appointment, the case will be listed for a small claims hearing. As the mediation process is confidential, the judge who deals with the subsequent case in court will not be informed of the content of any discussions at any previous mediation proceedings.

Mediation is also available for higher value claims through the National Mediation Helpline, which, although not free, is much cheaper that making use of lawyers and going to court. Although the Helpline is mainly aimed at fast- and multi-track disputes (i.e. above £5,000), it can also deal with small claims.

The fees for using the National Mediation Hotline are:

Before receiving legal aid for representation in a divorce case a person is supposed to have a meeting with a mediator to assess whether mediation is a suitable alternative to court proceedings. The only exception to this requirement is in relation to allegations of domestic abuse. However, excluding those exempted for reasons of domestic abuse, only 20 per cent of people publicly funded in divorce proceedings actually get involved in mediation. In March 2007 the National Audit Office (NAO), an independent body responsible for scrutinising public spending on behalf of parliament, published the results of an investigation into this low take-up of mediation in this area. It was entitled Legal aid and mediation for people involved in family breakdown. Its findings were based on an 18-month period, from October 2004 to March 2006, and related to 4,000 people who had received legal aid in relation to marital breakdown proceedings. Those involved were also asked where they had first sought advice and whether their adviser had discussed mediation. Where mediation had been mentioned they were asked why they had either chosen or rejected mediation.

The report confirmed the statistic that only 20 per cent of people funded by legal aid for family breakdown cases presently opt for mediation and further found that:

• 33 per cent of those who did not try mediation said that their adviser had not told them about it. The NAO was particularly concerned at the proportion of legal advisers who failed to tell their clients about mediation, suggesting that the motivation for such failure was financial;

• 42 per cent of those who were not told about mediation would have been willing to try it had they known about it;

• the average cost of legal aid in mediated cases is £752, compared with £1,682 for non-mediated cases. Consequently, if all cases had been mediated the cost to the taxpayer would have been £74 million less and if 14 per cent of the cases that proceeded to court had been resolved through mediation, there would have been resulting savings equivalent to some £10 million a year;

• mediated cases are quicker to resolve, taking on average 110 days, compared with 435 days for non-mediated cases.

In May 2006, the Family Mediation Helpline was officially launched. The Helpline is a public service designed to provide information on, and improve public access to, family mediation.

Its main purpose is to provide information on family mediation and to facilitate referrals to family mediators. The helpline provides: general information on family mediation; more specific information as to whether particular cases may be suitable for mediation and; some information on eligibility for public funding.

The potential consequences of not abiding by a recommendation to use ADR may be seen in Dunnett v Railtrack plc (2002). When Dunnett won a right to appeal against a previous court decision, the court granting the appeal recommended that the dispute should be put to arbitration. Railtrack, however, refused Dunnett’s offer of arbitration and insisted on the dispute going back to a full court hearing. In the subsequent hearing in the Court of Appeal, Railtrack proved successful. The Court of Appeal, however, held that if a party rejected ADR out of hand when it had been suggested by the court, they would suffer the consequences when costs came to be decided. In the instant case, Railtrack had refused to even contemplate ADR at a stage prior to the costs of the appeal beginning to flow. In his judgment, Brooke LJ set out the modern approach to ADR ([2002] 2 All ER 850 at 853):

The Court of Appeal subsequently applied Dunnett in Leicester Circuits Ltd v Coates Brothers plc (2003) where, although it found for Coates, it did not award it full costs on the grounds that it had withdrawn from a mediation process. The Court of Appeal also dismissed Coates’ claim that there was no realistic prospect of success in the mediation. As Judge LJ stated (para 27):

It is possible to refuse to engage in mediation without subsequently suffering in the awards of costs. The test, however, is an objective rather than a subjective one, and a difficult one to sustain, as was shown in Hurst v Leeming (2002). Hurst, a solicitor, started legal proceedings against his former partners and instructed Leeming, a barrister, to represent him. When the claim proved unsuccessful, Hurst sued Leeming in professional negligence. When that claim failed, Hurst argued that Leeming should not be awarded costs, as he, Hurst, had offered to mediate the dispute, but Leeming had rejected the offer. Leeming cited five separate justifications for his refusal to mediate. These were:

• the heavy costs he had already incurred in meeting the allegations;

• the seriousness of the allegation made against him;

• the lack of substance in the claim;

• the fact that he had already provided Hurst with a full refutation of his allegation;

• the fact that, given Hurst’s obsessive character, there was no real prospect of a successful outcome to the litigation.

Only the fifth justification was accepted by the court, although even in that case it was emphasised that the conclusion had to be supported by an objective evaluation of the situation. However, in the circumstances, given Hurst’s behaviour and character, the conclusion that mediation would not have resolved the complaint could be sustained objectively.

In Halsey v Milton Keynes General NHS Trust (2004), the Court of Appeal emphasised that the criterion was the reasonableness of the belief.

In the Halsey appeal, the only ground of appeal was that the judge at first instance had been wrong to award the defendant, the Milton Keynes General NHS, its costs, since it had refused a number of invitations by the claimant to mediate. As the court emphasised, in deciding whether to deprive a successful party of some or all of their costs on the grounds that they have refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In demonstrating such exceptional circumstances, in the view of the Court of Appeal, the burden is to be placed on the unsuccessful party to the substantive action to show why there should be any departure from that general rule. Lord Justice Dyson said (para 28):

In taking such a stance, the Court of Appeal was sensitive to the possibility, as it implicitly suggested was the case in relation to the claimants in the Halsey case, that (para 18):

As regards the power of the courts to order mediation, the Court of Appeal declined to accept such a proposition, finding it to be contrary to both domestic and ECHR law. As Dyson LJ stated in delivering the decision of the Court (para 9):

For a recent example of the courts’ approach, see the Court of Appeals decision in Rolf v De Guerin.

In relation to the ARM scheme the research found that:

• by the end of the evaluation (10 months after termination of the pilot), only 22 per cent of ARM cases had a mediation appointment booked and only 14 per cent of those originally referred had actually been mediated;

• there was a high rate of objection to automatic referral throughout the pilot. In 81 per cent of cases, one or both parties objected to being referred to mediation;

• defendants were more likely than claimants to object to referral in both personal injury (PI) and non-PI cases;

• objections to ARM were raised more often in PI cases than non-PI cases;

• the settlement rate over the course of the year was 55 per cent where neither party objected to mediation, but only 48 per cent where the parties were persuaded to attend having both originally objected to the referral;

• when parties were called on to explain their objections to a judge, judicial pressure was unlikely to persuade them to mediate;

• the majority of cases in the ARM scheme settled out of court anyway, without going to mediation;

• in cases where mediation took place, but which did not settle at mediation, parties found that they added £1,000–£2,000 to their costs;

• parties who settled during mediation were generally positive about the process whereas parties who failed to settle during mediation were negative;

• judicial time spent on mediated cases was lower, but administrative time was higher;

• there were no obvious factors in predicting whether or not a case would settle.

As regards the voluntary VOL scheme the research reported an increase in demand following Dunnett v Railtrack. However, personal injury cases continued to avoid the scheme, accounting for only 40 of over 1,000 cases mediated between 1999 and 2004. Despite the increase in the uptake of the VOL scheme, the settlement rate at mediation actually declined from the high of 62 per cent in 1998 to below 40 per cent in 2000 and 2003. Since 1998, the settlement rate has not exceeded 50 per cent.

In stating what could be learned from the research the report concluded:

• Information from both the ARM and VOL schemes suggests that the motivation and willingness of parties to negotiate and compromise is critical to the success of mediation. Facilitation and encouragement together with selective and appropriate pressure are likely to be more effective and possibly more efficient than blanket coercion to mediate.

• Given the persistent rejection of mediation in personal injury cases, a question arises about the value of investing resources in attempting to reverse this entrenched approach. The lack of interest in mediation on the part of defendant insurance companies is intriguing, given the potential for reducing overall costs through mediation.

• While the legal profession has more knowledge and experience of mediation than was the case a decade ago, it clearly remains to be convinced that mediation is an obvious approach to dispute resolution.

• There is a policy challenge in reaching out to litigants so that consumer demand for mediation can develop and grow. Courts wanting to encourage mediation must find imaginative ways of communicating directly with disputing parties.

• The evaluation of the ARM and VOL schemes, together with recent evaluations from Birmingham and Exeter, establish the importance of efficient and dedicated administrative support to the success of court-based mediation schemes, and the need to create an environment conducive to settlement.

• Where there is no bottom-up demand for mediation, demand can be created by means of education, encouragement, facilitation, and pressure accompanied by sanctions, or incentives. The evidence of this report suggests that an effective mediation–promotion policy might combine education and encouragement through communication of information to parties involved in litigation; facilitation through the provision of efficient administration and good quality mediation facilities; and well-targeted direction in individual and appropriate cases by trained judiciary, involving some assessment of contraindications for a positive outcome. A critical policy challenge is to identify and articulate the incentives for legal advisers to embrace mediation on behalf of their clients.

The above findings assume additional significance in the light of the Justice Ministry’s proposals to reduce the availability of legal aid for litigation in favour of mediation.

A Case Study in How Not to Do It: Burchell v Bullard [2005] EWCA Civ 358

This unfortunate case, for everyone apart perhaps for the lawyers engaged to pursue it, can be taken as a signal example of the dangers and inappropriateness of pursuing legal action in the courts when ADR is available and a better way of deciding the contended issue.

At first instance the judge, District Judge Tennant, was clear that (para 20):

Nonetheless, he decided that each of the parties should pay the costs of the other in relation to the main claim in the action. Burchell subsequently appealed against those costs orders.

The attitude of the Court of Appeal is scathingly evident in the judgment of Ward LJ. As to the offer of mediation he stated that (para 3):

However, as Ward LJ pointed out, ‘All the Bullards wanted was for the builder to complete the contract and rectify the defective work.’ So what was the underlying ‘technically complex’ issue that prevented mediation?

As Ward LJ examined the facts of the case he found things, regrettably but not unexpectedly, getting worse (para 23):

In examining the situation, Ward LJ emphasised the fact that the appellant’s offer to mediate was made long before the action started, and long before the crippling costs had been incurred. The issue to be decided, therefore, was whether the respondents had acted unreasonably in refusing the offer of mediation. While Ward LJ recognised that Halsey v The Milton Keynes General NHS Trust had set out the manner in which such a question should be answered, he declined to follow it in the immediate case. His reasoning was as follows (para 42):

However, Ward LJ was as emphatic as he was admonitory in his assessment of the present case and his view as to how future cases should be treated. As he put it (paras 41–43):

In the final analysis the Court of Appeal directed the defendants to pay 60 per cent of the claimant’s costs of the original claim and counterclaim and related proceedings. However, there was still a sting in the tail for as Ward LJ stated (para 47):

So the Bullards faced even more costs for their failure to take advantage of the earlier offer of mediation. (For another case of money being thrown away in pursuit of a ‘matter of principle’, and perhaps even more scathing comments by Ward LJ, see Egan v Motor Services (Bath) Ltd (2007) in which a claim for about £6,000 damages cost £100,000 in fees.)

The first and oldest of these alternative procedures to the courts is arbitration. This is the procedure whereby parties in dispute refer the issue to a third party for resolution, rather than taking the case to the ordinary law courts. Studies have shown a reluctance on the part of commercial undertakings to have recourse to the law to resolve their disputes. At first sight, this appears paradoxical. The development of contract law can, to a great extent, be explained as the law’s response to the need for regulation in relation to business activity, yet business declines to make use of its procedures. To some degree, questions of speed and cost explain this peculiar phenomenon, but it can be explained more fully by reference to the introduction to this chapter. It was stated there that informal procedures tend to be most effective where there is a high degree of mutuality and interdependency, and that is precisely the case in most business relationships. Businesses seek to establish and maintain long-term relationships with other concerns. The problem with the law is that the court case tends to terminally rupture such relationships. It is not suggested that, in the final analysis, where the stakes are sufficiently high, recourse will not be had to law, but such action does not represent the first or indeed the preferred option. In contemporary business practice, it is common, if not standard, practice for commercial contracts to contain express clauses referring any future disputes to arbitration. This practice is well established and its legal effectiveness has long been recognised by the law.

Thus in Cable & Wireless Plc v IBM United Kingdom Ltd (2002) the two parties had entered into a contractual agreement which provided that in the event of any dispute they:

However, when an issue arose the claimant declined to refer its claim to ADR, submitting that clause 41.2 was unenforceable because it lacked certainty due to its apparent contradictory wording, which suggested the possibility of both ADR and the issuing of court proceedings. It was suggested that the clause amounted to no more than an agreement to negotiate, which was not enforceable in English law. However, Colman J held that the issuing of proceedings was not inconsistent with the simultaneous conduct of an ADR procedure or with a mutual intention to have the issue finally decided by the courts only if the ADR procedure failed. He also concluded that the fact that the parties had identified a particular procedure from an experienced dispute resolution service provider indicated that they intended to be bound by the ADR provision. As regards the uncertainty issue, Colman J made a wider reference to the applicability of ADR agreements after Dunnett v Railtrack, holding that the English courts should not go out of their way to find uncertainty, and therefore unenforceability, in the field of ADR references. As he put it, ‘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.’

12.4.1 PROCEDURE

Section 1 of the Arbitration Act (AA) 1996 states that it is founded on the following principles: