Digest Article

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In the last issue of the Digest David Moss considered the potential for recovery of costs involved in complying with the UK’s Pre-Action Protocol. This part of the article considers the extent to which one party may be denied costs on the basis that the other party alleges that the matters could have been dealt with by a form of alternative dispute resolution.

ADR techniques, such as a mediation process under which an independent person attempts to facilitate a settlement between parties in dispute, has become more commonplace in recent years, as it has been recognised as an effective method of dispute resolution. Reflecting this trend, the UK’s Civil Procedure Rules impose a positive duty on courts to actively manage cases so as to further the overriding objective, which extends to 'saving expense'. Amongst the examples given as indicative of 'active case management' isencouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate... In response, the courts have given their wholehearted support to it.

Judges are taking a far more interventionist line than they have ever done before, often encouraging parties to suspend litigation in order to attempt mediation, with some instances where parties have been ordered to mediate.

This 'encouragement' by the courts towards mediation is however backed up by the threat or actual use of adverse costs orders against parties that refuse to mediate - even if they win - thus giving rise to an exception to the general rule that 'costs follow the event'. In Dunnett v Railtrack (2002), Railtrack was deprived of its costs despite successfully defending an action brought by Mrs Dunnett. Railtrack had refused to mediate, believing (rightly as it turned out) that it had a strong defence. Despite this, the court held that Railtrack should have at least attempted mediation and so refused to award its costs of defending the action.

One of the adverse consequences of Dunnett was that parties have since felt compelled to mediate through fear of judicial criticism at a later stage (translated into an adverse costs order) if they refuse to do so.

A welcome clarification was provided by The Court of Appeal in Halsey v Milton Keynes General NHS Trust (2004). In this case, the NHS Trust had successfully defended a clinical negligence action. The Claimant, facing a substantial adverse costs order, asked the court to rule that each side should bear their own costs because the Trust had refused to agree to mediation. The Claimant had suggested mediation several times in the course of the litigation. The Trust had refused, taking the view that it had a strong defence. In refusing the Claimant's application, the judge at first instance criticised his approach as tactical. A party with a good defence should not be forced to settle an action if it does not wish to do so.

The Court of Appeal agreed and went on to say that a court does not have the right to compel parties to mediate - it can merely make an order giving its recommendation. The Court of Appeal set out the following factors that could be taken into account when courts are considering whether a party has acted unreasonably in refusing to agree to mediation:

The nature of the dispute;

• The merits of the case: if one party felt that he had a very good chance of winning, then this may well justify the refusal to mediate;
• The extent to which other settlement offers had been made;
• The costs of mediation in proportion to the dispute;
• Whether any delay in setting up the mediation could cause prejudice;
• Whether the mediation had a reasonable prospect of success. The burden of proving this should rest with the unsuccessful party.

It may be that the Court of Appeal had in mind the position of substantial organisations such as the NHS, who might be vulnerable to claimants with weak cases seeking to force a settlement. Nevertheless, the case also represents a welcome recognition by the courts that mediation must be used only when it is appropriate to do so - the threat of a costs penalty should not be the determinative factor in deciding whether to proceed down this route.