ADR and costs sanctions

Jackson on ADR

Lord Justice Jackson has, among other things, reset the direction and focus of alternative dispute resolution (ADR), which is demonstrated by the following two fundamentally important statements:

• "[ADR, particularly mediation] has a vital role to play in reducing the costs of civil disputes, by fomenting the early settlement of cases. ADR is, however, under-used. Its potential benefits are not as widely known as they should be." (Jackson Report 2010)

• "The aim is that, in general, no case should come to trial without the parties having undertaken some form of alternative dispute resolution to settle the case." (White Book 2013)

Many have written and commented on the above, but as 18 months have now elapsed since the new rules came into effect and in view of the following three cases, looking at those cases as a group would be useful.

Cases on costs sanctions

The three recent cases referred to show that the courts have followed Jackson's lead and they highlight: "… an ever-increasing responsibility thrown upon the parties to civil litigation to engage in ADR wherever that offers a reasonable prospect of producing a just settlement at proportionate cost." (per Lord Justice Briggs in PGF II SA v OMFS Co [2013] EWCA at paragraph 27)

The leading case of Halsey v Milton Keynes General NHS Trust [2004] EWCA still applies, as does the list of matters to be considered when deciding whether a refusal to mediate is unreasonable. Also, the authorities relying on Halsey still hold good. They all, however, now have to be viewed through the prism of the overriding objective, as modified by the addition of the words "and at proportionate cost".

The first of the three cases, PGF II SA v OMFS Co, the Court of Appeal modestly extended Halsey with the finding that silence in the face of an invitation to participate in ADR was, as a general rule, unreasonable and, as such, should be visited by a costs sanction. Briggs LJ endorsed The Jackson ADR Handbook, which follows recommendations made in the Jackson report, concluding that: "The court's task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction."

In the second case, Garritt-Critchley v Ronnan [2014] EWHC, His Honour Judge Waksman QC, sitting as a judge of the High Court, held that a failure to engage in mediation or any other serious ADR was, in the circumstances of that case, unreasonable and ordered the refusing party to pay costs on an indemnity basis.

In the third case, Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No 2) [2014] EWHC, Mr Justice Ramsey decided there was an unreasonable refusal to mediate. He too endorsed passages from The Jackson ADR Handbook. No costs consequences followed, however, because of the particular circumstances of the case.

One consequence of the introduction of the concept of proportionality is that the courts are strengthening their encouragement of ADR and mediation. Briggs LJ explained the reasoning: "…. the constraints which now affect the provision of state resources for the conduct of civil litigation (and which appear likely to do so for the foreseeable future) call for an ever-increasing focus upon means of ensuring that court time, both for trial and for case management, is proportionately directed towards those disputes which really need it…[It] is partly a matter of practicality, but also serves the policy of proportionality. A positive engagement with an invitation to participate in ADR may lead in a number of alternative directions, each of which may save the parties and the court time and resources." (PGF II SA v OMFS Co at paragraphs 27 and 29)

The effects

The combined effect of the CPR, the case law generally and these three cases in particular now seems to be:

• There is a general duty to attempt settlement from the earliest stage, pursuant to the pre-action protocol for personal injury claims, and the duty includes the pre-litigation phase.

• Pursuant to the overriding objective, and in particular proportionality, the court is likely to firmly encourage ADR.

• The court may make an ADR direction, particularly when dealing with case management, cost management and budgets.

• Even if no order is made, there is a duty to keep ADR under review on a continuous basis. Further, there is a continuing duty to engage with the process of considering ADR together with the other party.

• Wherever ADR is refused, the party refusing is required to provide a contemporaneous written record of the reasons for refusal.

• Reasons put forward for refusing ADR will be thoroughly scrutinised. Refusing to mediate an 'all or nothing' case where one party has a strong legal position will not necessarily avoid a cost sanction.

Tim Wallis is a mediator at North West Mediation Solutions

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