Will Courts Penalise Refusal of Mediation?

May 2004

Court of Appeal gives guidance on Mediation in personal injury cases.

The Court of Appeal has given important general guidance in the use of Mediation and mediation in personal injury litigation and in particular has ruled on the circumstances where it is appropriate to penalise a party who refuses mediation. The Court’s judgment (in the consolidated appeals of Halsey -v- Milton Keynes General NHS Trust and Steel -v- Joy and Halliday) was reached after giving consideration to the representations of four Mediation providers and interested bodies and can therefore be taken as its definitive view on how Mediation should and should not be encouraged in this field.

The court declined to penalise the refusing parties in both cases, deciding that refusal was not unreasonable in the circumstances. At first blush, the judgment appears to be a major setback to supporters of mediation. On careful analysis however, the jury is out as to whether the guidance given by the Court of Appeal will in fact encourage the greater use of mediation, in particular in personal injury cases where the take up of mediation has been notoriously slow.

Background

It is worth briefly examining the short history of mediation in the UK. In the field of personal injury litigation, the industry has generally been slow to accept mediation. This is despite the clear intention of the Woolf reforms, now over 5 years ago, to encourage Mediation: CPR 1.4 imposes a duty on judges to actively case manage and active case management is defined as including encouraging parties to use Mediation if appropriate. In fact, those practitioners who are regularly appearing before Judges have experienced very little encouragement of Mediation.

Post Woolf, cases such as Cowl -v- Plymouth City Council, Dunnett -v- Railtrack and Hurst -v- Leeming suggested that "encouragement" by the court meant a stick as well as a carrot: parties unreasonably refusing to mediate would be penalised in costs. It was also suggested that courts may have the power to compel mediation.

The Cases before the Court of Appeal

A clinical negligence case (Halsey) was consolidated with a personal injury case (Steel) with a view to the court reviewing the present position relating to costs penalties following unreasonable refusal of mediation, and offering guidance to the personal injury sector for the future.

Interested bodies were invited to make submissions to the Court. Weighty submissions were made by the Law Society, Civil Mediation Council, Mediation Group and CEDR .

The details of the cases themselves are in danger of being overlooked. Briefly stated:-

Halsey: clinical negligence case involving the death of an elderly patient. Many invitations to mediate were made by the claimant, which were refused on the grounds that the claim had no prospect of success in the eyes of the Trust, and in any event the value of the claim was nominal so that the cost of mediation would be disproportionate. The claim failed and the Judge refused to penalise the Trust for its refusal to mediate, finding that at least some of the offers to mediate were somewhat tactical. The Court of Appeal agreed, finding:-

• The Defendant reasonably believed it had a strong defence
• The Solicitor's letters were "somewhat tactical" in a very small claim which at best was speculative
• The Defendant rightly concluded that the mediation costs would be disproportionately high
• The Defendant's stance was therefore not unreasonable

Steel: a personal injury case involving two separate accidents to the same claimant. Accident 1 caused a serious spinal injury. Accident 2 occurred. Medical evidence suggested that accident 2 aggravated the injury that was already there by 3-6 months, but that if accident 1 had not happened, accident 2 would have caused a virtually identical injury. The judge found in favour of the Defendant to accident 2. The Court of Appeal agreed and dismissed the appeal on the substantive point of law.

Before trial the Defendant to accident 1 offered to mediate but the Defendant to accident 2 refused on the grounds that it felt strong on its legal position and was not prepared to compromise. The first instance Judge found that this was a reasonable stance and refused to penalise the Defendant to accident 2. The Court of Appeal found:-

• The refusing party reasonably believed that the claim had no merit
• The claim involved a point of law and it was not unreasonable for a refusing party to insist upon resolution of that point by the Court. The Court stated: "in the circumstances, the nature of the dispute was one which was towards the "intrinsically unsuitable" end of the spectrum (of cases potentially suitable for mediation)".
• It could not therefore be shown that there was a reasonable prospect that the mediation would have succeeded: the refusing party decided to take a stand on the point of law and in doing so was not acting unreasonably.

Court of Appeal Guidance

Some general guidelines were given as follows:-

1. The Court does not have power to order reluctant litigants to mediate. To do so would impose an unacceptable obstruction to the right of access to Court and therefore would be a violation of article 6 of the European Convention of Human Rights.
2. The Court's role is to encourage parties to enter into mediation, and not compel.
3. All those involved in litigation should routinely consider with their clients whether their disputes are suitable for Mediation.
4. If a party refuses to mediate, at a subsequent trial, the Court can displace the normal costs rules and order that party to pay costs despite it winning at trial. That will only occur if the successful party acted unreasonably in refusing Mediation.
5. The burden of showing that the refusing party was unreasonable lies with the unsuccessful party.
6. If the case is mediated, the parties are entitled to adopt whatever position they want and if the case does not settle, the Court is not entitled to examine why that happened (preserving the confidentiality of mediation).
7. Although most cases are suitable for Mediation, there should not be a presumption in favour of mediation.

When is it reasonable to refuse Mediation?

The Court examined in some detail when it might be reasonable to refuse to mediate. The following factors were found to be relevant although this is not an exhaustive list and all the circumstances of the case must be considered:-

1. The nature of the dispute: "...most cases are not by their very nature unsuitable for Mediation" but if a party needs to create a binding precedent for the future or requires injunctive relief these cases would clearly be unsuitable for mediation.
2. The merits of the case: in Hurst -v- Leeming, Lightman J. found that the fact that a party believes it has a water tight case is no good reason to refuse mediation. The Court of Appeal qualified this by stating that if a party unreasonably believes it has a water tight case, the refusal of mediation would not be justified. If however, a party reasonably believed that its case was water tight that may be sufficient reason to refuse to mediate. Obviously this can only be judged with the benefit of hindsight after a contested trial. Practitioners seeking guidance for the future will take little comfort from this, knowing how difficult it is to predict the outcome of trials. The Court did however comment that border-line cases are likely to be suitable for Mediation unless other significant factors suggest otherwise.
3. The extent to which other settlement methods have been attempted: the fact that the parties have used other attempts to settle is relevant to the extent that it may show that one party has been unco-operative. It was however stressed, quite properly, that this is no more than a factor to take into account and the failure of other methods of settlement is not a good indicator that mediation will not succeed, given the extra value that a skilled mediator can bring to the resolution process.
4. Whether the costs of mediation are disproportionately high: this will apply if the sum in dispute is small or if the mediation costs are significantly higher than the likely trial costs.
5. Whether any delay in arranging mediation would have been prejudicial i.e. if suggested late in the day would it adversely affect trial? (It should be borne in mind here that a mediation can be arranged at extremely short notice if the parties co-operate fully.)

Whether mediation had reasonable prospects of success

This question was perhaps the crux in the cases before the Court. The following points arose:-

• On whom does the burden lie to show if there was a reasonable prospect? It was argued strongly that the burden should lie on the refusing party. The Court of Appeal disagreed and found that the burden is on the party offering mediation.
• The successful party cannot rely on its own unreasonableness or intransigence to say that this would have prevented a successful mediation. One wonders how this squares with the finding in Steel that the refusing party was not unreasonable for refusing to compromise on its position on the point of law and therefore removing the prospect of mediation succeeding. There was no suggestion that future cases depended upon it, i.e. that a precedent was necessary.
• If however an opponent had been intransigent throughout, it may be reasonable to conclude that there was no prospect of success at mediation.

What if the Court has already offered "encouragement" for Mediation?

If a Court has encouraged Mediation, that will be relevant in considering the reasonableness of refusal of mediation. The stronger the encouragement the less likely the refusal is to be found reasonable.

Does this mean that in the future whenever one party refuses mediation, there will be satellite litigation involving heavily contested applications seeking judicial "encouragement"? It also begs the question as to when all Judges involved in daily litigation practice will receive sufficient training in Mediation so that parties can have confidence in the decision making on such occasions.

Are public bodies in a category of their own?

It was argued in the Halsey case that because of the government pledge to Mediation, there was a higher duty on public bodies to mediate. The Court resisted this suggestion. The case is either suitable for mediation (in which case refusal is likely to be unreasonable), or not suitable in which case there is no higher burden.

Future developments with mediation in Personal Injury Litigation

The Court of Appeal considered a standard order recently introduced by Master Ungley in clinical negligence cases in Central London County Court. The "Ungley Order”, as it has become known, imposes a deadline for parties to consider suitability of mediation. If a party considers mediation unsuitable it must, not less than 28 days before trial, file at Court a signed statement setting out its reasons why mediation is unsuitable. This then provides the material on which the Court can decide whether refusal to mediate was reasonable or not.

The Court of Appeal expressed the view that there is no reason why this form of order should not also be routinely made in general personal injury litigation. That must be correct. In many cases the parties will already be involved in productive negotiation which is likely to lead to an early resolution of the case without the need for the extra expense of mediation. In some cases however, it will concentrate on the minds of unco-operative or unrealistic litigators and possibly lead to resolution of some difficult, “log-jammed” cases before an expensive and lengthy trial.

Conclusion

Is this Judgment a step forward or a step backward in the encouragement of mediation in personal injury litigation? The general tenor of the judgment is clearly in favour of mediation, and indeed in favour of increased use of mediation.

The message in the vast majority of cases must be that to refuse to mediate still carries the potential risk of a costs penalty. Parties will increasingly need to carefully consider their position in deciding whether it is in their interests to mediate. Those in the insurance industry may feel that there are few cases that one truly wants to put before a Judge. With that in mind, if the case has not been resolved by direct negotiation or a payment into Court, it may be found that mediation offers a realistic alternative to achieve certainty and resolve the case.

Paul Hughes Email : paul.hughes@crutes.co.uk DDI : 0191 233 9735

Paul, a Solicitor and Partner with Crutes Law Firm, was trained in mediation in California in 1997. He is one of the country’s leading exponents of the use in Mediation in insurance/personal injury cases have mediated 27 such cases to date. All but 4 of the cases settled at mediation and Paul considered that the clients, as well as obtaining satisfactory settlements, have thereby saved many tens of thousands of pounds in costs. Crutes Law Firm has been actively involved in the development of Mediation in insurance related cases for many years. Many of the firm's lawyers have been trained as mediators (and users of mediation) by bodies such as CEDR and the Mediation Group, both of whom intervened in these Court of Appeal cases.

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