‘Alternative’ Primed To Become Mainstream In Commercial Dispute Resolution

Alternative dispute resolution (ADR) is an umbrella term for the various techniques which may be deployed to resolve commercial disputes outside of the courts.  The term encompasses arbitration, mediation, expert determination, early neutral evaluation as well as informal negotiations and settlement meetings. 
 
In our experience, mediation has and continues to outstrip its ADR rivals as the most popular form of ADR.  This is only set to continue given the courts apparent increasingly fervent support for mediation. 
 
Mediation can take place at any stage of a dispute; either before proceedings have started or where litigation has begun it can be suspended for a mediation to take place.  Mediation is a confidential, consensualand voluntary process whereby a mediator assists parties in working towards a negotiated settlement of a dispute.  The mediator is appointed by the parties or by the court as a neutral third party who will attempt to findsolutions and facilitate negotiation of a settlement.  The mediator will not impose any decision if a settlement cannot be reached.
 
Often lasting only a day,mediation is much cheaper and quicker than court proceedings or arbitration.  It has a high success rate – “Just over 75% of cases settle on the day of mediation and another 11% shortly after” 2014 audit CEDR, one of the UK’s leading mediation providers. 
 
Mediation offers a forum where any issue between the parties can be open for negotiation and is not limited to the current dispute.  As such, it allows a business relationship to be maintained or even redefined through productive and constructive discussions culminating, if consensus is reached, with a legally binding agreement. 
 
The courts in England and Wales are increasingly keen for parties to mediate as early as possible in order to resolve disputes.  The wide ranging review of the civil justice system by Lord Justice Jackson which resulted in sweeping reforms to court rules and procedure in 2013 was provoked by concern over the ever increasing costs of litigating a dispute in the courts as well as an ever widening gulf between court resources and demand for court services.  One of the central tenets of the reforms has been to limit the costs which the ‘winner’ can seek to recover from the ‘loser’ in an attempt to curb costs. 
 
Mediation has come to be seen as one of the solutions to the ‘increasing costs and lack of resources’ conundrum and the courts seem to be moving, albeit inch by inch, to court-ordered compulsory mediation in commercial cases. 
 
The courts have had the power to penalise parties who refuse to mediate, unreasonably, by imposing costs penalties for several years.  However, it seems the trend is on an upward trajectory and depending on the circumstances, the cost consequences can be extremely severe as one unfortunate party to a dispute discovered earlier this year. 
 
In 2013, the Court of Appeal (in Wright v Wright [2013] EWCA Civ 234) suggested that it may be time to review to the decade old rule which prohibited the courts from forcing unwilling parties to mediate (established by the Court of Appeal in Halsey v Milton Keynes General NHS Trust, [2004] EWCA Civ 576). 
 
Later in 2013, the Court of Appeal ruled that, in general, a failure to respond at all to an invitation to participate in ADR is in itself unreasonable regardless of whether or not there was a good reason for refusing (PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288).  To avoid penalties, parties must engage with the idea even if they have sufficient reason for refusing.  Although Halsey confirms that parties cannot be compelled to mediate, it also laid down relevant factors to consider when deciding if a party had acted unreasonably in refusing to do so. 
 
Earlier this year, a High Court Judge held that the defendants’ refusal to mediate because they were convinced they would defeat the claim and thus considered the parties were too far apart to mediate was wrong (Garritt-Critchley v Ronnan [2014] EWHC 1774 (Ch))
 
The Judge’s starting point was that Halsey stated most cases are suitable for ADR and mediation always costs less than a trial.
 
In the dispute before him, the main issue in the claim was a question of fact: whether or not a binding agreement had been made or not.  As such, the Judge considered that the defendants could not be sure their version of events would be accepted.  This is a classic reason to mediate.  If the defendants lost on liability, there was still a range of possible quantum outcomes on which expert evidence would be required and, again, this is a classic reason to mediate. 
 
The Judge was explicit in his views that considering the parties are too far apart, that one party has a ‘watertight case’ or the fact that there may be dislike/mistrust between the parties are not good reasons to refuse to mediate.  The Judge also took into account that there had not been any previous settlement attempts which had failed which might merit resisting mediation.
 
The consequences were severe: the defendants were ordered to pay the claimants’ costs on the higher (indemnity) basis dashing any hopes which the defendants might have had of reducing the costs they had to pay often by around a third by arguing the costs were disproportionate. 
 
In short, if your business finds itself in a dispute, refuse to mediate at your peril!
 
Paul Jonson is Managing Partner of Pannone Corporate and has specialised in commercial litigation and arbitration for 20 years.  He is also a Deputy District Judge.  Paul is an enthusiastic supporter of alternative dispute resolution and was named Mediation Champion of the Year by CEDR (a leading mediation services provider) in 2010 and Mediator of the Year by Lawyer Monthly in 2013. 
 
Paul is recognised as a Leader in his Field in the North West.  Chambers UK Guide 2014 describes Paul as "pragmatic and sensible" and he is also noted as a “tremendous strategist,” who is “highly efficient” and is praised for his “ability to take the emotions out of the process” in Chambers UK Guide, 2013.
 
Paul Jonson can be contacted by phone on +44 (0)161 909 4535 or alternatively via email at paul.jonson@pannonecorporate.com
 
Elizabeth Wilkinson has 15 years’ experience of advising clients on:-
 
 - protecting their business from unfair competition, misuse of their confidential information/trade secrets and the poaching of staff, suppliers or customers
 - protecting the goodwill value of an acquired business from unfair competition or poaching by the seller 
 - emergency action to preserve assets (freezing injunctions) or evidence/property (search orders)
 - shareholder disputes and boardroom issues
 - warranty claims arising from share and business sales
 - partnership and LLP disputes
 - professional negligence claims
 - commercial fraud 
 - large scale contractual disputes
 
The Legal 500 reported Elizabeth’s “great strength lies in her ability to quickly understand the most difficult brief, explain the legal position clearly and succinctly and to bring a very strong commercial awareness to her advice”. 
 
Elizabeth Wilkinson can be contacted by phone on +44 (0)161 909 4634 or alternatively via email at Elizabeth.wilkinson@pannonecorporate.com