How to refuse to mediate reasonably

[2012] EWHC 2904 (TCC) TEDR Volume 18 Issue 1

Failure to engage in mediation

[2011] EWCA Civ 78 TEDR Volume 16 Issue 2

The Facts

The case involved a building dispute between a home owner (Mrs Rolf) and a small builder (the Defendant).

The builder was to carry out works to the garage and loft of the home. There were contractual terms for part payment. In fact, the relationship broke down and the Defendant did not finish the job. He had received some of the monies. There was a fundamental dispute as to why the contracts broke down. In summary the Claimant made several offers to settle her claim for various five figure sums. She also offered to attend mediation. The offers all went un-noticed by the Defendant until the 11th hour when he made an offer to settle. However, by then it was perfectly apparent that he was in financial difficulties. Overall, the case ran to trial and Mrs. Rolf succeeded in obtaining a judgment for £2,500.00. That sum was clearly far less than any of the offers previously on the table and the overall value of her claim.

The question of costs was considered. At first instance the judge awarded no costs between the parties until the Claimant’s Part 36 offer. Thereafter, the claimant was to pay the Defendant’s costs.

The Issues

Could the Court take into account the failure to engage in mediation when deciding the issue of costs?

The Decision

Overall, the Part 36 offers and financial offers were largely irrelevant in this case. The only real issue for consideration in terms of an offer was the failure to engage in mediation itself. Accordingly, the Court of Appeal held that they would allow the appeal and consider the issue of costs fresh. Their Lordships considered all of the circumstances of the case but, in particular, with regards to mediation, made the following observations.

CPR Part 44.4 says that the Court must have regard to all the circumstances of the case when considering costs orders. Conduct is a relevant issue and covers a wide field of enquiry. There is authority to show that such conduct can include the reasonableness of parties’ response to a call for mediation especially where the Court itself has recommended or encourage it: see Dunnett v Railtrack (Practice Note) [2002] EWCA Civ 303. Clearly, there was no such recommendation or encouragement in this case but once again, their Lordships reiterated their concern that the offer of round table discussions was spurned. Reasons were given for that by the Defendant at the appeal but they did not bear real examination and were unreasonable (He felt that he wanted his day in Court and did not feel that there would be any successful outcome to mediation). The Court reiterated that it was of course possible that settlement discussions or even mediation would have produced a solution or one satisfactory enough to allow both parties to have reached an agreement. Overall their Lordships considered that the negotiation and/or mediation would have had reasonable prospects of success and thus the refusal to enter into such a processes was unreasonable and ought to bear materially on the outcome of the Court’s decision in terms of costs.

Accordingly even though the Claimant had succeeded in her claim only to the tune of £2,500.00, given the Defendant’s failure to engage the order was no order for costs.

Comment

There was a good argument in this case that the Claimant should be deprived of her costs given she had ended up with far less than she was claiming. However, the Defendant was penalised for his failure to engage in mediation. The judgement also makes clear that if their Lordships had been considering this issue at first instance it may well have been that an order favouring Mrs. Rolf in terms of costs would have been made

The fascinating case of a without prejudice threat

[2005] Reported in Lawtel (a decision of Lewison J in the High Court, Chancery Division) TEDR Volume 11 Issue 1

The Facts

The Claimants had issued proceedings for the return of documents and for injunctions restraining their use or dissemination. The action was stayed for mediation to be attempted. After certain threats had allegedly been made in the mediation and allegedly the confidentiality of the

mediation had been breached by the party alleged to be the target of those threats disclosing to a third party that they had been made, separate litigation was commenced.

The Issues

Were alleged threats made in the course of a mediation properly to be taken into account when the court considered making a costs order?

The Decision

Without prejudice protection encouraged parties to speak frankly so as to facilitate the settlement of disputes. Parties could, if they so wished, waive such protection. Normally threats made in a mediation would be covered by such protection and hence could not be taken into account on costs. However here the alleged maker of the threats (who denied making them in the first place and who commenced satellite litigation for breach of the confidentiality provision of the mediation agreement) had, by commencing that separate litigation, brought the threats into the public domain and had thereby waived the without prejudice protection. In that litigation the alleged maker of the threats confirmed that they had

been made, but denied communicating them to any third party and hence denied breach of the confidentiality provisions o fhe mediation. The court found there had been a mutual waiver of the without prejudice protection by both parties. Accordingly they could be taken into account on the question of costs.

Comment

A case of a mediation (or rather the parties to a mediation) not settling their dispute, and a further dispute flowing directly from the mediation which plainly substantially increased costs and no doubt wasted time. The case shows the folly of the mediation process not being used for its proper purpose. One cannot tell which (if either) party was at fault in this or whether both parties were at fault – as the facts over the disclosure were in hot dispute.

However, a danger of this case is that the judge’s decision seems to suggest that it is quite alright to make threats in a mediation. The point as to that is that what is a legitimate warning or statement by one party may be perceived as an outrageous and unwarranted threat by the other party.

This raises the question of at what point frank discussion ends and inappropriate threats (and potentially counterthreats) begins. The communication by either side to any third party (beyond their legal advisers of course) is then a potentially very dangerous situation and can set ablaze what has become a tinder box. Allegations which then arise of disclosure in breach of the confidentiality provisions are often heavily disputed. Some parties appear to relish such fights – perhaps because it removes them from having to deal with the substantive issues in the main dispute. This case shows the way in which disputes can spiral out of control.

The confused case of the meeting of experts and mediation

[2006] EWHC 2338 (TCC) TEDR Volume 12 Issue 1

The Facts

This was a building dispute which went to litigation. In the course of the litigation HHJ Thornton QC made a direction that:

“By 23.9.05 the parties’ architectural experts ….do meet without prejudice and prepare a statement of the issues upon which they are agreed and those upon which they are not agreed with a brief statement of the reasons for the disagreement.”

He also ordered that the case be stayed from 1st October to 31st November 2005 to allow the parties to mediate.

The experts complied with the directions order and by 1st September 2005 had agreed a statement of matters agreed and not agreed. In December 2005 (slightly later than anticipated) there was mediation. The mediation was unsuccessful in resolving the dispute and so the legal proceedings carried on in the New Year of 2006.

The Claimants sought to amend their pleadings in a way which was apparently inconsistent with the views expressed by their expert in the statement. The Defendants opposed the Claimants’ application to amend the pleadings. The Claimants asserted that as the statement was produced “without prejudice” for the mediation, it was a “without prejudice” document and so was privileged. Accordingly the Claimants contended that no reference could be made to its contents in the on-going litigation. The Defendants disagreed and contented that even if it were “without prejudice” and hence privileged, the differences between it and the Claimants new case were “so grotesque” that there had been an abuse of privilege whereby the document should lose its privileged status.

The Issues

The key issue was the application of the without prejudice rule in the above circumstances.

The Decision

The judge confirmed that normally a statement produced by experts under CPR 35.12 (3) would not be without prejudice and could be referred to in litigation.

However, the judge found as a fact that in this particular case “the primary function of the statement was to assist in the mediation”.

He accordingly found that it was and remained privileged and hence its contents could not be referred to in the litigation.

He also found that there was no abuse of privilege in this case which would otherwise cause the without prejudice and hence privileged nature of the document to be lost.

Comment

The judge confirmed that normally a statement produced by experts under CPR 35.12 (3) would not be without prejudice and could be referred to in litigation.

However, the judge found as a fact that in this particular case “the primary function of the statement was to assist in the mediation”.

He accordingly found that it was and remained privileged and hence its contents could not be referred to in the litigation.

He also found that there was no abuse of privilege in this case which would otherwise cause the without prejudice and hence privileged nature of the document to be lost.

Disclosure, Without Prejudice, Confidentiality and Litigation

[2008] EWHC 786 (QB) TEDR Volume 13 Issue 2

The Facts

The Defendant had acted as Solicitor for the Claimants in connection with the drafting and negotiation of an agreement between themselves and DEFRA for the provision of waste management services during the foot and mouth epidemic in 2001.

The Claimants and DEFRA were in dispute as to the sums owning pursuant to that agreement.

Settlement of that dispute took place after a series of ‘without prejudice’ correspondence and two mediations.

The action before the Court was brought by the Claimants against the Defendant (their original solicitors) for negligence in relation to the initial negotiation and drafting of the agreement and thus the shortfall in the sums they contend that they were entitled to under the original agreement and those recovered from DEFRA following the mediations.

The Agreement to Mediate in the case of each mediation contained clauses as to the confidentiality and without prejudice nature of the mediation.

The Issues

Whether the Defendant (the original solicitor) was entitled to disclosure of documents arising out of or in connection with the two mediations between the Claimants and DEFRA.

The Defendant contended:

1. That there is no principle of English Law which means documents are protected from disclosure by reason of confidentiality alone;

2. Whilst without prejudice documents are prima facie protected from disclosure on the basis that they are privileged, the Claimants waived that privilege when they pleaded the case on the basis that the settlement with DEFRA was reasonable and thus claimed the shortfall;

3. In order to assess the reasonableness of the Claimants’ conduct, the Defendant needed to know what that conduct was and that included conduct at the mediations.

DEFRA were not a party to the proceedings but had been permitted to make representations pursuant to CPR 31.19(6)(b) and resisted the application.

The Claimants were neutral as to the application.

The Decision

The Law of privilege was reviewed. It exists because:

a. There are public policy reasons for encouraging parties to attempt settlement of their disputes by means of without prejudice discussions without fear that any statements made therein would be used within litigation; and

b. The express or implied agreement between the parties that the communications within the course of their negotiations should not be admissible in evidence should a contested hearing ensue.

The only exception of relevance was noted to be where a former client sues his former solicitor and an issue arises as to whether he has acted reasonably to mitigate his losses in his conduct and conclusion of negotiations with a compromise of proceedings brought against him (See: Muller v Lindsay & Mortimer [1996] 1 PNLR 74). The Claimants had sought to deny disclosure of the without prejudice material without success. It was held that the issue of the truth (or otherwise) of anything stated in the negotiation was unconnected with the issue and therefore, it fell outside the principle of public policy protecting without prejudice communication.

The instant case was distinguished from the exception in Muller. This case involved consideration of whether the without prejudice material of a third party (DEFRA) should be disclosed. The privilege belonged not only to the Claimant but to DEFRA as well. There were public policy reasons why DEFRA should be entitled to assert privilege.

There was an express agreement (within the Agreement to Mediate) that the without prejudice rule should apply. DEFRA were entitled to protect themselves from disclosure of material that may embarrass them. Here, the truth or otherwise of what was said at the mediation would or could be at issue.

The CPR encouraged without prejudice communication and mediation and thus the Court should be slow to find exceptions to the general rule. The Defendant was not within the Muller exception and thus the application failed on that basis.

In addition, whilst confidentiality is not necessarily a bar to disclosure, DEFRA were party to a confidentiality agreement within the Agreement to Mediate. DEFRA wished that agreement to be honoured and thus the Court should support the mediation process (which was encouraged by the CPR) in refusing, in normal circumstances, to Order disclosure of documents and communications within a mediation. In particular, the Court should be very slow to Order disclosure of documents held by a mediator. Mediators should be able to conduct mediations confident that, in normal circumstances, their papers should not be seen by the parties or others.

Comment

This case reinforces the purpose and importance of the Agreement to Mediate and the fact that, if there was a risk of disclosure being Ordered (absent abnormal circumstances) the process would be undermined.

Information sheet introducing mediation as an ADR approach.

The form for lodging a complaint with TAE concerning the performance of a mediator.