SGS1 - Introduction to ADR

Learning Outcomes

 What is the range of ADR?

 How to select which ADR procedure to use?
 When to consider ADR?
 Sanctions for failure to consider ADR?

What is ADR?

 ADR means alternative dispute resolution.

 It is resolving disputes out of court.
 There is a scale of flexibility from absolute autonomy to quasi-litigation.

 There are two main types of ADR: adjudicative and non-adjudicative.

Both may use a TP to structure the debate, but the crux depends upon
WHO decides the dispute: the parties (non-adjudicative), or a third party
(adjudicative)?

Adjudicative ADR Non-Adjudicative ADR

DEF: Neutral TP decides the dispute DEF: Parties seek a compromise inter
se.

 Adjudication  Negotiation
 Expert Determination  Mediation
 Arbitration  Conciliation
 Early Neutral Evaluation

AUTONOMY<---------------------------------------------------------------------------------
>FORMALITY

NEGOTIATION <-------------ARBITRATION------------->
LITIGATION
What are the advantages and Disadvantages of ADR?
Advantages of ADR
 Avoids "Litigation Risk"
 More flexible than
litigation...
 Simpler than litigation (less
demanding, no strict
evidential rules)
 Suits convenience of parties
in place and time of
hearing.
 Private and not public
hearings
 ADR jurisdiction is
unlimited, whereas
litigation is limited to
actions raised in Statements
of Case.
 ADR is less confrontational,
thus is more adept at
maintaining long term
relationships.
 Can be less expensive.
 Arbitration Awards are final,
as are consent orders. So
just as binding as litigation.
Disadvantages of ADR
 If adjudicative ADR, there may
be a quasi-litigation risk.
 Parties with strong legal claim
don't need to settle in litigation.
They may have to in non-
adjudicative ADR.
 May waste time agreeing
procedure, evidential rules etc.
 Certainty of Judge - ADR may
lead to difficulties in agreeing
arbitrator, and location of
hearing.
 Confidentiality of Parties, and
private hearings may be
ordered in Court.
 Some determinations may only
be done by a Judge (eg: public
law rights, rights under Wills,
injunctions, approval of
settlements relating to
Protected Parties/children) thus
making litigation inevitable.
 ADR is difficult if multiple
parties. No procedure for joining
third parties.
 Fees to Mediator/Arbitrator may
be more expensive than
litigation in simple disputes.
 If non-adjudicative, ADR might
not reach determination, so
could be an expensive, time-
 consuming diversion.
 Not necessarily final if
mediator/arbitrator makes error
of law or jurisdiction, as
recourse to courts.

 International Enforcement of
Awards due to New York
Convention 1958 (Arbitration)
and Mediation Directive
2008/52 (Mediation)

Differences in types of Outcome:

ADR Court

 Change in other party’s  Prohibitory Injunction (to stop

behaviour; tortious conduct)
 Putting right a mistake;  Specific Performance of
 Promise that OP will not do obligation;
something;  Rectification of document or
 Repair or replacement of rescission of contract;
item;  Return of property (land or
 Apology; goods)
 Explanation;  Compensation
 Compensation  Declaration about rights of
parties;

Pre-Action Protocol

 Pre-Action Protocols require parties to consider the use of ADR.

 The parties must explain their failure to use ADR in the Statements of
Case

 The OO requires the court to actively manage cases.

o Active Case Management includes considering use of ADR;

o Parties may apply to court for proceedings to be stayed and

referred to ADR, or other means. The court can also do this
of its own initiative if appropriate.
 o In determining costs, the court may look at ADR compliance.

 Para8.1, 4.4(3) - Parties are warned that the court may require evidence
of ADR.

 ALL pre-action protocols refer to ADR. But it is expressly recognised that

no party can or should be forced to mediate!

 For PI claims, see para2.16-2.19 PI Protocol.

 It is expressly recognised that not party can, or should, be forced to

mediate or enter into any form of ADR!

 HMCTS Small Claims Mediation Service - Automatic referral for all small
claims below £10,000.

 There is also a CoA mediation service by CEDR (Centre for Effective

Dispute Resolution) When permission to appeal is sought, the single Lord
Justice considers whether case ripe for mediation. If so, Head of Civil
Appeals refers to CEDR. CEDR writes to the parties to arrange mediation
hearing. Offered choice of 3 mediators. Prticipation is voluntary, and CEDR
will only act if all parties agree. Parties remain Free to terminate at any
time by giving notice to CEDR or CAO without reasons. All PI and contract
appeals upto £100k for which permission to appeal is given will be
expected to mediate disputes unless presiding judge says otherwise.

Costs Consequences of Failure to Consider/Use ADR

 This is backed up by costs sanctions if parties unreasonably refuse to
use ADR.

 Reasonableness depends upon (Halsey v MK NHS):

o Nature of the case (where injunctive relief is required, not suitable!);

o Merits of case (e.g.: If one party has a very strong case);

o Extent to which other ADR methods have been attempted;

o Whether ADR costs would be disproportionately large;

o Whether any delay in arranging ADR would be prejudicial;

o Whether ADR had a reasonable prospect of success;

o Whether court has made an ADR order;

o Is it the right time to seek ADR? Premature attempts at ADR may

waste costs.
 o Failing to respond to an invitation is unreasonable PGF II SA v
OMFS Co.

 What are the costs consequences?

o Costs payable are at the discretion of the court per s51 SCA 1981
and r44.2 CPR. The "general rule" is that an unsuccessful litigant
will pay the whole of the winner’s costs - r44.2(2) CPR. The judge
must give reasons for departing...

o In exercising its discretion, the court must have regard to all the
circumstances and in particular under r44.2(4)-(5) CPR -

 Conduct before/during proceedings;

 Compliance with Pre-Action Protocol;

 Whether it was reasonable to raise the allegations, and

pursue it;

 The manner of pursuing/defending the claim (“unreasonable

conduct”)

 Whether the successful party exaggerated the value of their

claim; (Overvaluing a claim is not exaggeration without an
element of blameworthiness - Morton v Portal Ltd)

 Any admissible offer to settle;

 Whether a party was only partly successful;

o A 10-15% reduction for refusal to consider negotiating (Straker v

Tudor Rose)

o Successful appellant deprived of costs on ground it unreasonably

withdrew from mediation shortly before trial in Leicester Circuits
v Coates.

o The burden is on the losing party to disallow winner’s costs for

unreasonably refusing to use ADR per Halsey v Milton Keynes
NHS. Whether it is reasonable see above in r44.2.

o r44.2(6) costs orders can be (With preference to A and C):

 Proportion of other’s costs;

  Stated amount of other’s costs;

 Costs from or until a certain date only;

 Costs incurred before proceedings;

 Costs relating only to a distinct part of proceedings;

 Interest on costs from or until a date;

o Technical Points:
 The Standard Basis
 Whether costs are reasonably, and proportionately
incurred, resolving disputes in favour of payer.
 The Indemnity Basis
 Whether costs are unreasonably and disproportionately
incurred, resolving disputes in favour of winner. This is
punitive costs against the payer. (NB: You'll never get
100% costs...!)

Costs Orders

 Dunnett costs orders - A party can win on the judgment, but get 0% costs
if it doesn’t comply with ADR.
 The Halsey get-outs:
a. Burden on the losing party.
 Counsel who has lost the case has to convince judge that
mediation would be worth while, and the other side would
have engaged in ADR - tough ask.
b. Nature of the case: Test-case? Fraud? Injunctive relief?
c. A party’s reasonable belief that he has a strong case. (No
need to mediate)
 (BUT. In Hurst v Leeming ([2003] 1 Lloyds 379) Lightman J
had said “The fact that a party believes that he has a
watertight case …is no justification for refusing mediation.
That is the frame of mind of so many litigants.”)
d. Previous failed attempts to settle. (No need to mediate)
e. Mediation would be disproportionate costly (No need to
mediate)
f. Mediation suggested late (No need to mediate)
g. Would mediation have had a reasonable prospect of success
(remember, burden on losing party).
h. Successful party has disregarded judicial encouragement to
mediate “…no thinking person can but be disturbed by the
imposition of the twin hurdles to mediation which the decision in
Halsey creates to achieving the approximation to justice which the
 institution of the mediation process may afford.” Lightman J., SJ
Berwin lecture 28th. June 2007.
o Very very rarely are these kinds of costs orders being made...!

What if client refuses ADR despite your advice?

 Get "Letter of Best Practice" signed by the client saying ADR was
recommened in accordance with the Pre-Action Protocol, and this was
refused by Client. Then following Client's instructions.
 In furtherance of Overriding Objective, Court must encourage parties to
use ADR where appropriate (r1.4(2)(e) CPR);

 Para8.1, 4.4(3) - Parties are warned that the court may require evidence
of ADR.

 ALL pre-action protocols refer to ADR. But it is expressly recognised that

no party can or should be forced to mediate!

 Client must consider use of ADR at all times, before and during trial. So
unreasonable refusal at any time may be used against them.

What are the consequences for failure to consider/use

ADR?
1. Adverse Costs Orders; (Only merits determine damages; unaffected by
ADR compliance)

a. In PGF II SA v OMFS Co the court held that if there were

reasonable prospects of mediation being successful, and would
have been able to reach settlement, ought to lead to adverse costs
order. The parties should put reasons for refusal to undergo
mediation in writing at the time... The court should be wary of
retrospective arguments why it did not mediate, especially why it
can be demonstated why mediation did not have a reasonable
prospect of success.

2. Stay of Proceedings if ADR is appropriate ("pause")

3. The court may:

a. Verbally encouraging parties to consider ADR at any stage;