Recent years have seen the phenomenal growth of mediation as an alternative to more traditional forms of commercial dispute resolution such as litigation and arbitration. In 2018 the Centre for Effective Dispute Resolution (CEDR) found that this consensual, flexible process, by which a neutral third party tries to assist parties to reach a resolution of their dispute, was used in 12,000 civil and commercial cases in the UK, a startling 20% increase on 2016. Moreover, CEDR’s report demonstrated the success of mediation as a dispute resolution process, with an aggregate case settlement rate of 89%.
Mediation Matters11 June 2020
"...the English courts have embraced mediation and other forms of alternative dispute resolution (ADR), recognising the benefits of offering a broader range of options to parties and the value of a process which places control firmly in those parties’ hands."
Rather than running scared of the competition, the English courts have embraced mediation and other forms of alternative dispute resolution (ADR), recognising the benefits of offering a broader range of options to parties and the value of a process which places control firmly in those parties’ hands. A number of recent cases have emphasised this support, both in terms of imposing costs sanctions on parties who have unreasonably refused to mediate, and in the care the courts have taken in relation to arguments concerning the use of confidential information deriving from mediations.
Costs consequences of a refusal to mediate
Since the decision in Halsey v Milton Keynes General NHS Trust¹, the English courts have emphasised that, while they may not force parties to go to mediation, an unreasonable refusal to mediate can lead to significant costs consequences, even if a party has succeeded in their claim. If anything, two recent cases demonstrate that this attitude has only strengthened.
In Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd & Anr² a claim was brought by an individual against two defendants. The letters of claim were sent in 2015 and 2016 and indicated a willingness to refer the dispute to mediation but, although the second defendant was prepared to mediate, the first defendant was not, contending that mediation was premature pending the conclusion of pleadings, and subsequently that there was insufficient time to prepare for a mediation given the directions to trial. Although the claim failed, the High Court considered that the refusal to mediate was unreasonable and disallowed 50% of the first defendant’s costs up to February 2019, when it had made an offer to settle, and 20% of its costs from June 2019, following its subsequent refusal to engage in mediation prior to trial. The judge noted that, had the first defendant agreed to mediate, it was likely that an erroneous allegation by the second defendant, which arguably encouraged the claimant in his claim, would have been corrected. There was nothing in the nature of the dispute that rendered it unsuitable for mediation, and indeed in view of the nature and longevity of the historic relationship between the parties, a mediation would have provided them with an opportunity to address wider considerations not justiciable by the courts.
"…in view of the nature and longevity of the historic relationship between the parties, a mediation would have provided them with an opportunity to address wider considerations not justiciable by the courts."
Meanwhile, DSN v Blackpool Football Club Ltd (Rev 1)³ concerned a successful claimant who had made various offers to settle and enter into settlement negotiations throughout the case. However, notwithstanding a court order requiring the parties to consider settling by means of ADR, the defendant rejected these invitations on the basis that it believed it had a strong defence and that no purpose would be served by ADR. Given the outcome of the case, the defendant’s belief in the strength of its defence was apparently misplaced, but the judge commented that in any event, no defence however strong, by itself justifies a failure to engage in any kind of ADR. In a striking endorsement of the benefits of mediation, he noted that disputes can often be resolved in a way satisfactory to all parties, including parties who are facing claims that they do not consider to be well founded. He added that settlement offers solutions which are potentially limitless in their ingenuity and flexibility, and do not necessarily require any admission of liability or payment of money, and even if a payment is required, the amount may compare favourably with the irrecoverable costs of a successfully fought action. The defendant was therefore ordered to pay costs on the indemnity basis for the period after the parties were ordered to consider settlement by ADR.
One of the cornerstones of mediation is confidentiality. The process is confidential and covered by without prejudice privilege, enabling parties to exchange information and settlement proposals freely. Equally, the mediator agrees to maintain confidentiality in any information disclosed by the parties unless and until consent is given to reveal that information. That obligation of confidentiality survives the mediation. Two recent cases have demonstrated how carefully the English courts will consider attempts to encroach on the obligation, and the implications for the use of mediation more generally.
Glencairn IP Holdings Ltd & Anr v Product Specialities Inc (t/a Final Touch) & Anr⁴ concerned a dispute regarding intellectual property rights in glassware. The claimant had brought proceedings against two defendants, each of which was represented by the same firm of solicitors. The claim against one defendant was settled following a mediation, and the claimants argued that the solicitors should stop acting for the second defendant on the basis that they would have become aware of confidential information disclosed in the mediation, including the claimant’s negotiating position and the terms on which it was prepared to settle, and there was therefore a risk of such information becoming known to the second defendant. In making this argument, the claimants sought to rely on the principles established in Prince Jefri Bolkiah v KPMG⁵, the leading case on the potential for conflict of interest where solicitors act for different parties, and contended that once there was an appearance of a risk of disclosure, it was for the defendants’ solicitors to demonstrate that no risk existed. However, the Court of Appeal did not agree that Bolkiah was applicable. Instead it was for the claimant, rather than the defendants’ solicitors (who were acting in separate teams and had put in place information barriers) to show that there was a real risk of disclosure, and in this case the claimant was unable to do so. In reaching this decision, the Court of Appeal rejected suggestions that its decision would deleteriously affect the public interest in the mediation and settlement of disputes, commenting that in fact putting the onus on the defendants’ solicitors in such circumstances to show no real risk of disclosure would act as a disincentive to mediation. Nevertheless, the Court noted that if privileged information is misused or disclosed, or there is some threat that it will be, then an applicant can seek injunctive relief to restrain the opponent and their legal advisors from misusing the information.
"… in a concept note endorsed by senior judges, the British Institute of International and Comparative Law recently encouraged the use of mediation in order to minimise the risk of a deluge of disputes arising out of the COVID-19 pandemic and its effect on commercial contracts."
However, Berkeley Square Holdings & Ors v Lancer Property Asset Management Limited & Ors⁶ demonstrates that the confidentiality offered by mediation is not absolute. The claimants in that case alleged that the defendant had been complicit in a substantial fraud perpetrated on them involving the payment of significant amounts to a third party, and that these payments had only recently come to light. In response, the defendant argued that the claimants had been aware of the payments for several years as they had been referred to in the course of an unrelated mediation between the parties. Although it was common ground that the mediation position papers fell within the without prejudice privilege rule and were subject to obligations of confidentiality, the High Court considered that this case fell within one of the exceptions to the without prejudice rule and so the admission of such evidence was permitted. The defendant was entitled to rely on the statements made in the mediation in order to contend that the claimants were aware the payments had been made and rebut the claimants’ case that they had been deceived by the defendant. The judge commented that he did not consider that the claimants could fairly advance a case based on their ignorance of the payments, whilst excluding evidence that they were aware of those payments. In reaching this conclusion, the judge noted that the information regarding the payments in the mediation papers was included by way of background, and was largely irrelevant to the actual dispute which was the subject of the mediation. Further, the defendant was not seeking to put in an admission made by the claimant, but rather only what it had said itself in the mediation. Accordingly, admitting the material would not impair or fetter free and open exchanges by parties seeking to settle their dispute, and so would not undermine the public policy justifying the without prejudice rule.
In England and Wales, the Civil Procedure Rules require the parties to specifically consider ADR and, as the above cases show, the courts continue to provide their enthusiastic backing for the process. Indeed, in a concept note endorsed by senior judges, the British Institute of International and Comparative Law recently encouraged the use of mediation in order to minimise the risk of a deluge of disputes arising out of the COVID-19 pandemic and its effect on commercial contracts.
Meanwhile, last year’s launch of the Singapore Convention on Mediation on the enforcement of settlement agreements resulting from mediations, which is intended to operate for mediations in the same way the New York Convention does for arbitration, demonstrates the growing use of mediation internationally. The success of remote mediations, which have been taking place for some time but which have gained particular attention in the COVID-19 pandemic, will only strengthen that growth. Mediation is clearly here to stay.
Leah Alpren-Waterman is a CEDR-accredited mediator and Professional Support Lawyer at Watson Farley & Williams.