The English courts are getting tougher on parties that refuse to participate in alternative dispute resolution (ADR), the most common form of which is mediation.

Since 2004, an unreasonable refusal to participate in ADR has been identified as conduct which the court may properly punish by imposing costs sanctions (Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576). In that case, the Court of Appeal laid down a non-exclusive list of factors for deciding whether a refusal to participate in ADR was unreasonable. These are:

• The nature of the dispute – while ADR may not be appropriate in all cases (for example, where there are allegations of fraud or where it is considered that a binding precedent would be useful) few cases are unsuitable for ADR by their very nature
• The merits of the case
• The extent to which other settlement methods have been attempted
• Whether the costs of the ADR would be disproportionately high
• Whether any delay to the trial caused by setting up and attending the ADR would have been prejudicial
• Whether the ADR had any reasonable prospect of success

The Halsey guidelines have stood the test of time and been applied in many cases since. They were subject to a modest extension in PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288, in which a written invitation by the claimant’s solicitors to participate in mediation was met with complete silence by the defendant.

The Court of Appeal held that silence in response to an invitation to participate in ADR is, as a general rule, unreasonable, regardless of whether an express refusal to engage in ADR might have been justified. The defendant’s silence in the face of two requests to mediate was therefore unreasonable conduct warranting a costs sanction.

In reaching its decision, the court referred to the advice given in The Jackson ADR Handbook¹ published in April 2013. The judge giving the lead judgment referred to paragraph 11.56 of the handbook, which sets out the steps which a party faced with a request to engage in ADR, but which believes that it has reasonable grounds for refusing to participate at that stage, should take in order to avoid a costs sanction. These are:

1. Not ignoring the offer to engage in ADR
2. Responding promptly in writing, giving clear and full reasons why ADR is not appropriate at the present stage based, if possible, on the Halsey guidelines
3. Raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR, together with consideration of how that shortage might be overcome
4. Not closing off ADR of any kind and for all time in case some other method than that proposed, or ADR at some later date, might prove to be worth pursuing

In summary, these steps call for constructive engagement in ADR rather than flat rejection or silence.

The judge, emphasising the importance the court places on litigants’ positive engagement in mediation, concluded his judgment by saying:

“…this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation……The court’s task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, none the less operates pour encourager les autres.”

The Halsey guidelines were recently considered again in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Limited [2014] EWHC 3148 (TCC). The case concerned the interpretation of a licensing agreement. BAE had refused to participate in mediation but went on to succeed at trial. It remained for the court to decide (i) whether BAE had unreasonably refused to mediate and (ii) what costs order was appropriate. Northrop contended that BAE’s costs entitlement should be reduced by 50% because it had refused to mediate. BAE disputed this and argued that, taking the Halsey guidelines into account, its refusal had been entirely reasonable, in particular because it considered that it had a strong case.

The judge agreed that BAE had a strong case. He was also mindful that in Halsey and the subsequent case of Daniels v Commissioner of Police for the Metropolis [2005] EWCA Civ 1312, the Court of Appeal indicated that where a party faces an unfounded claim and wishes to contest that claim rather than make a payment to buy it off, the court should be slow to characterise a refusal to mediate as unreasonable. However, he agreed with the view expressed by the authors of The Jackson ADR Handbook that this ignores the positive effect that mediation can have in resolving disputes, even if the claims have no merit; in particular, that a mediator can bring a new independent perspective to the parties if using evaluative techniques and that not every mediation ends in payment to a claimant.

Ultimately, the judge thought that, on the facts and by reference to the guidance in Halsey, BAE’s refusal was unreasonable. Although he accepted that BAE had acted reasonably in considering that it had a strong case, he thought that provided it with only limited justification for rejecting mediation. In the event, however, BAE was not penalised in costs because the judge also took into account an earlier settlement offer which it had made and which Northrop had not accepted, but did not beat at trial.

The case highlights how difficult it can be to establish the reasonableness of a refusal of a serious offer to mediate. Even where a party reasonably believes it has a strong case, it may be difficult to satisfy the court that this is a good reason for refusing a serious invitation to engage in ADR.

1. The handbook is published further to Lord Justice Jackson’s review of civil litigation costs, in which he recommended that an authoritative handbook be prepared to provide practical and concise guidance on all aspects of ADR, and in particular the use of ADR in relation to civil claims in England and Wales. The handbook has been endorsed by Lord Justice Jackson, the Judicial College, the Civil Justice Council and the Civil Mediation Council, and every judge who hears civil cases have received a copy. 

Client Alert 2015-157