Costs News

06 December 2018
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Call to tighten escapes from costs sanctions for failing to engage in ADR

The rules on using costs sanctions to encourage parties to mediate need to be tightened up so they are not so easy to escape, a major report recommended this week.

The Civil Justice Council’s (CJC) ADR working group also floated the idea of giving the court power to make a provisional fee reduction on the eventual bill at the case management stage if a party was not co-operating on ADR.

The CJC, in its final report on ADR, said “there was virtually no support for blanket compulsion” in any of the submissions received since its interim report last October.

But the working group put forward a range of recommendations to improve the awareness, availability and encouragement of ADR.

These included an “urgent review” of the Halsey list of acceptable reasons for not entering into ADR on the ground that it was “too generous to the refusing party”.

The working group put forward five reasons it thought were acceptable:

  • The parties have already attempted mediation (or possibly judicial neutral evaluation or some other form of ADR) without success;
  • The parties are already committed to an ADR process in the near‐term;
  • The parties (or a party) satisfy the court of a need to wait (often until after disclosure) for any meaningful negotiations to take place, but they will commit to using ADR at that stage if the case has not otherwise settled;
  • There has been unreasonable or obsessive conduct by one or other party (of the Hurst v Leeming variety); and
  • There is a genuine test case in which the court’s judgment on an issue of principle is required.

It then listed five reasons that were not acceptable opt-outs:

  • That the case appears complex (this seemed to be accepted as in part justifying a refusal to mediate in Gore v Naheed);
  • That the case involves serious issues such as fraud;
  • That the ADR process appears to be unlikely to succeed;
  • That the cost of ADR is too great (given the increasing flexibility of the ADR offering); and
  • That one or other party believes he or she has a strong case.

The working group then identified three key policy issues that would determine the design of the new rules. First was how far the court should intervene in the choice of ADR process and whether it should insist that a mediation – distinct from, for example, simple negotiation – be undertaken.

The second was whether it was possible to interfere in the parties’ decision‐making ‘midstream’, and the third was whether there was a sanction that would work in one of these midstream hearings.

The report said: “We think there is [a sanction], but again we think that detailed development of the proposal and detailed further discussion with stakeholders is required. One possibility would be a recommendation of a costs penalty made by the judge at the interim stage, a ‘note on the file’.

“Another would be a provisional fee reduction of any recovery of fees that may be made at the end of the day, perhaps 40% or more. This would be provisional in the sense that, at the end of the day, if a party wished to deploy material that was too sensitive to deploy inter partes at an interim hearing, then it could do so in support of an application for relief. This issue would necessarily be handled at the interim stage by a judge who would not ultimately be the trial judge.”

The working party also noted that qualified one-way costs shifting (QOCS) was a problem for the Halsey regime as a defendant – who, in any event, cannot recover costs if successful – has nothing to lose.

“It may not be realistic to imagine costs orders being made in favour of a losing claimant in such cases, but it is hard to see how else an unreasonable defendant in these cases could be sanctioned. For the QOCS claimant, there already exists the standard Dunnett‐style sanction of being deprived of some or all of their costs if they win. If they declined to mediate and then lost, they could be exposed to an application to strip them of QOCS status. But that would seem severe.”

The report acknowledged the risk for expensive satellite litigation to break out to whether ADR should be required or not.

“Once the court’s attitude has become clear and costs awarded summarily against those who apply unsuccessfully for relief in a given case, parties will simply get on and use ADR more and argue less. We think the provisional reduction in costs will be an effective incentive.”

The report acknowledged that, “particularly with cost budgeting taking up so much court time at the interim stages”, there was a severe shortage of judicial time for procedural issues like ADR to be case-managed.

“The ideal would be a world where, at least in the multi‐track, parties would expect to attend CCMCs with three areas of concern: directions, costs and ADR. Costs budgeting will normally involve a discussion of the costs of ADR both incurred and estimated.”

The full CJC has endorsed the report. Its chair, the Master of the Rolls Sir Terence Etherton (pictured), said: “The working group is to be commended on producing an impressive report that proposes a number of reforms to the current system.

“The group’s recommendations include the use of a judicial-ADR liaison committee, increased public awareness of ADR, peer mediation in schools, increased law faculty and professional training and a new website to act as a single umbrella source for information about ADR.

“Work has already commenced on the creation of the judicial-ADR liaison committee, which will play an important oversight role in the area.”

The working group was chaired by William Wood QC and its members included District Judge Richard Lumb, a regional costs judge in Birmingham.


Picture credit: Sir Terence Etherton (Crown Copyright, licensed under Open Government Licence V1.0)


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