Posted: Monday, 8 June 2015 @ 10:12
In this age the courts expect that parties will make every effort to resolve their dispute before any court action is taken. But there are risks if the parties enter mediation, a form of Alternative Dispute Resolution (ADR). Read on to find out more about ADR and mediation in general.
There is a set procedure which parties should follow before issuing a Claim Form. They should set out details of their claim and supply documents in support and invite the other party to provide a detailed response within a reasonable period. The Letter before Claim should also set out whether the Claimant is willing to undertake ADR and if so the details of the proposed ADR. This is set out in the Civil Procedure Rules and in particular the Practice Direction on Pre-Action Conduct.
The Practice Direction makes it clear that "Litigation should be a last resort". It not only encourages negotiation or some other form of ADR, but makes it clear that costs sanctions may follow if a party has unreasonably refused to use a form of ADR or failed to respond to an invitation to do so. We are long past the days when it was common to issue a Writ and talk later.
The Court of Appeal in the case of PGF II v OMFS Co and another confirmed that refusal to mediate (one of the types of ADR) without giving good reason is itself unreasonable, and can deprive an otherwise successful party of their costs. It is vital that an immediate response is made to the offer, and that if you are not prepare to mediate you must give good reasons why you refuse to do so.
The courts expect parties to make every reasonable attempt to resolve their disputes before going to court. That involves a structured approach, starting off with attempted negotiation, then if that fails an ADR procedure, and finally the courts. Of course there are cases where because of limitation periods or the very nature of a case, ADR is not apporopriate. But it is important to make this clear at the time, particularly if the other side is asking for mediation.
The types of ADR available:
1. Arbitration is perhaps the oldest form of ADR. It is usually as expensive and inflexible as court proceedings, but with the advantage that the arbitrator who will decide the issues is an expert in the subject matter of the dispute, and hearings are in private. Many commercial agreements provide for disputes to be determined by arbitration. Awards made by an arbitrator are binding on the parties.
2. Adjudication is common in the construction industry. It provides for interim binding decisions, which can be challenged at the end of the contract, and often covers many issues arising in an on-going contract.
3. Mediation The process is confidential, “without prejudice”, flexible, and only binding if the parties agree. The mediator is a trained facilitator only, skilled in identifying the strengths and weaknesses of each party’s case, and in moving the parties towards a settlement.
4. Expert Determination is where the parties jointly appoint an expert to decide a question which the parties accept will be binding on them. Usually this is a technical question which may be the deciding factor in a dispute. The expert could for example be a valuer of goods or property, or an engineer.
5. Neutral Evaluation where the parties approach a neutral expert in the area of dispute for an indication of the likely outcome of court proceedings. The decision is non-binding but persuasive.
Arbitration is the common form of dispute resolution in international contracts. Adjudication is only to be found in construction disputes, and mediation is available for any dispute.
Mediation is a popular form of ADR because it is usually much cheaper and more informal than Arbitration, and can offer flexible and innovative outcomes. But what should be understood from the outset that is that a mediator is not empowered to make any decisions. He cannot make an award. He is there to facilitate negotiation between the parties, acting as Devil's Advocate in private sessions, and hopefully drag the parties together for a settlement. But the parties may fail to reach any agreement. In that case it may be considered a waste of time any money, but that is far from the truth. A great deal can be learnt from a failed mediation, and many cases go on to settle in the following months when the dust and tempers have settled.
Because the whole process is confidential, no details of the mediation can be disclosed in court. Only the fact that a mediation has taken place can be mentioned. This does carry the risk that one party shows up to a mediation with no honest intention to enter into any meaningful or "commercial" negotiation, making only perhaps a token "nuisance" value offer. They will then avoid the costs sanctions of refusing to mediate. But at least the groundwork should have been prepared for the possible subsequent court action, and the costs of a failed mediation can be recovered by a successful party in any court action.
If you need any expert advice on mediation or commercial dispute resolution in general, you can find a link to our dispute resolution service here.
Business and Litigation Solicitor
Tel: 0845 003 5639
Blog by Nigel Musgrove
Nigel has been providing dispute resolution advice as a solicitor for over 35 years. As well as advising SMEs and business owners on disputes he also offers a specialist licensing law service. View profile
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