Sanctions for Refusal of ADR

Question 1

The court can penalise a party who unreasonable refuses to:

Answer 1

• Comply with a court order to consider ADR
• Accept an offer to use ADR before/during/after proceedings
• Accept a reasonable offer to settle, including a Part 36 offer
• Make a reasonable offer to settle

Question 2

What is the usual order for costs?

What must the costs be?

Answer 2

The usual order that the court can make is that the overall loser pays the overall winner’s costs, but the court can make a different order.

Costs must have been reasonable and proportionate

Question 3

What will the court consider?

Answer 3

• The parties’ conduct
• Whether a party has partly succeeded
• Any admissible offer to settle
• Compliance with the PAPs
• Reasonability of raising/pursue/contest an issue
• Whether a successful claimant exaggerated his claim

Question 4

What costs order may the court make?

Answer 4

• Proportion of costs
• Stated amount of another party’s costs
• Costs between certain dates
• Costs incurred before proceedings
• Costs relating to a particular step in proceedings
• Interest on costs

Question 5

How do the courts check ADR compliance with the PAPs?

Answer 5

The court can ask the parties to explain their steps and evidence they considered ADR

Question 6

What are the sanctions for non-compliance with PAPs?

Answer 6

• Staying the proceedings
• An order to pay costs
• Order on indemnity basis
• C being deprived of part of interest/damages
• D paying interest at a higher rate, not more than 10% more

Question 7

Halsey – in deciding whether a refusal of ADR was reasonable, the court considers:

Answer 7

• The nature of the dispute
• The merits of the case
• The extent to which other settlement methods have been attempted
• Whether the ADR costs would be disproportionately high
• Whether any delay caused by the ADR would have been prejudicial
• Whether the ADR process had a reasonable prospect of success

Question 8

Nature of the dispute

Answer 8

e.g. legal precedent necessary, court determination needed

Question 9

Merits of the case

Answer 9

• whether the party refuses because he has a strong case or believes the other side has a weak case
• depends on whether the party’s assessment was reasonable
• the party should still bear in mind the positive effects of ADR

Question 10

The extent to which other settlement methods have been attempted

Answer 10

• compliance with the PAPs
• should not ignore reasonable requests of ADR
• it’s reasonable to reject ADR when a cheaper version has been repeatedly offered
• failure to make any offer at all to settle
• failure to make a timely offer
• failure to admit liability that is later proved

Question 11

What is the impact of a Part 36 offer on a refusal to use ADR?

Answer 11

• Part 36 offers are not a replacement for actual engagement in mediation
• If no early concessions are made, a Part 36 won’t protect against a costs order
• Costs still reflect the issues that a successful party lost at trial

Question 12

What is the impact of refusal of a Calderbank offer?

Answer 12

• If a successful party acts unreasonably in refusing a Calderbank offer, and they don’t recover more at trial
• However, a party is not required to accept a Calderbank offer if it will deprive him of his costs (i.e. that each pay their own)

Question 13

What is the impact of a Claimant failing to initiate ADR?

Answer 13

• The court distinguishes between a successful party rejecting an offer and a successful party failing to initiate ADR
• Halsey doesn’t apply where a successful party didn’t initiate ADR (so the other party couldn’t have refused)

Question 14

Whether any delay caused by the ADR would have been prejudicial

Answer 14

If ADR is proposed late, resulting in a delay in trial, it can be refused

Question 15

Whether the ADR process had a reasonable prospect of success

Answer 15

• Halsey – if ADR is refused on the basis that it would have no reasonable prospect of success, the burden is on the unsuccessful party seeking to avoid paying costs to show that the successful party unreasonable refused mediation and that there would have been success
• There must be an objective reason for believing this
• If full compensation (but no costs) could be recovered under an ADR scheme, the court will not allow a claim that is solely to recover those costs

Question 16

When will the court definitely not penalise a party for refusing ADR?

Answer 16

• The relationship is so bad (that there will be no reasonable prospect of success)
• Where D had success in previous proceedings
• Where a party had a strong case and the conduct of the other party showed that they wouldn’t settle

Question 17

What about if a party responds with silence?

Answer 17

Silence is unreasonable, regardless if there was a good reason for refusal to engage in ADR

Question 18

The court will also consider all the circumstances of a case, e.g.

Answer 18

Whether an ADR order was made by the court

The extent to which further information/evidence was needed before ADR

• If a party wishes to wait for case statements to be set out
• Waiting for further info must still be reasonable

The extent to which both parties were at fault in failing to consider ADR

• If both are at fault, the court may make no costs order for anyone

Question 19

When is a DELAY IN CONSENTING TO ADR not a problem?

Answer 19

• Not unreasonable where the ADR offer was made late
• Not unreasonable where it waited for the court to dispose of its application to strike out the case

Question 20

BACKING OUT OF AN AGREED ADR PROCESS (agreeing to explore then backing out last minute)

Answer 20

An adverse costs order will be made regardless if the party backs out because it considered the ADR had no reasonable prospect of success

Question 21

UNREASONABLE CONDUCT IN THE MEDIATION

Answer 21

Taking an unreasonable stance in the mediation is equal to refusing to mediate

Remember the court can only enquire into this conduct if all parties waive privilege and confidentiality, and this is rare

Question 22

IMPOSING A COSTS CAP ON SOLICITOR-CLIENT COSTS FOR FAILING TO PURSUE ADR

Answer 22

May impose a cap on costs

May also make a wasted costs order against a legal adviser who failed to give his client proper practical and commercial advice about the benefits of ADR

Question 23

INDEMNITY COSTS ORDERS FOR FAILING TO CONSIDER ADR

Answer 23

• For indemnity costs, the case must fall outside the norm and there must be unreasonable conduct to a high degree
• Indemnity costs order is likely if the claims are unreasonable, speculative and opportunistic, and the manner in which they are litigated is disproportionate
• Where an enormous amount of time, costs and court resources have been wasted by a party

Question 24

WHAT PRACTICAL STEPS SHOULD BE TAKEN TO AVOID SANCTIONS?

Answer 24

Don’t just ignore an ADR offer – this is likely to be taken as refusal

• Respond promptly, in writing, giving clear and full reasons why ADR is not appropriate
• This should be explained in light of Halsey
• The letter should be marked ‘without prejudice save as to costs’

If lack of evidence/information is the problem, discuss this with the other party

• If proceedings have been commenced, the court may be able to make a disclosure order

Letters replying to ADR requests should be written with care

• Do not respond with outright refusal that leaves no room for future ADR

Question 25

HOW DOES THE COURT TREAT PRIVILEGED MATERIAL WHEN SEEKING TO IMPOSE SANCTIONS?

Answer 25

• Communications aimed at settlement are protected from disclosure by the WP rule
• Halsey – the court will preserve the integrity and confidentiality of ADR and will not investigate why it failed
• The court has no jurisdiction to disclose WP information
• It is up to a party to make information ‘WP save as to costs’, in order to let the court look at it
• A party should always mark ADR offers ‘WP save as to costs’ so the court can consider them if the other side refuses unreasonable