There needs to be a review of the Halsey guidance on when costs sanctions should be applied for a failure to mediate, while interim orders should be considered as well, a Civil Justice Council report has suggested.
Produced by an expert working group, the interim report said the use of ADR in the civil justice system “is still patchy and inadequate”.
The findings and recommendations of the group – headed by William Wood QC, a commercial mediator at Brick Court Chambers – are now out for consultation, with the goal of producing a final report that will be submitted to the government for consideration.
One of the areas the report considered was costs sanctions, noting: “The principal criticism of the existing regime for costs orders where parties fail to engage in ADR is that the Halsey guidelines are too restrictive. We would welcome a review of the guidelines at the next opportunity in particular with a view to re‐examining (a) the burden of proof and (b) the importance accorded to the question of whether, on balance, a mediation would have succeeded.”
The specific recommendations said: “The threat of costs sanctions at the end of the day remains a vital instrument in backing up the various requirements in the protocols and guides that the parties consider and, if possible, use ADR. We accept that they are more likely to affect behaviour in middle- and high-value cases where significant costs can be and will be sought to be recovered.
“We would welcome a review of the Halsey guidelines on costs sanctions. We think it should not be sufficient to say ‘This is a complex case and I have just won’ as a justification for not having at least attempted to explore ADR. What role does the proportionality of the cost of an ADR process have in this kind of analysis?”
In its discussion of costs sanctions, the report said that despite the broadly positive general attitude taken to mediation by the court in Halsey, “the decision undoubtedly had at the time a steadying effect on the continued growth of mediation from 2005 onwards”.
“The broad impression was gained that to decline to mediate no longer created a high risk of a costs sanction, as the test of unreasonableness was hard for the losing party to satisfy and anyway there was such a small chance of any given case going to and through trial.”
Questioning whether the costs sanction threat has worked “to the level desired by the judges and policy‐makers in civil justice, and whether more needs to be done to reinforce its true effect for the benefit of users”, the report said the most striking element of the regime was that any real criticism of either or both parties’ use of ADR, or lack of it, was left until after judgment.
“Why cannot and should not that conduct be capable of critical review by the court at the time the decision is taken? The subsequent decision is, first, only taken in the rare cases which get as far as final costs order and, second, is then inevitably overshadowed by the judgment. The sting of the Ungley, Fontaine and the Commercial Court orders for those who ignore them is only that they must give a written account of their reasons which can inform the court’s ex post assessment of their conduct – should the ‘end of the day’ ever be reached.
“The conclusion of a well‐conducted trial and a carefully prepared judgment are not a hospitable background against which to submit that the whole thing might have been better avoided!”
The report said interim costs sanction “may be possible”. It explained: “Interim costs orders have proved an enormously effective instrument of case management since their introduction. We also question whether costs sanction should be the only remedy or whether the power to order mediation ad hoc in particular cases is not a necessary adjunct of a new approach.”
It also mentioned other approaches to costs orders in support of ADR. In the South African case of Brownlee v Brownlee, no order for costs was made, and a cap placed on what each lawyer could charge their own client under their retainer, as they had in effect colluded to decline to mediate when their clients might well have benefited from doing so.
“Alternatively, would it be possible to rescind the right to trial costs recovery for either side if there is no formal mediation no later than three months before trial, even if there have been part 36 offers and RTMs [round table meetings]: this would reflect the often ignored fact that negotiations conducted through a skilled mediator on a properly confidential basis, fully involving the parties, are far more likely to succeed than bilateral negotiations between lawyers.”
More generally, a majority of the group was against making ADR compulsory and said courts should promote the use of ADR more actively at the allocation and directions stage.
“We think that the threat of costs sanctions at the end of the day is helpful, but that the court should be more interventionist at an earlier stage when the decisions about ADR are actually being taken. We think there should be a presumption in most cases that, if parties have not been able to settle a case by the directions stage, they should be required to bring forward proposals for engaging in some form of ADR…
“Those in favour of compulsion urge that there may be particular sectors in which ADR is so effective and so far preferable to litigation that there should at least be sector‐specific compulsion. Two candidates have been mentioned: boundary disputes and clinical negligence.”