Queen`s Bench Division

Letters or conversations written or declared to be “without prejudice” cannot be taken into consideration in determining whether there is good cause for depriving a successful litigant of costs.

“In my view it would be a bad thing and lead to serious consequences if the Courts allowed the action of litigants , or letters written to them “without prejudice”, to be given in evidence against them as material for depriving them of costs.It is most important that the door should not be shut against compromises, as would certainly be the case if letters written “without prejudice” and suggesting methods of compromise were liable to be read when a question of costs arose.”

 

Paul Thomas Construction Limited v. Hyland & Anor

 

Lord Chancellor issued a formal written pledge that: “Government departments and agencies make these commitments on the resolution of disputes involving them. Alternative dispute resolution will be considered and used in all suitable cases wherever the other party accepts it”

 

Frank Cowl v. Plymouth City Council

Aside for compulsory mediation orders issued in the London Civil Justice Centre the order below forms the strongest form of encouragement short of court compulsion.

DRAFT ORDER

“1. On or before [*] the parties shall exchange lists of 3 neutral individuals who are available to conduct ADR procedures in this case prior to [*]. Each party may [in addition] [in the alternative] provide a list identifying the constitution of one or more panels of neutral individuals who are available to conduct ADR procedures in this case prior to [*].

2. On or before [*] the parties shall in good faith endeavour to agree a neutral individual or panel from the lists so exchanged and provided.

3. Failing such agreement by [*] the Case Management Conference will be restored to enable the Court to facilitate agreement on a neutral individual or panel:

4. The parties shall take such serious steps as they may be advised to resolve their disputes by ADR procedures before the neutral individual or panel so chosen by no later than [*].

5. If the case is not finally settled, the parties shall inform the Court by letter prior to [disclosure of documents/exchange of witness statements/exchange of experts' reports] what steps towards ADR have been taken and (without prejudice to matters of privilege) why such steps have failed. If the parties have failed to initiate ADR procedures the Case Management Conference is to be restored for further consideration of the case.

6. [Costs].Note: The term "ADR procedures" is deliberately used in the draft ADR order. This is in order to emphasise that (save where otherwise provided) the parties are free to use the ADR procedure that they regard as most suitable, be it mediation, early neutral evaluation, non-binding arbitration etc.”

 

Aside for compulsory mediation orders issued in the London Civil Justice Centre the order below forms the strongest form of encouragement short of court compulsion

DRAFT ORDER.

“1. On or before [*] the parties shall exchange lists of 3 neutral individuals who are available to conduct ADR procedures in this case prior to [*]. Each party may [in addition] [in the alternative] provide a list identifying the constitution of one or more panels of neutral individuals who are available to conduct ADR procedures in this case prior to [*].

2. On or before [*] the parties shall in good faith endeavour to agree a neutral individual or panel from the lists so exchanged and provided.

3. Failing such agreement by [*] the Case Management Conference will be restored to enable the Court to facilitate agreement on a neutral individual or panel:

4. The parties shall take such serious steps as they may be advised to resolve their disputes by ADR procedures before the neutral individual or panel so chosen by no later than [*].

5. If the case is not finally settled, the parties shall inform the Court by letter prior to [disclosure of documents/exchange of witness statements/exchange of experts' reports] what steps towards ADR have been taken and (without prejudice to matters of privilege) why such steps have failed. If the parties have failed to initiate ADR procedures the Case Management Conference is to be restored for further consideration of the case.

6. [Costs].Note: The term "ADR procedures" is deliberately used in the draft ADR order. This is in order to emphasise that (save where otherwise provided) the parties are free to use the ADR procedure that they regard as most suitable, be it mediation, early neutral evaluation, non-binding arbitration etc.”

 

An unreasonable refusal to mediate will lead to uncomfortable cost consequences. The Courts show their willingness to give significant weight to the willingness or otherwise of the parties to attempt alternative dispute resolution pursuant to Civil Procedure Rules 1998, Rule 44.3

 

If there is no realistic prospect of settling the case in mediation because of the obsessive character and attitude of the other party, then a refusal to mediate will be justified. Burden of proof reversed in Halsey. The case sets out the circumstances when it may be justified in refusing to mediate. The case is reviewed in Halsey( see below).

 

Office of the Deputy Prime Minister draft circular on Best Value and Performance Improvement states:

“It is everyone’s interest to work at avoiding contractual disputes in the first place and this is mirrored in the emphasis above of improving relationships between the client and contractor through team work and partnering. However, when disputes do occur it is important to have a fast, efficient and cost effective dispute resolution procedure. Local authorities should seek wherever appropriate, to provide clauses in their contracts on the use of alternatives to litigation (commonly termed Alternative Dispute Resolution) which can achieve this.”

 

Societe Internationale De Telecommuni-
cations Aeronautiques
SC v. Wyatt Co (UK) Limited and others (v. Maxwell Batley (A Firm) part 20 defendant)

Royal Bank of Canada v. Secretary of State for Defence

Held that the court had a power to make an award of costs even where parties have settled without a trial.The case therefore offers no encouragement to litigants to defend hopeless cases up to the door of the court in the belief of no order being made as to costs by the court if a commercial settlement is reached at that stage.

 

Both parties found by the Court to have shown a genuine and constructive willingness to resolve the issue between them and therefore neither party should be penalised in costs for not having gone along with the particular form of ADR proposed by the other.

 

Alan Valentine v. (1) Kevin Allen (2) Simon John Nash (3) Alison Nash

1 October 2003

QBD, Commercial Court
Coleman J

This case is a variation on the principle that an agreement to agree cannot be enforced. It decided that if you have agreed to a mechanism to attempt to resolve disputes by , you can be compelled to follow that process. A dispute escalation clause was valid and enforceable

Shirayama Shokusan Company Ltd & Ors v. Danovo Ltd

The burden is on the unsuccessful party to show why the general rule on costs should be departed from. The fundamental principle was that the normal costs rule applies unless the successful party had acted unreasonable in refusing to agree to mediation.

This case contradicts previous rulings that fraud cases were not suitable for mediation

The rule in Walker v Wilshire (1889 see above) remains good law and the court cannot order disclosure of “without prejudice” negotiations against the wishes of one of those parties to those negotiations. This means that when it comes to deciding the question of costs the Court cannot decide whether one side or the other was unreasonable in refusing mediation. But the court went on to say that was not disastrous or damaging from the point of view of encouraging ADR.

 

 

Court of Appeal Lord Justice Brooke Lord Justice Manse Lord Justice Manse Lord Justice Dyson.

Remark.
This is an authoritative guidance as to the position of litigators under the Proceeds of Crime Act (POCA) 2002. This is a welcome clarification confirming that the disposal of proceeding by consensual process in the context of civil litigation is also outside the scope of s.328 and just an ordinary feature of the conduct of civil litigation.

Given the Court of Appeal’s concern to encourage settlement it is presumed that s.328 of POCA does not apply to any lawyer receiving information at the early stages of a dispute. But do take note that consensual arrangements independent of litigation could be "an arrangement" under the section which carries criminal sanctions.

 

The alleged unreasonable conduct, a refusal to mediate, took place before May 2001, and was based on the advice of a surveyor. It was before the law was settled on the subject of cost penalties for failing unreasonably to mediate in Dunnett v Railtrack in 2002 so the Court of Appeal (Lord Justice Ward ) did not in this case penalize the refusal but instead issued the following warning to those who might unreasonably refuse offers in the future.

“The profession can no longer with impunity shrug aside reasonable requests to mediate. The parties cannot ignore a proper request to mediate simply because it was made before the claim was issued. With court fees escalating it may be folly to do so. I draw attention, moreover, to paragraph 5.4 of the pre-action protocol for Construction and Engineering Disputes - which I doubt was at the forefront of the parties minds - which expressly requires the parties to consider at a pre-action meeting whether some form of alternative dispute resolution procedure would be more suitable than litigation. These defendants have escaped the imposition of a costs sanction in this case but defendants in a like position in the future can expect little sympathy if they blithely battle on regardless of the alternatives. “

 

Helpful decision of the TCC on the effect on costs of a refusal to mediate and a failure to provide information at the pre-action stage. Ramsey J held that the defendant`s failure disentitled it from costs to which it would otherwise been entitled.

Settlements reached where costs are not quantified but left that they are to be assessed by the court costs office if not agreed will always carry with them the very high risk that the paying party will use arguments about the case to argue as to the reasonableness and proportionality of the costs in order to reduce the sum to be paid to the receiving party.

 

“The claim to [without prejudice] privilege cannot turn on purely temporal considerations.” Auld LJ stated that the critical feature is the subject matter of the dispute and that one must ask whether in the course of negotiations the parties contemplated, or might reasonably have contemplated, litigation if they could not agree. Auld LJ therefore allowed the appeal holding that the parties were obviously in dispute and were both clearly conscious of the potential for litigation if they could not resolve the dispute without it and ordered that references to without prejudice discussions in a witness statement be removed.