Mediation is firmly established as a means of dispute resolution in commercial disputes and is the most commonly referred to form of alternate dispute resolution (ADR). It is essentially a structured settlement negotiation facilitated by an independent third-party mediator, conducted on a without prejudice basis and confidentially, typically taking place over a day either in person or virtually. Even if settlement is not achieved on the day, it may lead to a settlement soon afterwards.
The success rates claimed for mediation are impressive, with the latest CEDR Mediation Audit recording a settlement rate of 93% for commercial cases in 2020 settling either on the day of mediation or shortly afterwards, up from 89% in 2018 and 86% in 2016.
With success rates like that, why is mediation not used in every commercial case? The reality is that while there is no compulsion to mediate, there is strong encouragement to do so from the courts. The policy has been to encourage, not mandate mediation since the introduction of the Civil Procedure Rules in 1999. Encouragement of mediation and ADR generally was part of a raft of changes aimed at speeding up the litigation process, saving costs and encouraging settlement with measures such as the introduction of the overriding objective, Part 36 offers and pre-action protocols, among others.
Encouragement to mediate
This "encouragement" can be seen in a few ways. First, where the parties have agreed in their contract that should a dispute arise, it must be referred to mediation, the courts will enforce that agreement and order stays of proceedings to ensure compliance. Second, the procedural rules encourage ADR, the pre-action protocols require the parties to consider whether ADR might be appropriate at that stage, and then as litigation progresses confirmation that it has been considered is required at the allocation stage with an invitation for either party to apply for a stay for mediation. In addition, judges can raise the question of whether it has been considered and recommend it (and sometimes lament the fact it has not been used). The latest Commercial Court Guide goes further and provides that parties who consider that ADR (or to use the guide’s new term for it, "negotiated dispute resolution") might be appropriate may apply for directions "at any stage". The third way is to penalise unreasonable refusals to mediate. Refusing mediation puts a party at risk of being accused of unreasonably refusing to mediate, and if that is accepted by the court the costs consequences can be severe.
In July last year, the Civil Justice Council gave its view, welcomed at the time by the master of the rolls, that compulsory ADR is both legal and desirable.
Small claims track
The prospect of compulsory mediation for the county court small claims track is here. The government is undertaking a consultation on its proposal to automatically refer parties in civil disputes valued up to £10,000 to a free one hour mediation session early in the court process. The proposal is for telephone mediation, during which the mediator will speak to each party in an effort to identify common ground and broker a deal.
Telephone mediation is currently offered on a noncompulsory basis but has only been taken up in 21% of small claims. In the 12 month period ending 31 January 2021, there were 9,912 claims referred to mediation, with 7,083 appointments issued, 55% of which resulted in successful mediation and the case being settled. The proposals for compulsory mediation of small claims seem sensible: they amount to 61% of claims in the county court; parties are usually neither sophisticated nor represented, the underlying disputes are not usually complex, and the parties themselves want to have their disputes resolved as quickly as possible. Mediation offers parties the opportunity to explore settlement in a meaningful way, whereas for parties uncertain of procedure, discussing and achieving settlement through the courts is challenging.
Commercial cases are a different story
The position with commercial litigation is different. Save perhaps for some lower value claims, parties are usually represented. The knowledge and experience of lawyers in mediation are generally good; cases are often complex and, particularly prior to disclosure, the situation is often fluid as issues emerge. The benefits of mediation are well known but timing can pose a dilemma - mediate too soon and the parties may not be ready to settle, but leave it too late and significant costs will have been incurred. The time and costs of mediation are not insignificant. Unsurprisingly, parties are often reluctant to participate without the confidence of success. While it is true that unsuccessful mediation can give each party a better understanding of their opponent’s positions and objectives, it can result in a conclusion that only a trial will resolve.
But what of compulsion? If it were to arise, when would it take place? Before issue? Close of pleadings? After disclosure? After written evidence? The reality is that all cases are different and compelling mediation at an early stage may be right for one case but wrong for another. In my view, it is the advised parties that know best. With continued encouragement from the courts and the risk of penalties for unreasonably refusing to settle, there is no need for compulsory mediation in commercial cases.
This article was first published in The Law Society Gazette and can be accessed here.
Michael Frisby