Halsey v Milton Keynes General NHS Trust  EWCA (Civ) 576
In the case of Halsey v Milton Keynes General NHS Trust  EWCA (Civ) 576, the Court of Appeal decided that to oblige parties to refer their dispute to mediation would be unacceptable, obstruct their right of access to court and would be a violation of Article 6 of the Human Rights Convention, more recently there have been calls to review this.
For example, in the case of Bradley v Heslin  EWHC 3267 (Ch) the judge suggested a form of wording for directions in boundary disputes and rights of way disputes, which would make it compulsory to attempt mediation in such cases. The judge said: “The Court cannot oblige truly unwilling parties to submit their disputes to mediation: but I do not see why directing the parties to take (over a short defined period) all reasonable steps to resolve the dispute by mediation before preparing for a trial should be regarded as an unacceptable obstruction on the right of access to justice”.
The Court of Appeal confirmed that since Halsey v Milton Keynes General NHS Trust  1WLR 3002 , an unreasonable refusal to engage in ADR is unreasonable conduct in response to which the court can order costs penalties. In deciding whether a refusal to engage in ADR is indeed unreasonable, the court refers to the non-exclusive guidelines that it has laid down and that have, ‘stood the test of time, and the crucible of application in subsequent reported cases’. It was however a feature of the two cases reviewed in Halsey that, ‘the refusing party had communicated its refusal to the inviting party, with succinct reasons for doing so.’
In this case, Mr Jonathan Seitler QC made the argument that, ‘silence in response to an invitation to participate in ADR was itself unreasonable regardless whether it amounted to a refusal, or whether there were reasonable grounds to refuse.’ In support of this novel argument, Mr Seitler relied on the contents and, ‘general thrust,’ of the ADR Handbook.
In confirming this argument, the Judge states at paragraph 34,
“In my judgment, the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds.”
The court therefore confirmed that failure to reply to an invitation to mediate will, as a general rule, be unreasonable and carry a costs penalty from the time the invitation was made.
A useful insight into the current thinking of the judiciary vis-à-vis the ADR Handbook can be found at the end of this judgment at paragraph 56:
“Finally, as is recognised by the weight placed on the judge’s decision in the passage in the ADR Handbook to which I have referred, this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation. To allow the present appeal would, as it seems to me, blunt that message. The court’s task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres.”
The case involved an application by the claimant, Mr Barden that the Defendants pay a sum of £673,177.16 in alleged outstanding balance payable pursuant to a settlement agreement which was drawn up in the early hours following a mediation.
At paragraph 3, Vos J outlines, “The crucial clause 3 of the SA (“clause 3″) was headed “PAYMENT OF AGREED SUM” and provided that “[t]he CRU Parties shall by 4pm on 1 November 2012 pay £1,350,000 (the Settlement Sum) by telegraphic transfer into the Cheyney Goulding LLP client account at HSBC Bank…”
Mr Barden alleged that the Defendants were obliged to pay the full £1.35 million sum to him, and a further similar sum by way of PAYE income tax to HMRC. The Defendants counter argued that they were entitled and obliged to pay only a net sum to Mr Barden, having deducted PAYE income tax.
Rejecting Mr Barden’s claim, Vos J stated at paragraph 65:
“I have reached the clear conclusion that the SA is to be construed as meaning that the payment of £1.35 million due to Mr Barden should be paid net of any PAYE due to HMRC thereon. If I were wrong about that, I would have ordered common mistake rectification of clause 3 as set out in paragraph 62 above.”
This is a Family case in which the relevant passage regarding mediation can be found at paragraph 9:
“The mediation did not take place as agreement could not be reached as to the identity of an appropriate mediator and W accordingly made an application for a legal costs order. On 30 October 2013 Mostyn J refused her application, saying in his ruling that the W had been unreasonable in her approach to the mediation; first in her insistence on using a top-drawer and top-price mediator and secondly that her insistence on attendance of legal representatives at mediation was neither necessary nor reasonable; in my experience this would be unusual and arguably unhelpful. Mostyn J pointed out that there was still time for mediation to take place. Unfortunately it has not done so and out of this modest matrimonial pot H’s costs of the appeal are £22,320 and W’s £25,372.”
The Judge found that “where a party to a dispute, which there are reasonable prospects of successfully resolving by mediation, rejects mediation on grounds which are not strong enough to justify not mediating, then that conduct will generally be unreasonable.”
This was a matter where BAE had reasonably considered that it had a strong case, and where a party faced an unfounded claim and wished to contest it rather than buy it off – the Court was to be slow to characterise that as unreasonable conduct. A watertight case could be sufficient justification for refusal. Mediation could have a positive effect, even if the claim had no merit.
The mediator could bring a new independent perspective to the case. Nonetheless, BAE’s refusal to mediate was unreasonable.
Each time the Claimant offered mediation, the Defendant had asked for costs information which could not be provided. The judge found that a mediation would have cut through the positions taken by the parties and would have cost £40,000, not delayed the litigation and the cost was not disproportionately high. It was likely that there would have been a mediated settlement and there were reasonable prospects of success, so it was unreasonable to reject it.
In Avonwick Holdings Ltd v Webinvest Ltd the Chancery Division considered the use of ‘without prejudice’ as a topper for letters and emails. The case concerned draft heads of terms over the restructuring of the defendant’s obligations under a loan agreement after Webinvest had defaulted on a debt due.
Avonwick’s solicitor started marking correspondence between the parties (and the draft heads of terms) as ‘Without Prejudice & Subject to Contract’ and all parties followed suit in further communications. The parties were later unable to reach an agreement to restructure the heads of terms and Webinvest wanted to restrain Avonwick from submitting a wind-up petition against it. The Court was asked to consider whether the correspondence between the parties should be admissible as evidence at trial or whether it was protected by the ‘without prejudice’ rule as marked.
The ‘without prejudice’ rule is used to exclude evidence of communications where parties genuinely seek to settle a dispute. It is intended to allow parties to communicate openly, without fear of prejudice in court if negotiations fail and encourage settlement outside of litigation. The general rule is that both parties must agree for a ‘without prejudice’ document to be put before the court.
There are three limbs for the ‘without prejudice’ rule to apply there must be:
1.An existing dispute of some sort, but need not yet be litigious;
2.A genuine effort to settle the dispute; and
3.Substance over form: just because the document is marked without prejudice it does not mean the rule applies.
In Avonwick, it was ruled the term ‘without prejudice’ was used incorrectly because at the point of communications there was no dispute between the parties. The judge said the negotiations between the parties concerned how and when an admitted liability should be repaid and this was different from seeking to settle a disputed liability.
It was also confirmed that communications cannot benefit from ‘without prejudice’ privilege in retrospect when a dispute is later raised – the dispute has to be in existence at the time the ‘without prejudice’ rule is intended to apply.
The judge considered that Avonwick’s solicitor had made a mistake in marking the communications as ‘without prejudice’ and held that the communications between the parties were not subject to the protection of the ‘without prejudice’ rule and were therefore admissible at the forthcoming trial.
Give careful consideration to marking documents ‘without prejudice’ as it will not be a comprehensive means of protection. It will ultimately be the court who considers what is actually happening in the matter and it may ignore the without prejudice label. Be prepared to be called upon by the court to explain your reasoning for marking correspondence as ‘without prejudice’.
An unreasonable refusal to mediate will be punished by a costs sanction. This was re-affirmed by the Court of Appeal last year in the case of PGF II SA v OMFS Company Limited . The High Court has recently awarded indemnity costs against a defendant that persistently refused to mediate.
In Garritt-Critchley v Andrew Ronnan and Solarpower PV Ltd the claimant made offers to mediate from the very start of the get go in the letter of claim. It repeated the offer a number of times right up to trial. The defendant refused the offer for various reasons such as:
it was not the right stage;
the costs were disproportionate;
the parties didn’t like each other; and
the parties were too far apart.
The court acknowledged the burden was on the claimant to show the refusal was unreasonable and examined the reasons put forward by the defendant and the other reasons listed in the well known case of Halsey v Milton Keynes NHS Trust . The court dismissed the reasons one by one. For anybody who routinely relies upon a “Halsey” reason to avoid mediation the case is a must read along with the PGF decision as both cases knock down the arguments put forward in support of justifying those reasons.
The defendants also sought comfort from the PGF case on the basis that they did not ignore the offers to mediate. Whilst the court accepted the defendant engaged in discussions about ADR as they are required to do the outcome of that engagement was an unreasonable refusal to mediate.
Compliance with the CPR
Compliance with the CPR rules is going to be strictly enforced, and those who fail to comply will be punished. So says the Court of Appeal in the infamous “Plebgate” case of Andrew Mitchell v News Group Newspapers Limited. The case was a defamation claim regarding the Sun’s publication of allegations about Mr Mitchell’s behaviour when leaving Downing Street on his bicycle on 19 September 2012. Mr Mitchell’s lawyers were late filing a costs budget at Court. The Court applied the draconian penalty prescribed in the rules, namely that Mr Mitchell would not be entitled to recover his solicitors’ costs, even if he won the case. Mr Mitchell appealed and the Court of Appeal took the opportunity to warn that non-compliance will not be tolerated. In refusing the appeal the Court reiterated that:
The new more robust approach that we have outlined above will mean that from now on relief from sanctions should be granted more sparingly than previously. There will be some lawyers who have conducted litigation in the belief that what Sir Rupert Jackson described as “the culture of delay and non-compliance” will continue despite the introduction of the Jackson reforms. But the Implementation Lectures given well before 1 April 2013 were widely publicised. No lawyer should have been in any doubt as to what was coming. We accept that changes in litigation culture will not occur overnight. But we believe that the wide publicity that is likely to be given to this judgment should ensure that the necessary changes will take place before long.
Compliance with the rules is now of “paramount importance” and the Court sees costs management and budgeting as being at the heart of the reforms. The Court had little sympathy for busy lawyers who miss deadlines, or for Mr Mitchell potentially having to continue with his claim as a self-represented litigant because his lawyers will not get paid.
The Court stated that as a result of its decision legal representatives will become more efficient and will routinely comply with rules, practice directions and orders. From a risk management and professional indemnity perspective, the decision has enormous ramifications. Lawyers are having to alter their approach to become pseudo accountants and project managers.
The great poet Seamus Heaney was exasperated by the culture of silence in the face of interminable conflict and this prompted him to write his famous ironic poem “whatever you say, say nothing.” The Court of Appeal has made it clear that silence is unacceptable in a post-Jackson world, in the recent case of PGF II SA v OMFS CO 1 Ltd (2013). Here, the Court of Appeal revisited the test in Halsey v Milton Keynes NHS Trust , which was growing outdated following the Jackson reforms. In Halsey, the Court set out a list of factors for the Court to take into account, when considering whether a refusal to mediate is unreasonable, including:
1.nature of the dispute;
2.merits of the case;
3.extent to which other settlement methods had been attempted;
4.whether the costs of ADR would be disproportionately high;
5.would any delay in setting up and attending ADR have been prejudicial;
6.whether ADR had a reasonable prospect of success.
I have long advocated a change to the Halsey fact