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Splendid isolation
Mediation is an excellent alternative to court
proceedings, but these days the two forms of dispute resolution
are getting mixed up. Mediation should be left to its own
devices
“Mediation takes place under the cloak of
‘privilege’. Any opportunity to rake over the mediation ashes in
court would stifle free negotiations”
Hardly ever these days do I take part in
mediation without both teams turning up with a squad of lawyers.
That doesn’t trouble me one jot. If it leads to a mediated
settlement, all’s well that ends well. The hiccup arrives when
the mediation gets nowhere and the parties press on to court or
arbitration. The judge announces the winner, and the winner asks
for his costs, those of the action and the failed mediation.
Mediation, by the way, can give rise to a whopping bill.
Mr Justice Coulson dealt with all this in a
Technology and Construction court case called Lobster Group
vs Heidelberg Graphic and Close Asset Finance. The overall
claim was for machinery that was said to be defective and that
caused losses. The judge gave guidance on pre-action costs. Well
before court proceedings began the disputants employed a
mediator, but the magic dust fell on deaf ears. The pre-action
costs, said the judge, were not ordinarily recoverable.
The rule is that the court has power to award
“the costs of and incidental to the proceedings”. But pre-action
mediation is not “incidental”. It is the opposite; it is an
alternative, and a jolly good one, to court proceedings. Valid
methods of alternative dispute resolution which take place
before proceedings have no connection with them. So a claim to
be compensated for mediation costs doesn’t get off the ground.
In any case, if there was a notion that the costs of pre-action
mediation could be recovered, you can bet your bottom dollar
that the court would have to hear arguments about why the
mediation failed, and that would bump straight into a key
feature of mediation – secrecy. Mediation takes place under the
cloak of what lawyers call “privilege”. The idea is to coax the
parties in private to do a deal, be frank, be willing to seek
compromise, even drop their guard. Any opportunity to rake over
the mediation ashes in a court would stifle free negotiations.
So pre-action mediation costs are not claimable.
But suppose the arbitration or litigation is
already under way? Nowadays, judges are required to “manage
cases actively” and may politely tell parties to try mediation
first. During this, the tribunal may pause within its timetable.
Are the pause and mediation endeavours “incidental to the
proceedings”?
It is much easier to see that such mediations
are “work done in connection with a view to settlement”. Such
costs awards are within the ordinary powers of a court, but
there are uncomfortable edges about all this. In Chantry
Vellacott vs Convergence, the court was persuaded that
mediation that started after litigation started was incidental
to the proceedings, so an inquiry began into why the mediation
failed and who should bear the wasted costs. On the table in the
mediation was a £1m offer to settle. The other side wanted £20m.
The judge said £20m was unreasonable but £1m was generous. So
the generous party will have its costs. The uncomfortable edge
is that the court is conducting an inquiry into this otherwise
privileged arena. Wouldn’t it be more sensible to leave
alternative dispute resolution and mediation alone altogether?
Earlier I said pre-action mediation costs
were not ordinarily recoverable. There could be
exceptions. Say, for example, an expert report has been
compiled, at some expense, for the mediation, but the expert
report is also used in the court or arbitration; wouldn’t that
be costs incidental to the court proceedings? It’s used for both
arenas … It’s messy again, isn’t it?
The temptation is to have a written mediation
agreement explaining the hows and whys and what-ifs, but we’d
end up with a 20, no, 40-page, mediation contract.
Depressing, isn’t it? On the other hand there
is a lot of pressure put on disputants not to trouble the public
purse. And it’s ordinary to see a party to a developing dispute
bully the other to mediate. It spends thousands only to find the
bully had a hopeless case. “Costs!” shouts the injured party,
and a court may be tempted to agree even if it is well before
the action begins. The conclusion? Leave mediation to its own
devices. It is an alternative. Keep it, by keeping it that way.
Readers are invited to forward recent
judgments for reporting in this column (with full
acknowledgement) to: Tony Bingham, 3 Paper Buildings, Temple,
London EC4Y 7EU. DX: 37164 Biggleswade
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