SIVA-LIZATION

The costs crisis – mediation as a solution? CEDR’s submission to the Jackson Inquiry into legal costs – by Dr. Karl Mackie, Barrister and Chief Executive of CEDR and Tony Allen, Solicitor and a Director of CEDR

Posted in Uncategorized by drsivalaw on December 8, 2009

NOTE: This is a revised submission based on a first draft which was written before the Interim Report of Sir Rupert Jackson was published and which now responds to a number of points raised by him in that Report, and also  other recent developments.  This version replaces the earlier version and can be regarded as embodying all CEDR’s responses to the request for views.  Also attached are papers by Tony Allen, firstly dealing with the new Pre-issue Conduct Practice Direction and secondly (as requested by Sir Rupert) with his own experience of mediation of personal injury and clinical negligence cases.

CEDR’s role in promoting the cost-effectiveness of mediation

CEDR – the Centre for Effective Dispute Resolution – was set up as a not-for-profit in 1990 by the CBI and a group of lawyers who were determined to find a cheaper and quicker means of resolving disputes than was then offered by the civil justice system.  It did so through three related routes – first by offering ADR services of high quality, primarily mediation, but also neutral evaluation, expert determination and adjudication; second, by training mediators of high quality to deliver both its own services and to make available a cadre of mediators nationwide in a wide spectrum of professions and businesses to help transform thinking and experience throughout the legal and commercial community; and thirdly to raise awareness of the benefits of alternative dispute mechanisms for civil justice within both that community, and also government and the judiciary. 

Twenty years on from CEDR’s foundation, the face of civil justice has undoubtedly changed.  We whole-heartedly endorse Sir Rupert’s analysis of the impact of the CPR which opens his Interim Report.  The Civil Procedure Rules 1999 emerged from the Woolf Access to Justice process, and CEDR made a full contribution to consultations initiated by Lord Woolf as the basis for his reports.  The CPR have undoubtedly brought a more simplified unified look to the system, with a number of useful procedural reforms such as Part 24 and Part 36.  What has undoubtedly changed dramatically is the litigation culture as a whole.  A less adversarial and more co-operative approach to dispute resolution is widespread entirely congruent with the fact that alternative dispute resolution occupies a significant status in civil justice thinking and practice.  Our system requires parties to place their cards “on the table”.  The most dramatic lesson learned from CEDR’s privileged opportunities to train mediators and consult on civil justice reforms in a number of common law and civil law jurisdictions world-wide is that in most others, not to ambush is technically negligent. Here, to ambush an opponent risks an adjournment with costs sanctions for the ambusher.  This may take some of the fun out of justice for lawyers, but it certainly and very properly removes uncertainty and improves advance risk analysis for parties, the people and business for whose benefit the litigation system exists.

Lord Woolf’s first ambition was to reduce costs and delay.  While delay has been much reduced by the overall package of reforms, except perhaps in certain limited areas where business has grown (such as in asylum and associated administrative cases), the cost of litigation appears to have escalated.  Why should this be so, from CEDR’s standpoint, being an organisation which is dedicated to reducing not only the delay but the cost of litigation?

CEDR’s own research into costs savings through mediation

CEDR has regularly conducted surveys of the mediation market-place for its biennial Congress, the most recent of which was in November 2007.  The findings which have emerged from the most recent survey of users of mediation about the costs which the mediation process can properly be claimed to save are that by achieving earlier resolution of cases that would otherwise have proceeded through litigation, the commercial mediation profession will in 2007 have saved UK business in excess of £1 billion a year in wasted management time, damaged relationships, lost productivity and legal fees. Since 1990, mediation as an activity has contributed savings of £6.3 billion to business.  By way of a comparator to these figures, CEDR’s audit results suggest that the aggregate value of the mediation profession in terms of total fee income, is around £8.2 million.  But there are simply no figures to demonstrate what mediation has saved in terms of time and cost in areas of personal litigation such as personal injury, employment, private property disputes and so on.

The cost of mediation itself

Mediations of substantial claims by experienced mediators are normally charged out at an hourly rate for the mediator, based on a projected estimated time for each dispute.  Thus typically a mediator may be charged at anything between £200 to £400 per hour on the basis of four or five hours preparation and a ten hour mediation day. 

There are those who complain that mediation adds to costs, especially when it does not produce a settlement of a dispute.  A mediation usually involves a team of lawyers plus a mediator for a day of about eight to eleven hours, plus preparation for all which may occupy another working day for both legal teams and perhaps four to five hours for the mediator.  This is an appreciable investment of time when converted into hourly rates, the main component of which is the cost of each legal team, rather than the mediator.  The investment pays off in anything from 60-90% of cases, depending on the sector, the mediator, and on the willingness of the parties to buy up the risks in their respective cases.  Many which do not settle on the mediation day settle later and as a direct result of the shifts in thinking produced by the mediation.  But even in mediations which do not settle and lead to trial or appeal, preparation work that will have been needed to be done anyway is done at an earlier stage than otherwise, and the issues thereby usefully defined and limited.  For this reason mediators tend to talk not of failed mediations but mediations which did not settle the claim immediately or at all.  It is almost never the mediation process or the mediator which obstruct settlement at a mediation: the intrinsic value of both of these in enhancing settlement negotiations has been proven time and again.  It is usually the assertion of a genuine difference, or (more often in CEDR’s experience) intransigence or unwillingness of one or other party, and sometimes both parties, to buy up their risk on legal, expert or factual issues, or the huge costs at stake, which get in the way of settlement.

Until recently it did not appear possible to monitor or restrict the size of a legal team at any mediation.  Now that CEDR’s standard mediation agreement and others provide for the costs of preparation and attendance at the mediation, together with the fees of the mediator and any provider, to be treated as costs in the case, whether or not the mediation settles the case, it becomes possible for  a paying party to argue that the size of an opponent’s team was disproportionately large or expensive.  Such a point can be made either in advance of the mediation or at a later detailed assessment hearing.  It is almost always the case that the hourly rates of lawyers are by far the highest component in the cost of any mediation.  As mediation really does not need more than one or at most two lawyers per party, this should be quite an effective sanction, once it is realised that it exists.

CEDR’s views about the high cost of litigation

So what is CEDR’s view about what is keeping the cost of litigation up?  Firstly, there can be little doubt that mediation is still under-used.  Estimates are difficult where there is no central repository of information about mediation but there seem to be something like 4,000 mediations per year, excluding the over 2,000 small claims mediations so successfully conducted each year through the small claims in-court mediators (where legal costs are normally not at issue, and savings are measured in terms of District Judge small claims trials saved).  This is contrasted with the aggregate number of proceedings issued in the QB and Chancery Divisions and the County Courts in 2006-07, the last year for which statistics are available, a total of a little over 2,036,000 claims.

CEDR’s impression from its own statistics is that mediation is being used reasonably regularly (especially in London and main regional centres) in commercial, property, finance and professional indemnity disputes, with employment disputes (mostly within the jurisdiction of the Employment Tribunal) adding a further 16% to its caseload.  But in the largest single area of litigation, namely personal injury and its smaller associated area (where mediation is particularly apposite) clinical negligence, CEDR’s caseload has reduced from 8% to 6% in the last three years.  This is in part attributable to an adjustment in CEDR’s market share, with more PI mediation providers in competition perhaps dealing with a globally larger caseload.  But overall the picture is clear – that despite the efforts of CEDR and others over at least ten years, the take-up of mediation in these sectors is still disproportionately low when measured both against its success rate and the anecdotal evidence from feedback taken from participants which CEDR records after nearly every mediation.  It is noteworthy that the NHS Litigation Authority asserts publicly its willingness to mediate such cases, but comments that it is hardly ever invited to mediate by claimant solicitors in this field.

We know that the vast majority of litigation now settles.  Figures vary but most quote a rate of over 90%.  This is a trend which existed before the CPR and which the Woolf reforms have undoubtedly done everything to support and increase, making trial a last resort.  So the civil justice process, largely designed with trial in mind, has to be tested against its capacity to generate settlement.  The question arises as to whether it makes adequate provision for achieving good settlements early enough, in default of which a swift and inexpensive route to trial remains open.  CEDR believes that the best chance of early settlement is still not being taken. CEDR shares the recently asserted view by Dame Hazel Genn in her 2008 Hamlyn Lectures that civil justice needs status and better funding, but firmly rejects her apparent view that settlement is itself undermining the strength of the civil courts by starving them of the opportunity to declare the law.  There is no evidence whatsoever in the Law Reports of impoverishment of the quantity or quality of judicial decisions.  Nor could the courts cope with 90% more cases.  Nor are risk-discounted settlements, reached in the shadow of the law, necessarily any less “just” than judgements.

The pre-action protocols (PAPs) were and are a brave effort to bring the first safe settlement moment as early as possible and indeed prior to the issue of proceedings.  CEDR feels a considerable degree of frustration about the apparent ineffectiveness of the PAPs in reducing the number of issued claims.  Breach of their requirements have remained signally under- or unenforced by courts when proceedings are later issued.  CEDR’s firm view is that such proper enforcement, especially of the requirements to try ADR as spelt out in all the PAPs and their Practice Direction (the PAP/PD), would have led to substantial savings in litigation costs.  Indeed, the whole rationale of the Woolf reforms in relation “front-loading” of work had this in mind.   Where the PAPs are observed properly and timeously, each party to a dispute should usually have enough knowledge safely to settle without exposing their lawyers to charges of professional negligence for advising settlement on an insufficient basis.  The only decided case of which we are aware in which a costs sanction was nearly imposed because one party failed to mediate before issue is Burchell v Bullard [2005] EWCA Civ 358, and even there the criticism was mainly directed at failure to respond to an invitation rather than failure to comply with the requirements of the Construction and Engineering Protocol.

We are told that in the construction sector, there is perceived to be a significant disincentive to early mediation in that the fees and costs associated with a pre-issue mediation cannot be recovered, citing Lobster Group v Heidelberg Graphic Equipment Ltd and another [2008] EWHC 413 TCC, a decision of Coulson J.   We are not convinced that this decision is a general authority for that proposition.  In Lobster, Coulson J declined to include the costs of a pre-issue mediation in an order for security for costs.  The mediation took place 2 ½ years before proceedings and was not expressed to be in compliance with the relevant PAP.  Furthermore, the parties had agreed to bear their own costs of preparation and attendance, and to share the mediation fees.  Coulson J drew a distinction between the costs of work done in compliance with the pre-action protocol and “costs of a separate pre-action mediation”, which he regarded as not being “costs of and incidental to the proceedings”, as required by the Supreme Court Act 1981 s.51 if they are to be treated as recoverable costs.  However, most standard mediation agreements (and this includes the CEDR Model Agreement and Procedure) now provide that mediation fees and associated legal costs may be treated as costs in the case where a court is invited to rule on them, even if initially shared or borne by each party.  Coulson J made this the main basis for his decision not to reopen the previous agreement.  Of course, so long as costs may be regarded as “incidental to the proceedings” CPR 44.3(6) makes it clear that these can include costs incurred before proceedings have begun.  Indeed, in personal injury claims, there is an expectation that where a claim is settled before issue of proceedings, the defendant will pay the claimant’s costs on the standard basis or in accordance with any predictive costs tariff such as is included in CPR Part 45.  The practice in pre-issue mediations of personal injury claims is to expect the defendant who pays more than any previously offered sum, whether formally under CPR Part 36 or not, to pay for the mediation fees and associated costs in addition to damages and any other agreed outcome.  The position has however been further clarified by Roundstone Nurseries Ltd v  Stephenson Holdings Ltd [2009] EWHC 1431 TCC, in which it was held that the costs of a pre-issue mediation held in accordance with the PAP were recoverable.  Thus the costs associated with any mediation held pre-issue, and specifically in accordance with a PAP, will be recoverable if the parties agree that this should be so before at or after the mediation.  In passing, it is worth noting that, once mediation costs are justiciable in principle, there should be no reason why mediation fees and costs could not form the subject of “costs-only” proceedings as to quantum of costs, under CPR Part 44.12A.

Procedural judges need to raise questions of their own motion about whether mediation has been tried before issue and where dissatisfied with the replies impose a sanction on either or both parties.  It is too easy for lawyers on both sides to have a brief conversation about how impossible settlement is before issue and to dress that up as an attempt to comply with each PAP’s ADR requirements.  It is tempting for a lawyer to think that “if I am reasonable with the opponent’s dereliction this time, he will be reasonable about mine next time”.  This may suit the lawyers but does it suit either their clients or the legal system with its overriding objective to allot an appropriate proportion of the court’s resources to each case.  This is why case management was taken from the legal profession and conferred on the judges, who should properly take the initiative over compliance with PAP requirements, using a proactive inquisitorial approach rather than expecting only to determine issues that one party raises adversarially.

Even if there is good reason for not mediating a case to conclusion on all aspects shortly before issue, there is no reason why liability cannot be dealt with separately.  Limitation periods are generous, even where three years , and it is noticeable that many mediations of personal injury cases, whether before or after issue, are of cases where the full limitation period was exploited before issue, so that the facts can be anywhere from three to six years old by the time of mediation or trial, sometimes more.  Three years is a long enough time to sort out liability in virtually any case.  And even where for good reason, issues in a given case mean that mediation cannot safely take place before issue of proceedings, the court is entitled to keep a close note of case management timetables to ensure that it is inserted at the right moment.

A degree of oversight and if need be compulsion may even be needed to be exercised over procedural judges in terms of implementing such a policy.  The degree to which ADR Orders are made around the country seems to vary wildly.  Some District Judges and Masters are enthusiasts and some are not.  Some were in legal practice since mediation became a commonplace feature of the civil justice scene: many were not and have no direct experience of it except as something which sounds vaguely in competition with mainstream civil justice and is therefore not to be welcomed or fostered.  It is not clear to us to what extent there is informed training of judges about ADR through the Judicial Studies Board.  CEDR was hired some years ago to deliver 30 minutes of such training and was funded by the DCA to produce a video as part of that component of the refresher training for Circuit and District Judges, but we have heard nothing more of that for over two years.  Lack of knowledge and experience about ADR must inevitably influence judicial decision-making when it comes to ordering ADR in the ways commended by Halsey v Milton Keynes NHST.  In our view, it should be a rare case where a trial takes place without a previous mediation. 

A previous round table or joint settlement conference should not be adequate as compliance, as these suffer from a number of disadvantages, where mediation offers positive procedural benefits. These include contractual formality for the process, and the presence of a neutral to promote the interests of lay parties and to enhance negotiations by discovering true positions in confidential meetings with each party. We should like mediations to take place through voluntary choice by parties on the advice of their legal advisers without the need for court pressure, but there is still a palpable lack of information about and experience of mediation among practitioners, which is artificially hampering the use of mediation and depriving parties of informed choice.  Lord Clarke MR has tellingly spoken several times about this.  While “magic circle” firms in London and the regions are well informed, this is not so of the vast majority of law firms around the country.  Even in firms where one partner may know something about the process, it remains less than comprehensively disseminated.  In that case, it seems clear both from Halsey that ADR Orders may be made, and further from subsequent strong suggestions by Lord Phillips of Worth Matravers and Lord Clarke MR that Halsey is not to be regarded as authority for the proposition that ADR Orders cannot be made against the wishes of either or both of the parties.   The norm should be for mediations to precede issue of proceedings, with sanctions where this is not attempted.  This is especially important with fast-track cases, where full mediation after issue is less likely to be cost-effective.  The courts should know however that there is inexpensive mediation on offer through the National Mediation Helpline, and with special low-cost schemes which include telephone mediation as available through CEDR’s Personal Injury Unit (PIU).  Where not to mediate before issue is excusable in multi-track cases, mediation should be built into the case management timetable in all cases except where good reason is given for excusing it. 

The wording of the Protocols themselves

CEDR understands that a comprehensive review of the PAPs is under way, something which CEDR supports firmly.  CEDR has been arguing for some time that the current wording of the PAPs as it relates to ADR is confusing and inaccurate.  Sir Rupert’s Interim Report actually quotes one of the key misleading passages, which has found its way into them all as standard wording and is currently still there, although it has just been removed from the new Pre-action Conduct Practice Direction. That wording is:

“It is expressly recognised that no party can or should be forced to mediate or enter into any form of ADR”. 

CEDR objected at the time of the first draft of the 41st amendment that this sits very uncomfortably with the first part of the PAP, in the section dealing with ADR and costs sanctions. It also represents a very misleading summary of the law as enunciated by the Court of Appeal in Halsey and related cases before and after.  Leaving aside whether the Court of Appeal’s controversial view as to the possibility that compulsory ADR would be in breach of Article 6 of the ECHR is right (it is certainly obiter in that judgment, a view since endorsed by Lord Clarke MR, with further doubt cast on that aspect of Halsey by Lord Phillips of Worth Matravers), Halsey expressly approved use by the courts of the Commercial Court ADR Order found in Appendix 7 of the A&CC Guide.  The Admiralty and Commercial Court has continued to make such orders since about 1994 without difficulty or embarrassment, and with apparent full willingness to comply.  The same might be thought true of the Technology and Construction Court, with tight case management in place for many years by trial judges.  However, in relatively close-knit jurisdictions like those, there is less need to compel compliance or to threaten costs sanctions.  In the hurly-burly of the Queen’s Bench and Chancery Divisions and the associated jurisdictions in the County Courts, a very different atmosphere and a much looser discipline inevitably prevails.  Also Halsey gave approval of the “Ungley” order, though this frankly occurs so late in the life of a case (shortly before trial) that there is much less scope for costs saving by then.   The court also made it clear that a successful litigant can be penalised for declining to use ADR, especially if this is done in the teeth of an ADR “Order” or even a judicial recommendation to use ADR (such as when a single judge suggests it when granting permission to appeal, as occurred in Dunnett). 

That wording (from the original Construction and Engineering Protocol) was of course drafted long before the decisions of Dunnett and Halsey.  Its reproduction in the later unification of the PAPs has all the hallmarks of a cut-and-paste job, to which little thought was given.  For the PAPs to use wording which is effectively ambiguous in this way has  been less than helpful.  The cases and the principles they decide are pretty clear, and we believe that the right step to take is simply to delete this sentence.  Fortunately this wording appears to be on the way out.  As noted above, it has been deleted from the new Pre-action Conduct Practice Direction since 6 April 2009 (which merely now says that “although ADR is not compulsory….”).  The old wording still appears currently in each of the PAPs, however.  Whether this is intended to show that these words should be given special emphasis or are about to be deleted is not explained!

A recent paper written by Tony Allen reviews the effect of the new Pre-issue Conduct Practice Direction (the PCPD), comparing it with the old Practice Direction.   The PCPD certainly promoted ADR more clearly as a proper pre-issue step, without its being made compulsory.  We believe that improved performance of the obligations imposed by the PAPs, buttressed by proper enforcement by the judiciary, would make major savings by encouraging settlement of a greatly increased proportion of claims before issue of proceedings and therefore to the overall cost of litigation.

Case studies: the existing costs regime and mediated settlements

CEDR sent out a limited circulation questionnaire to its most frequently used senior mediators to ask what impact the costs of litigation has had in their experience on success or otherwise in settling disputes at mediations.  Inevitably the response was too small to analyse statistically, but there are some telling pieces of anecdotal evidence which may be of interest to the Jackson review.  We set out the most significant of those as case studies under various self-explanatory headings, with some comments in italics where necessary.

 Costs incurred getting in the way of settlement

Case study A

In a mediation of a construction dispute between C and D, the gap between them was closed from £400,000 to £10,000.  D made an offer which amounted to what C could get at trial, plus more than standard basis costs.  C’s solicitor insisted on payment of his costs in full (these costs looked to the mediator to be high).  D would not go so far and C was not told (at least not in the mediator’s presence) that he could have his own solicitor’s costs assessed if too high.  Settlement on either standard or indemnity basis later with detailed assessment if not agreed, was not acceptable either.   Settlement was not achieved and trial took place, resulting in an order for indemnity costs against D.

Case study B

An early attempt at mediation in a dispute between C and D was aborted when D discovered that the mediator had no accreditation.  C refused an alternative mediator unless their legal costs of the abortive mediation were paid. D applied for a mediation stay but C resisted and the Master delayed this until evidence had been exchanged.  By the time of the mediation proper, £200,000 costs had been incurred under C’s CFA, and D, who made concessions on the claim, refused to pay costs at that level, and settlement consequently was not achieved at the mediation. 

Case study C

Liability for PI claim was admitted early but quantum (especially future loss) heavily disputed, and at trial C failed to beat a Part 36 offer of £35,000 by under £1,000.  C suffered the normal costs sanction and had to bear both sides’ costs of trial.  C appealed.  At mediation, C’s costs were said to be over £200,000, embodying a success fee of 100%.  D was prepared to offer no more than £100,000 inclusive of costs.  The mediation failed.  Shortly before the appeal, D offered a global sum of £160,000 including costs which C accepted.  C’s solicitors privately agreed to take a considerably reduced costs figure in case they lost costs altogether (though of course C would be deemed to have “won” anyway, having been advised to reject the Part 36 offer).  It was an interesting example of solicitors and their barrister working under a CFA acknowledging that they too faced a risk and buying it up, along with their client.

Mediating costs disputes in group litigation

Case study D

A group litigation claim was settled in a global sum of £3.2 million between about 500 claimants and various public bodies with unified representation.  The costs claimed by the claimants’ solicitors were sought in the sum of £3.5 million despite a costs cap which applied to a period of 18 months prior to trial. After two days mediation, a figure of £1.7 million plus VAT was agreed. 

Case Study E

The claims of just over 1900 claimants were settled for an aggregate of just over £3.3 million, but costs of the two claimant group law firms were bitterly disputed.  D offered £1.3 million and paid it on account.  A day’s mediation was required to settle the generic and individual costs claimed at a global figure of £1.6 million, with a further £300,000 paid.

Public funded cases

Case study F

C claimed up to £100,000 damages for a failed gynaecological operation which had led to temporary incontinence until repaired. Conflicting evidence on breach of duty had come from experts for C and D Trust.  At pre-trial review, the judge advised mediation.  For D Trust to pay 1p damages to C, they had to pay £48,000 in costs to C’s solicitors because of the statutory charge.  They declined, the case was tried and C got nothing.  Had an early mediation been held, there was every chance that C and D Trust would both have bought off the risk of losing at a time when C’s costs were modest.

Before the event insurance

Case study G

A had suffered four successive whiplash accidents within a two year period.  She settled the first shortly after the second, and settled the third and fourth just before trial.  She pursued the second claim against D2 funded by her BTE insurance up to a limit of £50,000, but lost badly against a Part 36 offer of £5,000.  She appealed.  At a Court of Appeal mediation D2’s insurers offered her £30,000 but on condition that they received £40,000 of the BTE indemnity fund for their costs of trial and appeal, leaving C’s lawyers with £10,000.  C was prepared to accept that offer but her lawyers were not.  The appeal failed.

After the event insurance and Conditional Fee Agreements

Mediators comment that CFAs with ATE insurance produces a very unhealthy strain bordering on conflict of interest between client, lawyers and even insurer.  This is exacerbated when defendants choose to solve the problem by proposing a global settlement, leaving the recipient to fight over the division of spoils.  Solicitors are prepared sometimes to compromise on their success fees to facilitate a settlement.

Case study H

H and W claimed harassment against F Finance in seeking to enforce loans.  H was terminally ill and unlikely to survive to trial.  H and W’s solicitor acted under a CFA with 100% uplift, and were acting for other claimants in similar cases, so had a wider interest in the result.  Within the confidentiality of a mediation, F Finance were prepared to offer much more than they feared they might be liable for if they lost, but would not offer 100% uplift on their solicitors’ costs.  The solicitors would not compromise on their uplift, no deal was reached and the case went to trial.  As in Case Study F, the mediator was confronted with a form of conflict of interest between clients and their lawyer, where the lawyer’s interests were not fully aligned with the clients’ interests.

Case study I

At a mediation late in a case, where there had been stepped premiums for the ATE insurance policy supporting the CFA, the threat that a huge premium would shortly be incurred if settlement did not emerge encouraged D to propose a satisfactory settlement figure.

Case study J

In a mediation between a US company D Inc and its UK agent C, C claimed past c0mmissions of £180,000 plus costs of £96,000 to date.  D Inc offered £100,000 all-in, buying up their risk by offering their estimated irrecoverable costs should they lose.  C’s lawyer wanted his full mark–up which produced a total costs claim of £168,000.  Settlement was only achieved after the mediation day but agreeing a payment of £161,000, paid as to £156,000 to C’s solicitor and £5,000 to C.

See also Case study C above

The impact of past and future litigation costs estimates

CEDR’s respondents all commented upon the huge impact on persuading parties to settle that a review of past and future projected costs had upon settlement.  Many solicitors are advising their clients that the cost of litigation is prohibitive for lower value claims and hence that mediation may be a better forum with less cost at stake.  In commercial disputes between unequally strong companies, there is often a real risk that the weaker will be forced into liquidation by the potential damages and costs burden.  Where a mediator gets this recognised by a strong party, it makes finding a sensible solution easier.

Case study K

In a six-party construction case twelve years ago, where two contractors were suing clients on their final accounts, who in turn were seeking to blame their professional advisers, the costs to date of all parties six weeks before a 12 week trial with most parties represented by leading counsel were £6 million.  The negligence claim settled for £250,000, with the client forced to pay the bulk of the final accounts and seriously out of pocket on damages and costs. 

Case study L

At a recent mediation, the parties divulged to each other the fact that the costs to date were £250,000 and that proceeding through trial would cost another £450,000.  The parties were “shocked” into settlement.

Defendant CFAs

Case study M

A and B were employed by C Ltd as dry-lining subcontractors on a major building site, and were badly injured by the collapse of a wall on which they were working, which had been built by D Ltd on the instructions and design (such as it was) of E plc, the main contractor.  E plc pleased guilty to an HSE offence and settled the claims and A and B for a total of just under £500,000 including the legal costs of A and B.  E plc then sought contribution from C Ltd and D Ltd, offering to bear one third each.  The Part 20 proceedings were mediated shortly before trial.  E plc had entered a CFA with their lawyers which entitled the lawyers to a success fee in the event of obtaining a contribution from either or both of C Ltd and D Ltd, recoverable from those Part 20 defendants in the event of a “win” as so defined.  This would have added more than £250,000 to the settlement of A’s and B’s claims on a 100% basis.  In the event, the lawyers compromised on their costs substantially, accepting a contribution of £289,000 offered as one-third of the total sum, leaving E plc to bear two-thirds.

Agreement on costs and detailed assessment

In many cases, exhaustion has set in by the time settlement is reached, and parties are often content to agree that costs shall be allowed to the successful party on the standard basis, subject to detailed assessment if not agreed.  That is usually the last that the mediator hears.  This is how many settlements will doubtless be negotiated outside mediation.  Our impression is that costs are normally agreed rather than resort to detailed assessment which seems to be regarded as hugely cumbersome and expensive as a process.  Costs are also quite frequently agreed at the mediation as well, especially if the defendants want to press for some concessions from the claimant’s solicitors in relation to their CFA success fee.

In some mediations, especially where there is a CFA, the defendants will try to offer costs inclusive global settlements.  This creates tension between claimant and legal team, but occasionally, as in Case studies C and M above, the lawyers will acknowledge their own risks as to reputation with their client or the possibility of the client losing and thus the no-win-no-fee basis depriving them of costs altogether and accept such offers.

Hourly rates, agreed and fixed fees

It may not seem to lie comfortably in the mouths of an organisation which puts mediators out effectively on an hourly rate to criticise the hourly rate regime.  In fact the hourly rates quoted by CEDR are almost always rolled up into an agreed allocation of time, in effect capping the hours allocated, and turning the mediator’s fee into an agreed fixed sum for an agreed period.  An hourly rate for extra hours is quoted and agreed in advance, but the parties have separate autonomy over whether to require the mediator to stay.  With the court excluded from knowing anything about the circumstances in which a mediation ends, either party can walk out with impunity.  Remarkably, this is very rare, and extra hours are often agreed which lead to settlement.

But our general point is that hourly rates without control or a cap are effectively a blank cheque for a lawyer.  They are of course always under possible scrutiny through detailed assessment, but the mediations we have done on major costs disputes suggest that this is regarded by all as a desperate last resort.  In such cases, the argument has been deployed that hours spent on cases should be less if cases are undertaken by expert lawyers.  If that is the case there may be little practical difference between more hours by a junior lawyer and fewer hours by a more senior lawyer.  This suggests that scales of fees might be possible.  It is undoubtedly true that where there is a ceiling on recoverable costs for work, there is an incentive to do it efficiently and even innovatively.  It also will put a premium on settling early, if prolonged litigation or a timely settlement are going to produce broadly the same reward regardless of time invested.  Of course there is the argument that quality suffers if remuneration is capped, but this is a balance that will always need to be struck.  Conversely, so long as a lawyer can charge for time spent without any realistic controls, especially if he is entitled to add a success fee of up to double his hourly rate without any close control on whether he is doing unremunerative work on cases that fail for which the success fee is supposed to compensate him, he will continue to do so.  Detailed assessment does not operate as an adequate deterrent to full charging because it is so relatively rare, so other controls may in the public interest be necessary.

Conclusions

Many of our observations stem from what we have seen peripherally at mediations and may not be regarded as derived from mainstream experience.   However, the main thrust of our comments is to suggest that there are major unrecovered costs savings available if mediation were to be used more systematically at an earlier stage in disputes.  CEDR has received little feedback that mediations fail to settle cases simply because the process is attempted too early.  There is inevitably a tension between settling before costs have been incurred as opposed to settling later when information is fully exchanged.  The salutary lesson of Case Study B above serves as a reminder of the huge expense that can be incurred if litigation takes the orthodox course.  The other tension is for lawyers anxious not to be accused later of settling at an under-value.  But clients are entitled to choose when and at what level to settle, and there are ways in which lawyers can protect themselves against allegations of under-settling.  Expert lawyers should be able to guide clients adequately on liability and at least the principle of causation by the end of any limitation period, and indeed by the end of properly observed obligations under the pre-action protocols.  Even if prognosis or damages quantification still require investigation, some issues can be sorted out by then at the latest.  In these days of split trial orders, lawyers on both sides of the claims divide are much more inured to being unable to play one aspect off against another.

So our primary solutions are to suggest that:

  • greater attention is paid to requiring pre-issue mediation in accordance with the ADR requirements of the pre-action protocols;
  • the PAPs to be revised and made to accord with the true current thinking as to pre-issue ADR;
  • failure to observe these without reasonable explanation should result in costs sanctions for either or both parties;
  • any continuing doubt over the position over costs in relation to pre-issue mediations, particularly where held in response to the requirements of any pre-action protocol or CPR Practice Direction, be clarified and the true position confirmed, so as to make such fees and costs recoverable in default of agreement to the contrary;
  • in cases where later mediation is deemed right on all or some of the issues, this is planned early on into an appropriate window of the case management timetable, and the failure by parties to have mediated by the time of any case management hearing (whether CMC or PTR or a specific application) be queried as a matter of course by the procedural judge.

On other aspects, we express concerns about the use of CFAs and the conflicts of interest that these generate, especially bearing in mind that they are hugely difficult to explain to lay clients.  We are keen to see settlement incentivised by reducing the reliance on hourly rates uncapped by time, so that those who try to arrange early settlement can aspire to a premium level of costs.  CEDR will meanwhile do what it can to keep its own charges down consistent with its overall aim to cut the cost of conflict as much as we can while ensuring that the very special skills of mediators receive adequate remuneration commensurate with those skills. 

Thanks are due to experienced CEDR Solve Direct mediators Stephen Bate, Sir Henry Brooke, Michael Cover, Terry Jones, Francis Neate, Nicholas Pearson, Joe Shammah and David Miles for both their contributions to this report and contacts.

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