Daphne Loebl analyses the appeal of ADR in the UK.
It seems that ADR in the UK is on the increase. The London based Centre for Dispute Resolution (CEDR) reports that in the year ending March 1999 it handled twice as many mediations as in the previous year. In the next 3 months (April-June 1999) CEDR reports that its monthly workload has doubled again.But a huge increase does not mean we are working with huge figures. For example, CEDR's high-value mediations (£10 million or more) also doubled in 1998-99: from three cases to six. The total number of cases of any sort mediated by CEDR last year amounted to 257. Just 8% of these were insurance or reinsurance disputes. Meanwhile, the Commercial Court in London handled over 1,800 cases. Use of mediation may be on the increase, but there is still comparatively little going on.
Commercial Court support for ADR
Since 1993 the policy of the Commercial Court in London has been to encourage parties to consider using ADR. In June 1996 the court began ordering parties “to take such serious steps as they may be advised to resolve their disputes by ADR”. A Practice Direction explained when and how such orders could be made, and listed the benefits to be gained. In the following two years the court handled more than 4,500 cases, but recorded only 67 ADR orders.In July 1998 a Commercial Court working party, including 3 Commercial Court judges, reviewed the court's first two years' experience of ADR orders. The working party drew what conclusions it could from the minimal information collected during those two years. (Their report was published recently on the internet http://www.courtservice.gov.uk/ adr2.htm).
No criteria were established in 1996 to identify cases suitable for an ADR order. The Practice Direction said an ADR order might be made “if it should appear to the judge that the action before him or any of the issues arising in it are particularly appropriate for an attempt at settlement by ADR techniques, but that the parties have not previously attempted settlement by such means”. The report treats selection of cases for ADR orders as a matter of “feel”, based on experience. There was no attempt to monitor or analyse the factors which led the judges to make the 67 recorded ADR orders. However the report says the claim/costs ratio was a major factor taken into account by the judges. It gives an example: if a claim for $500,000 seems likely to involve a five to seven day trial, expert witnesses on complicated technical issues, substantial documentation and several witnesses of fact, an ADR order would probably be made.Not surprisingly, the settlement rate in the few cases selected for ADR orders was very high. Only six out of the 67 cases identified had failed to settle at the date of the report. However the court had no record of whether the parties had used ADR. They did comment: “experience suggests that, even where the parties are at first ill-disposed to or highly sceptical as to mediation, the intervention of a neutral may so strongly influence them that initial hostility may change to reluctant enthusiasm.” Apart from this, the working party drew no conclusions (indeed on the information available to them none could be drawn) as to whether ADR had helped the parties to reach a settlement earlier or at all.
The CLCC study
Over the same two year period 4,500 civil cases, ranging in value from £3,000 to £100,000 and proceeding in the Central London County Court (CLCC), were offered extremely low-cost court-annexed mediation. The CLCC monitored closely the progress and impact of its ADR scheme, making this the largest experiment in court-annexed mediation in the UK. In July 1998 Professor Hazel Genn, of University College, London, published her report on the results. The main finding of the CLCC study was that demand for mediation was extremely low. Just 160 cases out of the 4,500 proceeded to mediation. Low as it is, this far outstrips the number of ADR orders made in the Commercial Court during the same period.
Why don't more parties choose mediation?
The CLCC study produced several ideas about this, based on questionnaires and telephone interviews with those who rejected their offer of mediation. These included:
• Lack of knowledge about mediation: To most of the parties and their lawyers mediation was an unknown quantity; they had no previous experience whatever.• Established negotiation patterns: the natural competitor to ADR: Demand was particularly low in personal injury claims, which normally have a high rate of settlement. Why bother attending an ADR appointment in a claim which will eventually settle in office hours? Conversely, parties who agreed to mediation often said they did so because the dispute seemed particularly difficult to settle through normal channels; for example where the parties were refusing to talk, or were very entrenched, or where one side had an unrealistic view of the likely outcome at trial.
• Looking tough: Both lawyers and clients were at times concerned that they should not appear to be easy targets for claims.
• Losing money: Mediation is often seen as saving a lot of legal costs; or to put it another way, as posing a big threat to lawyers' income.
Why does anyone choose mediation?
The CLCC study also questioned all those who used mediation, to see why they had chosen to try it. Next after those who simply said their lawyers had advised them to try, the CLCC study found that the dominant interest in mediation was to avoid the time and cost involved in litigation. This was also one of the chief incentives to settle at the mediation appointment, as emphasised by the mediators observed during the study. The Commercial Court takes the same view. Its 1996 Practice Direction, listing the benefits of ADR to the parties, begins with the hoped-for reduction in delay and legal costs.
Can ADR really save time and costs?
As a process, ADR is often compared to litigation or arbitration. But in reality, the parties to commercial disputes will negotiate before, during and after trial.In fact, most civil disputes do settle without trial. The real comparison is between settlement by negotiation between the parties and their lawyers, and settlement via ADR.
In this comparison, ADR can provide “added value” by offering:
• Elements of judicial process. The proceedings are controlled by a neutral third party, who may provide some element of evaluation. Each party has the chance to state its case to that neutral, maybe in the presence of the other side. This may make the negotiated result more acceptable to litigants who really do want their “day in court”.
• Good opportunity/environment for settlement. The mediation process is designed to bring together both parties, prepared for a negotiation, with authority to settle, and having committed a certain amount of time and money to achieving a settlement. These conditions are known to improve the prospects of reaching agreement.
• Help from the mediator. Just by speaking to both parties, a mediator offers a new channel of communication. By passing repeatedly to and fro, communication and negotiations that might otherwise have spanned weeks may be fitted into a single day. The mediator can also ask questions and offer ideas that neither party might have thought of.
• Mediator's negotiation skills. A good mediator should have superior negotiation skills based on talent, training and experience. But how often will the parties to a commercial dispute, still less professional litigators, admit any need for superior negotiation skills? This does not seem to be a factor in Commercial Court decisions at the moment, where no distinction is being drawn between the cases most likely to settle through conventional negotiations, and those most suitable for ADR.
Do these theoretical benefits actually translate into more and better settlements? The Commercial Court report throws no light on this question. However the CLCC study did confirm that with mediation, settlement is achieved sooner, and in a greater proportion of cases, than in an equivalent “control” sample of cases where mediation was not offered. That was so, even in cases which didn't settle at the mediation appointment.
However, the CLCC study found no clear evidence that mediation saves legal costs. The research did not produce reliable figures for an objective analysis. The parties' comments, especially the lawyers', tended to compare the cost of preparing and attending the mediation with the cost of attending and preparing trial. That is the wrong comparison, because most litigation settles out of court.
The most one can say is that, if ADR saves time, it probably saves legal costs. The actual settlement costs may not be reduced, because the parties must pay for the mediator and venue, preparation and representation in the negotiations. But both parties need to support their bargaining position during negotiations by continuing litigation or arbitration. If ADR accelerates settlement, the place to look for savings in both cost and time is in the extra period of litigation or arbitration after a settlement achieved through ADR, when unaided negotiations would have continued.
So will there be more ADR in future?
The Commercial Court working party advised against imposing costs or other sanctions against parties who simply refused to try ADR. Settlement negotiations are privileged from disclosure in court, and ADR procedures generally depend on complete confidentiality. The existence and content of negotiations must be kept from the judge, otherwise how can they speak freely or negotiate? The working party correctly identified the conflict between that principle and any attempt to investigate the reasons why a party abandons an ADR process.
The working party also rejected the sensible suggestion that a court official should be appointed to monitor the response of parties to ADR orders and see that progress is made. In a bizarrely circular argument, they even advised against making ADR orders in a wider range of cases, as it would dilute:
• the “success rate” (ie settlement rate) and
• the impact of the orders as a strong hint from the bench to settle quickly.
It seems safe to say that any increase in the use of ADR will not be driven by the Commercial Court.
On 26 April 1999, a completely new procedural code was introduced for civil court procedure in England and Wales, including new measures designed to encourage litigants to use ADR. For example, pre-action protocols encourage the parties to resolve their disputes without even beginning litigation. The possibility of ADR is to be raised in every case at an early stage. And the court has a new power to force a stay of proceedings upon the parties, while they try to settle. The sanction behind these rules lies in an increased power to award costs penalties against the party at fault. This brings us straight back to the problem identified by the Commercial Court working party: how to impose these sanctions without an unacceptable invasion of confidentiality. The Commercial Court may not be inclined to depart from current practice, and indeed one of its judges on 19 July 1999 held a new rule invalid to the extent that it cut down the substantive right to legal confidentiality: General Mediterranean Holdings v. Patel. But the issue may yet reach the Court of Appeal or parliament, in the context of larger-volume, lower-value litigation.
One immediate impact of the changes was a noticeable reduction in the number of new claims issued at court after 26 April this year. It is not surprising if this upheaval in civil litigation coincided with an increase in ADR referrals. The question is whether the increase will be permanent. If there really is value in the ADR process, then as more litigators gain personal experience, and the fear of the unknown diminishes, we can expect the numbers to keep on growing.
Daphne Loebl, litigation knowhow lawyer, Wilde Sapte, solicitors.