Notes on Alternative Dispute Resolution

Definition

Alternative dispute resolution or external dispute resolution is typically denotes a wide range of dispute resolution
processes and techniques that parties can use to settle disputes with help of a third party. They are used for disagreeing
parties who cannot come to an agreement short of litigation.

However, ‘Alternative dispute resolution’ (ADR) is an umbrella term which is generally applied to a range of dispute
resolution methods other than court proceedings. The most commonly used processes are arbitration, conciliation and
ombudsmen.

Moreover, a critical feature of all forms of ADR is that they are dispute resolution processes conducted in private. Both
the process and outcome of the procedures are generally confidential to the parties. The main purpose of ADR is to save
cost and time.

Types of Alternative Dispute Resolution (ADR)

Alternative dispute resolution has 4 key forms.

Such as-

01. Arbitration.

02. Mediation.

03. Conciliation.

04. Ombudsmen.

Definition of all key forms

01. Arbitration

Arbitration is a procedure in which a dispute is submitted by agreement of the parties to one or more arbitrators who make
a binding decision on the dispute. By choosing arbitration, the parties opt for a private dispute resolution procedure
instead of going to court.

However, this is private confidential determination of a dispute by an independent third party. The arbitrator makes a
decision according the law. The arbitrator’s decision known as an award is legally binding and can be enforced through
the courts. Arbitration hearing may involve the use of an individual arbitrator or a tribunal which can consist of any
number of arbitrators. Although some legal systems insist on an odd number to avoid a tie but the arbitration is used in a
wide range of disputes, including shipping, insurance and international commercial disputes.

02. Mediation

Mediation involves the intervention of a third person or a mediator into a dispute to assist the parties in negotiating jointly
acceptable resolution of issues in conflict. The mediator meets with the parties at a neutral location where the parties can
discuss the dispute and explore a variety of solutions.

However, mediation is one of the most popular ADR processes in which a neutral third party assists the disputing parties
to reach a settlement but it is essentially a facilitated settlement. The process is voluntary and non-binding. It is although
any binding agreement reached can be enforced in contract. Although, in facilitative mediation, the mediator will not give
a view of the strengths or weakness of the parties cases. On the other hand, the parties can choose to have an ‘evaluative’
mediation, where the mediator gives an assessment of the legal strength of each party’s case. Mediation is used in a wide
range of disputes

Such as-

01. Commercial disputes.

02. Family disputes.

03. Neighbour disputes.

04. Employment disputes.

Mediation is distinguished from litigation processes by virtue of its focus on problem-solving. It is rather than an
emphasis on strict legal rights.

Mediation is said by its supporters to be better than litigation for the resolution of disputes because it is cheaper, quicker
and flexible procedure that can achieve settlement in a wide range of disputes. It is also capable of achieving creative
solutions that would not be available in court adjudication. It can also repair damaged relationships and can reduce
conflict between the parties.

Conciliation

Conciliation is a way to resolve a legal dispute without going to trial. A neutral third party, often a judge it may provide
suggestions and develop proposals to help you and the other party come to an agreement.

However, conciliation is a facilitated settlement process that is often confused with mediation. It is, in fact, very similar
but in conciliation the third party ‘neutral’ takes a more active role, deliberately suggesting ways in which the parties
might reach a settlement. Conciliation is used very commonly in employment disputes.

Ombudsmen

An ombudsmen is an official which is usually appointed by the government, who investigate complaints (usually lodged
by private citizens) against businesses, financial institutions, universities, government departments or other public entities
and attempts to resolve the conflicts or concerns raised, either by mediation. In general, an ombudsmen is a state official
appointed to provide a check on government activity in the interests of the citizen and to oversee.

However, these are independent dispute and complaint handlers who investigate and rule on complaints from members of
the public about poor administration or service by government departments and also about public and private service
delivery.

Some ombudsmen use mediation as part of their dispute resolution procedures. Ombudsmen make a decision about
complaints and can award compensation and make recommendations about changes to public and private services but
some of the largest private ombudsmen services are the Financial Ombudsman which is the Housing Ombudsman and the
Legal Ombudsman who deals with complaints about legal services. Before using an ombudsman service a complaint must
usually first exhaust all internal complaints mechanisms of the relevant organization. In general, ombudsmen can only
make recommendations, not binding decisions.

The Modern Development of Mediation

Access to mediation has become increasingly easier through the use of technology, private mediator providers and public-
private partnership. Finally, and perhaps most importantly, the approach of Government, business and lawyers to dispute
resolution has started to change.
However, it is although arbitration and conciliation have been used in England as alternative techniques for the resolution
of civil and commercial disputes since at least the 1950s, Lord Woolf in his Report heavily encouraged the use of
mediation as a means of parties resolving disputes rather than using court processes. Lord Woolf promoted mediation
because, in his view, it would save court resources and because he believed that it would be cheaper for litigants than
going to court and it would offer quicker results.

Lord Woolf stated that the courts had an important role in providing information about ADR and encouraging its use in
appropriate cases. This encouragement was strengthened in the 1996 final report, which is stated that:

“The court will encourage the use of ADR at case management conferences and pre-trial reviews, and will take into
account whether the parties have unreasonably refused to try ADR.”

It means that if a litigant unreasonably refused to try ADR the judge would be able to impose a financial penalty when the
case came to trial.

For Example- A litigant who won their case might not recover their legal costs from the losing side, even though this is
the normal rule in litigation. The CPR (part 26) included provision for the parties or the court to ‘stay’ court proceedings
in order for the parties to seek too settle their dispute by ADR.

According to following the lead provided by Lord Woolf, research findings showed that it is although the voluntary
uptake of mediation offers was very low (around 5 %) , those people who had volunteered to try mediation to settle their
dispute generally liked the process, particularly the informality of mediation and lack of legal technically. It is about two-
thirds of mediations resulted in settlement and there was some evidence that legal costs had been saved. However,
research also showed that where mediation did not result in settlement, its costs and delay were increased. There was also
evidence that the mediation process depended critically on the skill of mediators.

The Common Law on Mediation

English Law provides no definitions of ‘conciliation’ or ‘mediation’. Mediation is a process in which an independent
neutral third party assists parties to a dispute to work towards a negotiated settlement. Mediation is described in the CPR
as ‘a third party facilitating a resolution’.

However, since 2002, there have been a number of landmark legal cases in which the senior judiciary have clarified the
approach of the courts to the role of mediation in civil and commercial disputes. In the case of Cowl v Plymouth City
Council [2001], Lord Woolf held that, as a matter of law, parties are required to consider ADR before starting legal
proceedings, particularly where public money is involved. This was followed, more significantly, by the case of Dunnett
v Railtrack in which the Court of Appeal held that Railtrack’s refusal to contemplate mediation prior to the appeal was
sufficient to deny them their legal costs. The message of Dunnett v Railtrack was reinforced in the later case of Hurst v
Leeming [2001].

CASE NO: 01

Hurst v Leeming [2002] EWHC 1051 (Ch) (9th May, 2002)

Neutral Citation Number: [2001] EWHC 1051 (Ch)
HC02C00120

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

 Thursday, 9th May 2002

Before:

MR. JUSTICE LIGHTMAN

____________________

HURST Claimant
- and -
LEEMING Defendant

____________________

Transcribed by BEVERLEY F. NUNNERY & CO

Official Shorthand Writers and Tape Transcribers
Quality House, Quality Court, Chancery Lane, London WC2A 1HP
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____________________

THE CLAIMANT appeared in person.

MR. P. HESLOP Q.C. and MR. A. TWIGGER (instructed by Messrs.
Reynolds Porter Chamberlain) appeared on behalf of the Defendant.
____________________

HTML VERSION OF JUDGMENT

(AS APPROVED BY THE JUDGE)
____________________

1. MR. JUSTICE LIGHTMAN: The claimant, Mr. Hurst, a solicitor, was a partner in the later dissolved firm of
Martin Janus. Disputes arose between Mr. Hurst and his former partners, and this led to proceedings by Mr. Hurst
against them. Mr. Hurst acted in person in those proceedings until a few days into the trial, when, through
solicitors he had retained, Messrs. Penningtons, he instructed the defendant, Mr. Ian Leeming Q.C.

2. Amongst the many claims made by Mr. Hurst in that case was a claim for the taking by the court of an account.

3. Mr. Hurst failed in his claims in that action, both at first instance, on appeal to the Court of Appeal, and in the
House of Lords. Orders for costs were made against him. The failure in those proceedings led to his bankruptcy.
He is practically ruined. Mr. Hurst attributed the failure in the proceedings and his subsequent ill-fortune to the
legal advice and representation in those proceedings. He could not sue

4. Mr. Leeming under the law as it stood until the decision of the House of Lords in Arthur J.S. Hall & Co. v.
Simons [2000] 3 W.L.R.543, which I shall refer to as "Hall". Prior to that date counsel were believed to enjoy
immunity from suit for negligence in the conduct of proceedings.

5. Mr. Hurst accordingly, to get round the consequence of this immunity, sued Penningtons in the Chancery Division
in effect as vicariously liable for the negligent conduct of the proceedings by Mr. Leeming. The actions was
struck out as hopeless by Mr. Justice Pumfrey, and the Court of Appeal refused permission to appeal. Mr. Hurst,
undaunted, then commenced fresh proceedings against Penningtons in the Queen's Bench Division. Master Rose
struck out that action as an abuse of process.

6. With the decision of the House of Lords in Hall removing Mr. Leeming's immunity, Mr. Hurst then sued
7. Mr. Leeming for negligence. I have before me applications for summary judgment in that action, both by Mr.
Hurst and by Mr. Leeming. Mr. Hurst appears in person, Mr. Leeming is represented by Mr. Philip Heslop Q.C.

8. When Mr. Hurst opened his application, he and I had a frank exchange of views on the merits of the case, and this
exchange led us both to conclude that the action had no merit and must be dismissed. I must make it clear beyond
any doubt that there is no ground for any criticism of Mr. Leeming. For what it is worth, on the material before
me I would have reached the same conclusion that he did, and acted in exactly the same way. Mr. Hurst is to be
commended for his fair and sensible decision in this regard at the hearing. This decision, namely that the action
had to be dismissed, left outstanding the single issue of the costs of the action.

9. In the ordinary way, Mr. Leeming would, without question, be entitled to his costs, but Mr. Hurst submits that no
such order should be made because both before and after the commencement of the proceedings he invited Mr.
Leeming to proceed to mediation, but Mr. Leeming refused.

10. It is unnecessary to examine in detail the correspondence between the parties; it is sufficient if

11. I state the following as the material facts.

1. Mr. Hurst's claims were of professional negligence by Mr. Leeming.

2. Mr. Leeming vehemently denied those claims.

3. The claims in fact lacked any substance or merit.

4. Mr. Leeming gave full and detailed answers to each and every allegation made against him, explaining fully his
actions and refuting those allegations.

5. Mr. Leeming gave a series of reasons for refusing to proceed to mediation, first, the legal costs already incurred
in meeting the allegations and the threat of proceedings; secondly, the seriousness of the allegations of
professional negligence; thirdly, the total lack of substance of the claims made; fourthly, the lack of any real
prospect of a successful outcome to the mediation proceedings, having regard, in particular, to the plain object of
Mr. Hurst in proposing mediation of obtaining a substantial financial payment from Mr. Leeming when in fact
there was no merit in the claim; and fifthly, the character of Mr. Hurst as revealed by the actions he commenced
and his response to the explanation of Mr. Leeming's conduct already provided. That character, Mr. Leeming
says, was of a man obsessed with the notion that an injustice had been perpetrated on him, who would not be able
or willing to adopt in the course of a mediation the attitude required if a mediation was to have any prospect of
success.

12. The professional negligence pre-action protocol lays down that in proceedings for professional negligence, if one
party offers to proceed to mediation, the other party, if he refuses, should state his reasons. Implicit in that
protocol, and explicit in two decisions of the Court of Appeal, Frank Cowell v. Plymouth City
Council and Dunwich v. Railtrack, is the proposition that a party who refuses to proceed to mediation without
good and sufficient reasons may be penalised for that refusal and, most particularly, in respect of costs. Mediation
is not in law compulsory, and the protocol spells that out loud and clear. But alternative dispute resolution is at the
heart of today's civil justice system, and any unjustified failure to give proper attention to the opportunities
afforded by mediation, and in particular in any case where mediation affords a realistic prospect of resolution of
dispute, there must be anticipated as a real possibility that adverse consequences may be attracted.

13. I have according to consider whether Mr. Leeming was justified in refusing to proceed to mediation. I do not
think that the fact that heavy costs had already been incurred was afforded any form of justification. This was
merely a factor to be taken into account in the mediation process. Nor do

14. I think it sufficient that there was an allegation of professional negligence. Practically all allegations of negligence
against a professional many or body are serious, but that is no reason why an attempt should not be made at
mediation. The reflection on the professional competence of a party may need to be reflected in the course of the
 negotiations and in any settlement, but cannot of itself take any ordinary case outside the purview of mediation.
The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is
the frame of mind of so many litigants. Nor is it necessarily sufficient of itself that a full and detailed refutation of
the opposite party's case has already been supplied, though this may well be a very relevant consideration.

15. The critical factor in this case, in my view, is whether, objectively viewed, a mediation had any real prospect of
success. If mediation can have no real prospect of success of a party may, with impunity, refuse to proceed to
mediation on this ground. But refusal is a high risk course to take, for if the court find that there was a real
prospect, the party refusing to proceed to mediation may, as I have said, be severely penalised. Further, the hurdle
in the way of a party refusing to proceed to mediation on this ground is high, for in making this objective
assessment of the prospects of mediation, the starting point must surely be the fact that the mediation process
itself can and does often bring about a more sensible and more conciliatory attitude on the part of the parties than
might otherwise be expected to prevail before the mediation, and may produce a recognition of the strengths and
weaknesses by each party of his own case and of that of his opponent, and a willingness to accept the give and
take essential to a successful mediation. What appears to be incapable of mediation before the mediation process
begins often proves capable of satisfactory resolution later.

16. Mr. Hurst now accepts (as he must) that his case was hopeless. He argues that, if Mr. Leeming had agreed to the
mediation which he sought, the mediator could have had the same frank exchange of views with him which I have
had, and this would have enabled the case to be resolved without the costs involved in this action. This is a
formidable argument, but, after anxious consideration, I am persuaded that, quite exceptionally, Mr. Leeming was
justified in taking the view that mediation was not appropriate because it had no realistic prospect of success. My
reasons, in a word, are that on the material before the court (as on the material before him Mr. Leeming) it is plain
that Mr. Hurst has been so seriously disturbed by the tragic course of events resulting from the dissolution of the
partnership that his judgment in respect of matters concerning the partnership and partnership action, and the
conduct of that action on his behalf is seriously disturbed: he is a person obsessed with the injustice which he
considers has had been perpetrated on him and is incapable of a balanced evaluation of the facts.

17. The grounds for my view are as follows: first,

18. Mr. Hurst, though a solicitor, has appeared quite unable or unwilling to appreciate the full and clear explanation
given refuting his claim. It needed no mediator to help him to evaluate the claim when furnished with the
explanation by Mr. Leeming. I do not accept that as a mere "IT" solicitor he could not be expected to understand
the partnership law issues involved.

19. Secondly, prior to the present action Mr. Hurst had already commenced two hopeless, and in my view vexatious,
actions against Penningtons. I do not think that the commencement of those proceedings can have reflected a
balanced view of their likely outcome.

20. Thirdly, Mr. Hurst is a bankrupt and has (and knows that he has) nothing to lose in the proceedings.

21. Fourthly, the evidence and pleadings in this case reveal that what is really "biting" Mr. Hurst, is the conviction
that his former partners were fraudulent, and the conduct of the trial by his legal advisers let them get away with
it. Yet at no time did Mr. Hurst ever plead or even allege fraud in the partnership action.

22. Fifthly, Mr. Hurst was out to obtain a substantial sum in the mediation process. He was not likely to accept any
mediation which did not achieve that result, though his claim, as I have said, plainly entitled him to nothing.

23. In short, as it seems to me, Mr. Leeming reasonably and fairly took the perfectly justifiable view on the facts that,
by reason of the character and attitude of Mr. Hurst, mediation had no real prospect of getting anywhere. That is
not a view which is easily sustainable in any case, but, on the facts of this case, it is, sustained. For this reason I
do not think that Mr. Leeming should be penalised or should be deprived of his full entitlement to costs.

24. I therefore award costs of the action, including the costs of these two applications, in favour of Mr. Leeming,
which I summarily assess at £55,000.
 MR. HESLOP: My Lord, I am much obliged. I have in fact an order prepared. Would it be convenient if Mr.
Hurst had a look at it, and a copy was handed up to your Lordship? (Document handed)

This draft, my Lord, provides in the first three paragraphs that it be made by consent, given Mr. Hurst's position,
and then deals with the position of costs, and the figure should then be put in at £55,000, in para.4.

MR. JUSTICE LIGHTMAN: Yes.

MR. HESLOP: And I am not sure there is anything else, my Lord, that needs to be added.

MR. JUSTICE LIGHTMAN: No. Mr. Hurst, I do not think there is anything that you can say, is there?

MR. HURST: I am not sure whether it is appropriate to order me to pay within 14 days, because I cannot.

MR. JUSTICE LIGHTMAN: All I can do is -- what is the position if he cannot pay?

MR. HESLOP: Given his bankruptcy, my Lord, the ordinary steps -- 14 days I believe under this mechanism is
the normal time put in an order, and certainly I have seen that done on many other occasions, and ordinarily then
one would be able to get judgment enforced. But given that Mr. Hurst is a bankrupt,

I think that things are a bit more complicated, and therefore it may all turn out to be academic. Certainly if Mr.
Hurst cannot pay now, making it 21 or 28 days does not help.

So I would respectfully suggest that the order is left in this form and matters will take their course.

MR. JUSTICE LIGHTMAN: The simple position, Mr. Hurst, is if you have not got the money they are not going
to be able to enforce it.

MR. HURST: I just do not want it alleged that I am in contempt of court, my Lord.

MR. JUSTICE LIGHTMAN: The answer is you will not be in contempt, and I am sure your opponent will
entirely agree, if you cannot afford to pay it.

MR. HESLOP: It will just become a debt, if he does not pay it, which is unpaid.

MR. JUSTICE LIGHTMAN: That is what I will do. Mr. Hurst, I am very sad at what has happened, but I am
afraid that is the only outcome, and I hope that life treats you a little bit better in the future.

MR. HURST: I am much obliged, my Lord.

So, as we seen in the case of Hurst v Leeming [2001] Where Mr. Justice Lightman held that it is for the judge to
decide whether a refusal to mediate was justified.

In 2004, the Court of Appeal gave guidance to lower courts in the case of Halsey v Milton Keynes General NHS
Trust [2004].

CASE NO: 02

Halsey
v

Milton Keynes General NHS Trust

and
Steel
v

Joy and Halliday

[2004] 3 Costs LR 393

Neutral Citation Number: [2004] EWCA Civ 576
Court of Appeal (Civil Division)
11 May 2004
Before:

Ward, Laws and Dyson LJJ

Headnote

These appeals considered important points of principle with regard to the degree to which a successful party should be
penalised in costs for refusal to mediate or otherwise take part in alternative dispute resolution. The Court of Appeal gave
guidance on where the burden of proof lay to satisfy the court that refusal had been unreasonable and outlined some of the
factors that will be decisive in resolving the question.

Judgment

1. DYSON LJ: This is the judgment of the court.

2. These two appeals raise a question of some general importance: when should the court impose a costs sanction against a
successful litigant on the grounds that he has refused to take part in an alternative dispute resolution ("ADR")? There
seems to be some uncertainty as to the approach that should be adopted in answering this question: it has been the subject
of consideration by courts on a number of occasions. A measure of its significance is that we have received detailed and
helpful submissions from no fewer than four interveners, namely the Law Society, the Civil Mediation Council, the ADR
Group and the Centre for Effective Dispute Resolution.
3. In the appeal of Halsey, the only ground of appeal is that, notwithstanding that the claim was dismissed, the judge was
wrong to award the defendant, the Milton Keynes General NHS Trust ("the Trust") its costs, since it had refused a number
of invitations by the claimant to mediate. There are two grounds of appeal in the case of Steel. First, it is said that the
judge reached the wrong conclusion on the causation issue that he tried in the Part 20 proceedings between the defendants
("the causation issue"). Secondly, it is submitted that the judge was wrong to award the successful second defendant his
costs against the first defendant, since the second defendant had refused a number of invitations by the first defendant to
mediate. We shall start by giving some guidance as to the general approach that should be adopted when dealing with the
costs issue raised by these two appeals. We shall then turn to the facts of the two appeals.

General Encouragement of the Use of ADR

4. As was explained in Lord Woolf's Final Report on Access to Justice (p. 11), for some time before the Civil Procedure
Rules ("CPR") came into force, resort by parties involved in litigation to ADR had been encouraged by the courts in
various ways. The CPR, practice directions and pre-action protocols have built on these early developments. It is
unnecessary to make extensive reference to demonstrate this. CPR 1.4(1) obliges the court to further the overriding
objective of enabling the court to deal with cases justly by actively managing cases, and Rule 1.4(2)(e) defines "active
case management" as including "encouraging the parties to use an alternative dispute resolution procedure if the court
considers that appropriate and facilitating the use of such procedure". Rule 26.4(1) provides that "a party may, when filing
the completed allocation questionnaire, make a written request for the proceedings to be stayed while the parties try to
settle the case by alternative dispute resolution or other means".

5. The term "alternative dispute resolution" is defined in the Glossary to the CPR as a "collective description of methods
of resolving disputes otherwise than through the normal trial process". In practice, however, references to ADR are
usually understood as being references to some form of mediation by a third party. The general rule is that the
unsuccessful party is ordered to pay the costs of the successful party (CPR 44.3(2)(a)). The cases in which the question of
displacing this rule have been discussed have usually been concerned with the refusal of mediation by the successful
party. The two appeals before this court fall into this category. In what follows we shall concentrate on the cost
consequences of a refusal by the successful party to agree to mediation.

6. There are those who believe that the virtues of mediation have not yet been sufficiently demonstrated. There is some
reference to this by Professor Hazel Genn in her excellent report "Court-based ADR initiatives for non-family civil
disputes: the Commercial Court and the Court of Appeal" (March 2002), at pp. 58-67. But we are in no doubt that we
should proceed on the basis that there are many disputes which are suitable for mediation. This approach is consistent
with, and (as we have seen) underpinned by, the Woolf reforms. It is also consistent with the fact there are now a number
of court-based mediation schemes for civil non-matrimonial cases, which operate with varying degrees of success. The
virtues of mediation in suitable cases are also recognised in the Chancery Guide (paras 17.1 and 17.3), the Queen's Bench
Guide (para 6.6), the Admiralty and Commercial Court Guide (para D8.8) and the Technology and Construction Court
Guide (para 6.4). Judges in the Commercial Court routinely make "ADR orders" in the form set out in Appendix 7 to the
Admiralty and Commercial Court Guide (see further para 30 below).
7. We are also mindful of the position which has been taken by Government on this issue. Thus, in March 2001, the Lord
Chancellor announced an "ADR Pledge" by which all Government departments and Agencies made a number of
commitments including that: "Alternative Dispute Resolution will be considered and used in all suitable cases wherever
the other party accepts it". In July 2002, the Department for Constitutional Affairs published a report as to the
effectiveness of the Government's commitment to the ADR pledge. The report stated that the pledge had been taken very
seriously, and identified a number of initiatives that had been introduced as a direct result of it. These included the
following initiative on the part of the National Health Service Litigation Authority ("NHSLA"):

"The encouragement of greater use of mediation, and other forms of alternative dispute resolution, is one of the
options considered by the NHSLA, who are responsible for handling clinical negligence claims against the NHS.
The NHSLA is working with the Legal Services Commission to develop a joint strategy for promoting greater use of
mediation as an alternative to litigation in clinical negligence disputes.

Since May 2000 the NHSLA has been requiring solicitors representing NHS bodies in such claims to offer
mediation in appropriate cases, and to provide clear reasons to the authority if a case is considered inappropriate."
8. Strong support for the use of ADR in general, and mediation in particular, has been given by the courts in cases such
as R (Cowl) v Plymouth City Council [2001] EWCA Civ 1935, [2002] 1 WLR 803, Dunnett v Railtrack plc [2002]
EWCA Civ 303; [2002] 1 WLR 2434 and Hurst v Leeming [2001] EWHC 1051 (Ch); [2003] 1 Lloyds Rep 379.
9. We heard argument on the question whether the court has power to order parties to submit their disputes to mediation
against their will. It is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest
terms. It is another to order them to do so. It seems to us that to oblige truly unwilling parties to refer their disputes to
mediation would be to impose an unacceptable obstruction on their right of access to the court. The court in Strasbourg
has said in relation to Article 6 of the European Convention on Human Rights that the right of access to a court may be
waived, for example by means of an arbitration agreement, but such waiver should be subjected to "particularly careful
review" to ensure that the claimant is not subject to "constraint": see Deweer v Belgium (1980) 2 EHRR 439, para 49. If
that is the approach of the ECHR to an agreement to arbitrate, it seems to us likely that compulsion of ADR would be
regarded as an unacceptable constraint on the right of access to the court and, therefore, a violation of Article 6. Even if
(contrary to our view) the court does have jurisdiction to order unwilling parties to refer their disputes to mediation, we
find it difficult to conceive of circumstances in which it would be appropriate to exercise it. We would adopt what the
editors of Volume 1 of the White Book (2003) say at para 1.4.11:

"The hallmark of ADR procedures, and perhaps the key to their effectiveness in individual cases, is that they are
processes voluntarily entered into by the parties in dispute with outcomes, if the parties so wish, which are non-
binding. Consequently the court cannot direct that such methods be used but may merely encourage and facilitate."

10. If the court were to compel parties to enter into a mediation to which they objected, that would achieve nothing except
to add to the costs to be borne by the parties, possibly postpone the time when the court determines the dispute and
damage the perceived effectiveness of the ADR process. If a judge takes the view that the case is suitable for ADR, then
he or she is not, of course, obliged to take at face value the expressed opposition of the parties. In such a case, the judge
should explore the reasons for any resistance to ADR. But if the parties (or at least one of them) remain intransigently
opposed to ADR, then it would be wrong for the court to compel them to embrace it.
11. Parties sometimes need to be encouraged by the court to embark on an ADR. The need for such encouragement should
diminish in time if the virtue of ADR in suitable cases is demonstrated even more convincingly than it has been thus far.
The value and importance of ADR have been established within a remarkably short time. All members of the legal
profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for
ADR. But we reiterate that the court's role is to encourage, not to compel. The form of encouragement may be robust: see
para 30 below.

The Costs Issue

12. CPR 44.3(2) provides that "if the court decides to make an order about costs (a) the general rule is that the
unsuccessful party will be ordered to pay the cost of the successful party; but (b) the court may make a different order".
CPR 44.3(4) provides that "in deciding what order (if any) to make about costs, the court must have regard to all the
circumstances, including - (a) the conduct of the parties". Rule 44.3(5) provides that the conduct of the parties includes
"(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any
relevant pre-action protocol".

13. In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree
to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event.
In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The
fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party)
that the successful party acted unreasonably in refusing to agree to ADR. We shall endeavour in this judgment to provide
some guidance as to the factors that should be considered by the court in deciding whether a refusal to agree to ADR is
unreasonable.

14. We make it clear at the outset that it was common ground before us (and we accept) that parties are entitled in an ADR
to adopt whatever position they wish, and if as a result the dispute is not settled, that is not a matter for the court. As is
submitted by the Law Society, if the integrity and confidentiality of the process is to be respected, the court should not
know, and therefore should not investigate, why the process did not result in agreement.
15. We recognise that mediation has a number of advantages over the court process. It is usually less expensive than
litigation which goes all the way to judgment, although it should not be overlooked that most cases are settled by
negotiation in the ordinary way. Mediation provides litigants with a wider range of solutions than those that are available
in litigation: for example, an apology; an explanation; the continuation of an existing professional or business relationship
perhaps on new terms; and an agreement by one party to do something without any existing legal obligation to do so. As
Brooke LJ pointed out in Dunnett at para [14]:

"Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond
the power of lawyers and courts to achieve. This court has knowledge of cases where intense feelings have arisen,
for instance in relation to clinical negligence claims. But when the parties are brought together on neutral soil with a
skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a
result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on
terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers
of the court to provide."

16. In deciding whether a party has acted unreasonably in refusing ADR, these considerations should be borne in mind.
But we accept the submission made by the Law Society that mediation and other ADR processes do not offer a panacea,
and can have disadvantages as well as advantages: they are not appropriate for every case. We do not, therefore, accept
the submission made on behalf of the Civil Mediation Council that there should be a presumption in favour of mediation.
The question whether a party has acted unreasonably in refusing ADR must be determined having regard to all the
circumstances of the particular case. We accept the submission of the Law Society that factors which may be relevant to
the question whether a party has unreasonably refused ADR will include (but are not limited to) the following: (a) the
nature of the dispute; (b) the merits of the case; (c) the extent to which other settlement methods have been attempted; (d)
whether the costs of the ADR would be disproportionately high; (e) whether any delay in setting up and attending the
ADR would have been prejudicial; and (f) whether the ADR had a reasonable prospect of success. We shall consider these
in turn. We wish to emphasise that in many cases no single factor will be decisive, and that these factors should not be
regarded as an exhaustive check-list.
(A) THE NATURE OF THE DISPUTE
17. Even the most ardent supporters of ADR acknowledge that the subject-matter of some disputes renders them
intrinsically unsuitable for ADR. The Commercial Court Working Party on ADR stated in 1999:

"The Working Party believes that there are many cases within the range of Commercial Court work which do not
lend themselves to ADR procedures. The most obvious kind is where the parties wish the court to determine issues
of law or construction which may be essential to the future trading relations of the parties, as under an on-going long
term contract, or where the issues are generally important for those participating in a particular trade or market.
There may also be issues which involve allegations of fraud or other commercially disreputable conduct against an
individual or group which most probably could not be successfully mediated."

Other examples falling within this category are cases where a party wants the court to resolve a point of law which arises
from time to time, and it is considered that a binding precedent would be useful; or cases where injunctive or other relief
is essential to protect the position of a party. But in our view, most cases are not by their very nature unsuitable for ADR.
(B) THE MERITS OF THE CASE

18. The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted
reasonably in refusing ADR. If the position were otherwise, there would be considerable scope for a claimant to use the
threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit. Courts should
be particularly astute to this danger. Large organisations, especially public bodies, are vulnerable to pressure from
claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least
make a nuisance-value offer to buy off the cost of a mediation and the risk of being penalised in costs for refusing a
mediation even if ultimately successful.
19. Some cases are clear-cut. A good example is where a party would have succeeded in an application for summary
judgment pursuant to CPR 24.2, but for some reason he did not make such an application. Other cases are more border-
line. In truly border-line cases, the fact that a party refused to agree to ADR because he thought that he would win should
be given little or no weight by the court when considering whether the refusal to agree to ADR was reasonable. Border-
line cases are likely to be suitable for ADR unless there are significant countervailing factors which tip the scales the other
way. In Hurst, Lightman J said:

"The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is
the frame of mind of so many litigants."
In our judgment, this statement should be qualified. The fact that a party unreasonably believes that his case is watertight
is no justification for refusing mediation. But the fact that a party reasonably believes that he has a watertight case may
well be sufficient justification for a refusal to mediate.
(C) OTHER SETTLEMENT METHODS HAVE BEEN ATTEMPTED

20. The fact that settlement offers have already been made, but rejected, is a relevant factor. It may show that one party is
making efforts to settle, and that the other party has unrealistic views of the merits of the case. But it is also right to point
out that mediation often succeeds where previous attempts to settle have failed. Although the fact that settlement offers
have already been made is potentially relevant to the question whether a refusal to mediate is unreasonable, on analysis it
is in truth no more than an aspect of factor (f).
(D) THE COSTS OF MEDIATION WOULD BE DISPROPORTIONATELY HIGH

21. This is a factor of particular importance where, on a realistic assessment, the sums at stake in the litigation are
comparatively small. A mediation can sometimes be at least as expensive as a day in court. The parties will often have
legal representation before the mediator, and the mediator's fees will usually be borne equally by the parties regardless of
the outcome (although the costs of a mediation may be the subject of a costs order by the court after a trial). Since the
prospects of a successful mediation cannot be predicted with confidence (see further para 27 below), the possibility of the
ultimately successful party being required to incur the costs of an abortive mediation is a relevant factor that may be taken
into account in deciding whether the successful party acted unreasonably in refusing to agree to ADR.
(E) DELAY

22. If mediation is suggested late in the day, acceptance of it may have the effect of delaying the trial of the action. This is
a factor which it may be relevant to take into account in deciding whether a refusal to agree to ADR was unreasonable.
(F) WHETHER THE MEDIATION HAD A REASONABLE PROSPECT OF SUCCESS
23. In Hurst, Lightman J said that he considered that the "critical factor" in that case was whether "objectively viewed" a
mediation had any real prospect of success. He continued (p. 381):
 "If mediation can have no real prospect of success, a party may, with impunity, refuse to proceed to mediation on
this ground. But refusal is a high risk course to take, for if the court finds that there was a real prospect, the party
refusing to proceed to mediation may, as I have said, be severely penalized. Further, the hurdle in the way of a party
refusing to proceed to mediation on this ground is high, for in making this objective assessment of the prospects of
mediation, the starting point must surely be the fact that the mediation process itself can and often does bring about a
more sensible and more conciliatory attitude on the part of the parties than might otherwise be expected to prevail
before the mediation, and may produce a recognition of the strengths and weaknesses by each party of his own case
and of that of his opponent, and a willingness to accept the give and take essential to a successful mediation. What
appears to be incapable of mediation before the mediation process begins often proves capable of satisfactory
resolution later."

24. Consistently with the view expressed in this passage, Lightman J said that on the facts of that case he was persuaded
that "quite exceptionally" the successful party was justified in taking the view that mediation was not appropriate because
it had no realistic prospects of success.

25. In our view, the question whether the mediation had a reasonable prospect of success will often be relevant to the
reasonableness of A's refusal to accept B's invitation to agree to it. But it is not necessarily determinative of the
fundamental question, which is whether the successful party acted unreasonably in refusing to agree to mediation. This
can be illustrated by a consideration of two cases. In a situation where B has adopted a position of intransigence, A may
reasonably take the view that a mediation has no reasonable prospect of success because B is most unlikely to accept a
reasonable compromise. That would be a proper basis for concluding that a mediation would have no reasonable prospect
of success, and that for this reason A's refusal to mediate was reasonable.
26. On the other hand, if A has been unreasonably obdurate, the court might well decide, on that account, that a mediation
would have had no reasonable prospect of success. But obviously this would not be a proper reason for concluding that
A's refusal to mediate was reasonable. A successful party cannot rely on his own unreasonableness in such circumstances.
We do not, therefore, accept that, as suggested by Lightman J, it is appropriate for the court to confine itself to a
consideration of whether, viewed objectively, a mediation would have had a reasonable prospect of success. That is an
unduly narrow approach: it focuses on the nature of the dispute, and leaves out of account the parties' willingness to
compromise and the reasonableness of their attitudes.

27. Nor should it be overlooked that the potential success of a mediation may not only depend on the willingness of the
parties to compromise. Some disputes are inherently more intractable than others. Some mediators are more skilled than
others. It may therefore, sometimes be difficult for the court to decide whether the mediation would have had a reasonable
prospect of success.
28. The burden should not be on the refusing party to satisfy the court that mediation had no reasonable prospect of
success. As we have already stated, the fundamental question is whether it has been shown by the unsuccessful party that
the successful party unreasonably refused to agree to mediation. The question whether there was a reasonable prospect
that a mediation would have been successful is but one of a number of potentially relevant factors which may need to be
considered in determining the answer to that fundamental question. Since the burden of proving an unreasonable refusal is
on the unsuccessful party, we see no reason why the burden of proof should lie on the successful party to show that
mediation did not have any reasonable prospect of success. In most cases it would not be possible for the successful party
to prove that a mediation had no reasonable prospect of success. In our judgment, it would not be right to stigmatise as
unreasonable a refusal by the successful party to agree to a mediation unless he showed that a mediation had no
reasonable prospect of success. That would be to tip the scales too heavily against the right of a successful party to refuse
a mediation and insist on an adjudication of the dispute by the court. It seems to us that a fairer balance is struck if the
burden is placed on the unsuccessful party to show that there was a reasonable prospect that mediation would have been
successful. This is not an unduly onerous burden to discharge: he does not have to prove that a mediation would in
fact have succeeded. It is significantly easier for the unsuccessful party to prove that there was a reasonable prospect that a
mediation would have succeeded than for the successful party to prove the contrary.

29. So far we have been considering the question whether a successful party's refusal of ADR was unreasonable without
regard to the impact of any encouragement that the court may have given in the particular case. Where a successful party
refuses to agree to ADR despite the court's encouragement, that is a factor which the court will take into account when
deciding whether his refusal was unreasonable. The court's encouragement may take different forms. The stronger the
encouragement, the easier it will be for the unsuccessful party to discharge the burden of showing that the successful
party's refusal was unreasonable.
30. An ADR order made in the Admiralty and Commercial Court in the form set out in Appendix 7 to the Guide is the
strongest form of encouragement. It requires the parties to exchange lists of neutral individuals who are available to
conduct "ADR procedures", to endeavour in good faith to agree a neutral individual or panel and to take "such serious
steps as they may be advised to resolve their disputes by ADR procedures before the neutral individual or panel so
chosen". The order also provides that if the case is not settled, "the parties shall inform the court what steps towards ADR
have been taken and (without prejudice to matters of privilege) why such steps have failed". It is to be noted, however,
that this form of order stops short of actually compelling the parties to undertake an ADR.
31. Nevertheless, a party who, despite such an order, simply refuses to embark on the ADR process at all would run the
risk that for that reason alone his refusal to agree to ADR would be held to have been unreasonable, and that he should
therefore be penalised in costs. It is to be assumed that the court would not make such an order unless it was of the
opinion that the dispute was suitable for ADR.

32. A less strong form of encouragement is mentioned in the other Court Guides to which we have referred at para 6
above. A particularly valuable example is the standard form of order now widely used in clinical negligence cases, and
which was devised by Master Ungley. The material parts of this order provide:

"The parties shall by - consider whether the case is capable of resolution by ADR. If any party considers that the
case is unsuitable for resolution by ADR, that party shall be prepared to justify that decision at the conclusion of the
trial, should the judge consider that such means of resolution were appropriate, when he is considering the
appropriate costs order to make.

The party considering the case unsuitable for ADR shall, not less than 28 days before the commencement of the trial,
file with the court a witness statement without prejudice save as to costs, giving reasons upon which they rely for
saying that the case was unsuitable."
33. This form of order has the merit that (a) it recognises the importance of encouraging the parties to consider whether
the case is suitable for ADR, and (b) it is calculated to bring home to them that, if they refuse even to consider that
question, they may be at risk on costs even if they are ultimately held by the court to be the successful party. We can see
no reason why such an order should not also routinely be made at least in general personal injury litigation, and perhaps in
other litigation too. A party who refuses even to consider whether a case is suitable for ADR is always at risk of an
adverse finding at the costs stage of litigation, and particularly so where the court has made an order requiring the parties
to consider ADR.

Public Bodies
34. Another issue that has arisen is whether the court should be particularly disposed to make an adverse costs order
against a successful public body on the grounds that it refused to agree to ADR. We can see no basis for the court
discriminating against successful public bodies when deciding whether a refusal to agree to ADR should result in a costs
penalty. The only reason for doing so that was suggested to us in the course of argument was that Government
departments and agencies (including the NHSLA) should be held to the ADR pledge (see para 7 above). We need,
therefore, to consider whether the ADR pledge has any special significance. In Royal Bank of Canada v Secretary of State
for Defence [2003] EWHC 1841 (Ch) the main issue was the true interpretation of a lease. Lewison J said that, although it
concerned a question of law, this dispute was suitable for ADR. He considered that the ADR pledge given by Government
was something to which he ought to attach "great weight". At para 12 of his judgment he said:

"As I have said, however, the most important feature to my mind is the formal pledge given on behalf of the
government and its various departments to use ADR in appropriate cases. The government did not abide by that
pledge in this case. I am not in a position to form any real view of whether a mediation would or would not have
succeeded. It may well have done, but in my judgment a failure to abide by the formal pledge given on the part of
government, coupled with the fact that ..., justifies a decision that the defendant should not recover any further costs
from the claimant."
35. In our judgment, the judge was wrong to attach such weight to the ADR pledge. The pledge was no more than an
undertaking that ADR would be considered and used in all suitable cases. If a case is suitable for ADR, then it is likely
that a party refusing to agree to it will be acting unreasonably, whether or not it is a public body to which the ADR pledge
applies. If the case is not suitable for ADR, then a refusal to agree to ADR does not breach the pledge. It is, therefore,
difficult to see in what circumstances it would be right to give great weight to the ADR pledge.

Halsey v Milton Keynes General NHS Trust

THE FACTS

36. This claim is brought by Lilian Halsey pursuant to the provisions of the Fatal Accidents Act 1976 (as amended) in
relation to the death of her husband, Bert Halsey, on 27 June 1999 at the Milton Keynes General Hospital. At the date of
his death, the deceased was 83 years of age. The claim arose out of the allegedly negligent treatment of him while he was
a patient at that hospital.

37. He was transferred to the hospital on 25 June 1999. At that time, he was suffering from several serious health
problems. It was not in dispute that his life expectation was short. He was being fed by means of a nasogastric feeding
tube. The basis of the claim was that his death was caused by the tube being incorrectly fitted, so that, rather than directing
liquid food into the deceased's stomach, it was directing it into his left lung. Following his death, a post mortem
examination was performed by Dr Mayers, a consultant histopathologist, employed by the defendant Trust. She concluded
that the cause of death was airway obstruction due to the introduction of nasogastric nutrition into the airway and lung as a
result of the insertion of a nasogastric tube into the major airway.

38. An inquest was held into the deceased's death. For this purpose, HM Coroner requested statements from the medical
and nursing staff most closely involved in the deceased's care at the hospital. The claimant instructed Messrs Osborne
Morris and Morgan ("OMM") to attend the inquest on behalf of the family. The Trust refused a request that it should meet
the cost of OMM's preparation and attendance at the inquest. On 11 January 2000, OMM wrote to the Trust's solicitors
saying:

"We should perhaps point out that our clients would have agreed to limit their entire claim in this matter to the costs
of the representation of the inquest. Indeed they would have been prepared to limit the preparation and attendance to
£5,000. No doubt your clients will bear this in mind when we issue proceedings against them following the inquest.
The family have been forced to issue proceedings simply because of your clients refusal to meet the costs of the
attendance."

39. The inquest was held on 14 January 2000. The Coroner heard evidence from several nurses, Dr Mayers and Dr
Lanzone Miller, a consultant physician and gastro-enterologist. Dr Miller disagreed with Dr Mayers' view that nutrition
had entered the airway and lung due to the insertion of the nasogastric tube into the major airway. Dr Miller considered
that the explanation for the presence of nutritional feed in the lung was regurgitation followed by aspiration of the
stomach contents at or around the time of death. At the conclusion of the evidence, the Coroner recorded the medical
cause of death as:

"1(a) airway obstruction;

1(b) introduction of nasogastric nutrition into airway and lungs;

2 chronic renal failure; old myocardial infarct; chronic obstructive pulmonary disease and fractured ribs."

40. By a letter dated 18 January 2000, OMM informed the Trust that the deceased's family would be prepared to accept a
payment of £7,500 bereavement damages together with a contribution towards their costs. The Trust's solicitors replied on
February 4 saying that they were instructed "to take all necessary steps to resist a claim, to trial if necessary, should one be
forthcoming". On February 7, OMM asked the Trust whether they were prepared to refer the matter "for alternative
dispute resolution that is, mediation, again to ensure that unnecessary costs are incurred [sic]. Our client wants to mediate
this claim".

41. On 6 April 2000, OMM wrote to the Secretary of State for Health giving him early notice of the proceedings, and
saying:

"You will see from the correspondence that I have at every juncture sought to meet, negotiate and mediate this claim
with the least amount of cost to the NHS. Unfortunately all such attempts have been rejected. I want you to have this
correspondence in mind when the final bill payable by the NHS for legal costs is in the region of £100,000."

42. By letter dated 14 March 2000, the Trust's solicitors replied saying that they did not accept that there was any claim
arising out of the care provided to the deceased, and that all necessary steps would be taken to resist a claim, to trial if
necessary.
43. On 25 April 2001, OMM wrote to the Trust a letter of claim in accordance with the clinical negligence pre-action
protocol. The letter included an offer to accept the sum of £12,500 together with reasonable costs pursuant to CPR Part
36. This evoked a response on May 1 in which the Trust said that it would be defending the claim. On 25 July 2001 the
Trust sent its protocol response denying liability, and asserting:

"As there is no negligence, the Trust will not be settling this claim. In view of this, I do not believe it is appropriate
to meet with you and discuss this claim or refer this case to mediation as the Trust's stance will not change in this
respect. Therefore, any such meeting or mediation will be unnecessary waste of both costs and resources."

44. On 5 November 2001, OMM wrote to the Trust saying:

"We must make it clear to you at this stage that it was never our intention to issue proceedings since this was quite
obviously a case that could have been resolved by mediation."

45. The claim form was issued on May 13, and served on 9 September 2002. On 10 September 2002, OMM wrote:

"Despite the fact that we have issued proceedings in this matter we are anxious to avoid unnecessary costs being
incurred. We would therefore invite you to consider referring this case to mediation so that we can perhaps resolve it
to the satisfaction of our client without unnecessary costs being incurred."

46. This request was repeated by OMM's letter of 13 September 2002. The Trust replied on September 16:

"I have as yet been provided with no evidence that it would be an effective use of NHS resources to go to mediation
on this small value claim, where liability is in dispute. What your costs are, are obviously a matter for you and your
client, the Trust costs on this claim, even to trial will only be low."

47. On 3 April 2003, OMM wrote yet again urging the Trust to consider either mediation or at least a meeting to discuss a
possible settlement:

"We are certain agreement could be reached whereby further unnecessary costs would be avoided."
48. The Trust replied on April 4, repeating its position that "on such a low quantum claim, we do not consider this to be a
cost effective use of NHS resources". On 30 April 2003, OMM wrote again pointing out that they had made every attempt
to try to avoid the costs of litigation, but all such attempts had been rejected out of hand. They referred to the decision of
this court in Dunnett and that of Lightman J in Hurst, and said that they would be relying on these decisions when the
court came to consider the question of costs, since the Trust had acted unreasonably. On 1 May 2003, the Trust replied
saying:

"In respect of your request that we clarify why 'mediation is not a cost effective use of NHS resources on such a low
cost claim', (a) it has little chance of success and (b) the costs of mediation would be as great, if not greater for such
a low value claim than attending trial. ... if you do not intend to consider a 'drop hands' agreement, then I look
forward to receiving your indexed trial bundle and summary in order that we may consider and amend/agree them."

49. The trial took place on 1 and 2 June 2003. The judge gave judgment on June 17, and dismissed the claim. He then
heard argument on the question of costs. It was submitted by Mr Meakin on behalf of the claimant that there should be no
order as to costs, and in support of his submission he relied on the refusal of the Trust to agree to a mediation. The judge
was referred to some, if not all, of the correspondence to which we have referred. He said that he had the feeling that the
letters written by OMM had been "somewhat tactical". He also thought that it was unusual to commence litigation by
writing to the Secretary of State for Health as occurred in this case. At para 32 of his judgment, he said:

"I think that the question for me to decide is was the defendant's attitude to ADR a reasonable one, or not a
reasonable one or to use the words of Lightman J, were they justified in taking the view that mediation was not
appropriate because it had no realistic prospect of success? Having considered and been taken through much of this
correspondence, although, as I say, notably not the correspondence preceding the letter to the Health Secretary in
2000, it seems reasonably clear to me that although there are a number of tactical observations to the effect that the
claimant would like ADR, it remains perfectly clear that this is not a case which they were disposed to compromise
on any terms which could possibly be reasonable to the defendants. The defendants took the view, legitimately as I
have found, that this was a case in which there simply was no negligence. It is significant that I have been told that
 on March 4 of this year, fairly shortly before trial, an offer was made by the defendant to the claimant that the matter
should be settled on the basis that both parties simply walked away from the litigation and neither paid their costs,
but that did not attract the advisors to the claimant or the claimant herself. She started off asking for £12,000,
towards the end was offering to accept £7,500 and funeral expenses. It seems perfectly clear that it would only have
been by the payment of some significant, albeit modest by the standards of this type of litigation, sum of money that
the defendants would have been able to buy off the claim, whether by ADR or in any other way. I do not think that
the CPR is designed to make parties which have a good defence settle claims which they do not wish to settle, when
they ultimately end up winning and are vindicated in the view that they have taken, I do not think it proper, at least
not in a run of the mill case, to say that they should then suffer by being denied their costs. This was a perfectly
straightforward case of a kind which the defendants were justified in defending and justified in saying that they did
not want to pay any money to the claimant in respect of. The claimant was only prepared to settle on the basis that
she was going to be paid some money, and therefore there was not much point in talking to any greater extent than
they did. It is to be observed that the correspondence from the defendant was both full and reasonable."
THE COSTS ISSUE

50. In the light of our exposition of what we conceive to be the correct approach, we have no difficulty in concluding that
the judge was correct to decide that the Trust should not be deprived of any of its costs on the grounds that it had refused
to accept the claimant's invitations to agree to a mediation. In our view, the claimant has come nowhere near showing that
the Trust acted unreasonably in refusing to agree to a mediation. We start by noting that this is not a case where the court
made any order encouraging mediation. We accept that the subject-matter of this dispute was not by its nature unsuitable
for ADR. But the Trust believed that it had a strong defence, and had reasonable grounds for that belief. Moreover, the
judge was justified in saying that the letters written by the claimant's solicitors were "somewhat tactical". We think that, if
anything, this was an understatement. The extraordinary letter written to the Secretary of State very early on was an
attempt to extort a sum (plus costs) in settlement of a very small claim which, at best, was speculative. The writing of no
fewer than five letters asking the Trust to agree to mediation was of a piece with this early letter. The requirement that the
Trust should pay the claimant's costs is of particular significance, since she had entered into a conditional fee agreement
with her solicitors, with a 100% success fee.

51. Another highly relevant feature of this case was that the Trust reasonably took the view that the costs of a mediation
would be disproportionately high when compared with (a) the value of the claim if liability were to be established and (b)
the Trust's costs of a trial. The Trust was entitled to regard this as a factor strongly militating against mediation.

52. Nor did the claimant discharge the burden of proving that mediation had a reasonable prospect of success. The Trust
had taken the view that the claim would not succeed, and had decided not to make any payment to the claimant. Mr Allan
Gore QC submits that the claimant might have been persuaded in the course of the mediation to drop her claim: all she
really wanted was an explanation of how her husband had died in hospital. This possibility cannot be dismissed as
fanciful, although there is no evidence to support it. But in our judgment, the claimant comes nowhere near proving that
there was a reasonable prospect that the mediation would have been successful. In the circumstances of this case, the
stance adopted by the Trust cannot fairly be said to have been unreasonable.

53. The final point urged by Mr Gore is the ADR pledge. But as we have already said, this pledge adds nothing. If the
case was suitable for ADR, the claimant does not need the pledge; and if the case was not suitable for ADR, the pledge
did not require the Trust to agree to mediation. The same applies to the initiative of the NHSLA referred to at para 7
above: the statement merely says that NHS bodies offer mediation in "appropriate" cases.

54. For all these reasons, we dismiss the appeal.

Steel v Joy and Halliday

THE CAUSATION ISSUE

55. On 15 December 1996, the claimant was injured in an accident involving the first defendant. On 13 March 1999, he
was injured in an accident involving the second defendant. The claimant brought separate actions against the two
defendants. These were subsequently consolidated. The first defendant instituted CPR Part 20 proceedings against the
second defendant, seeking a contribution in respect of any damages found payable to the claimant. Both defendants
admitted liability to the claimant. The claimant and first defendant jointly instructed Mr M J Gibson FRCS, a consultant
spinal surgeon. Mr Gibson advised that the claimant suffers from a congenital spinal stenosis, and that, as a result of the
first accident, symptoms of the claimant's pre-existing stenosis were accelerated by seven to ten years. Of the second
accident, Mr Gibson said:

"He aggravated the pre-existing problems producing an exacerbation of these which would have lasted for in the
order of 3 to 6 months. Thereafter persistence of symptoms primarily relates to his pre-existing problem that started
after the injury on 15 December 1996."

56. Mr Gibson was asked whether the second accident would have had a similar effect to the first accident had the
claimant been free of symptoms immediately prior to the second accident. He replied by letter dated 25 June 2002 that:
"on the balance of probabilities, this second accident would have exacerbated Mr Steel's condition by 7 to 10 years". Mr
Recorder Thomas QC summarised the effect of the agreed medical evidence at para 10 of his judgment in these terms:

"So what it comes to, in very simple terms, is that as a result of the first accident, the claimant's already existing
problems were accelerated by a period of years, in the order of seven to ten years. In the second accident, two and a
quarter years later, Mr Gibson makes it clear that there was an exacerbation of three to six months by reason of the
second accident, and we understand (and when I say 'we understand' this is raised by me in argument with counsel
today), we understand that really what he is meaning by the three to six months aggravation from the second
accident is that there was a flare-up of conditions for that limited period of time as a result of the second accident.
He says in the report and the correspondence I have referred to that effectively, if the first accident had not
happened, then the second accident would have had the same effect as the first accident if the first accident had not
already occurred. However, save for the three to six months aggravation, the second accident did not in fact affect
the claimant's existing medical condition which had already been arrived at by then as a result of his pre-existing
condition and the first accident."
57. The trial took place on 3 July 2003. It was agreed that the Recorder should determine the causation issue that had been
raised on the pleadings, namely whether the second defendant had caused the claimant to suffer any more damage than
three to six months' aggravation of his symptoms of stenosis. On behalf of the first defendant, it was submitted that the
second defendant had also caused or contributed to the seven to ten years acceleration of the claimant's symptoms. The
second defendant contested this. The Recorder found in favour of the second defendant. He held that the second accident
"did not affect the long-term prognosis that there already was from the first accident" (para 19), and derived support for
his conclusion from the decision of this court in Performance Cars Ltd v Abraham [1962] 1 QB 33. The first defendant
appeals against this decision.

58. Mr Foster's primary submission is that, since there was an "exact overlap of damage", the second accident damage can
be said to have overtaken the first accident damage, so that the first defendant is only liable for the damage which was
suffered during the period between the dates of the two accidents. His alternative submission is that the two defendants
should be regarded as concurrent tortfeasors who, as regards the acceleration of the stenosis symptoms, both caused the
same damage, and between whom there would be rights of contribution under s 1 of the Civil Liability (Contribution) Act
1978.

59. The first of these submissions is completely unsustainable. The phrase "exact overlap of damage" is not apt on the
facts of this case. The damage attributable to the first accident (acceleration of symptoms by seven to ten years) had
already occurred by the date of the second accident. That historical fact cannot be expunged simply because that same
damage would have been caused by the second accident if the first accident had not occurred. In these circumstances, it is
a misuse of language to describe the acceleration of symptoms by seven to ten years as "exactly overlapping damage", and
plainly wrong to say that the second accident damage overtook and extinguished the first accident damage.
60. Nor can we accept the alternative submission. In our judgment, this case cannot be distinguished from Performance
Cars. Mr Foster implicitly accepts this, because he contends that Performance Cars was wrongly decided and should not
be followed. In that case, the defendant negligently caused his car to collide with the plaintiff's car and damaged its front
wing. It was agreed that to make good the damage, the whole of the lower part of the car would have to be resprayed at a
cost of £75. The plaintiff had previously been involved in another collision in which his car had suffered damage to the
rear wing which had not been made good. This damage also required a similar respray. The plaintiff had sued the person
responsible for the first damage and recovered judgment for £75, the cost of the respray. That judgment had not been
satisfied. This court held that the plaintiff was not entitled to recover the cost of the respray from the defendant, since he
had damaged a car which was at the time of the accident in need of respraying, with the result that the need for respraying
did not flow from the defendant's wrongdoing. Accordingly, the claim against the defendant failed. Lord Evershed MR
said that "the necessity for respraying was not the result of the defendant's wrongdoing because that necessity already
existed" (p. 39). At p. 40, he said:
 "In my judgment in the present case the defendant should be taken to have injured a motor-car that was already in
certain respects (that is in respect of the need for respraying) injured; with the result that to the extent of that need or
injury the damage claimed did not flow from the defendant's wrongdoing. It may no doubt be unfortunate for the
plaintiffs that the collisions took place in the order in which they did."

61. Donovan LJ said at p. 42:

"The question as I see it is this: what extra burden in the matter of respraying was put upon the plaintiff company by
the second collision? To my mind the answer must be: None, for the earlier collision had already imposed the burden
of respraying upon them."
62. Mr Foster submits that the law has moved on since Performance Cars was decided and that the court is now required
to apply what he calls "equitable pragmatism" in a case such as this. He says that justice requires the court to hold that the
two defendants were concurrent tortfeasors who were both responsible for the same damage. The analysis adopted by the
judge in the present case would mean that, if the first defendant had not been before the court or had been insolvent, the
claimant would not have been compensated for his loss: such an unjust conclusion can, and should, be avoided. Justice
requires the court to hold that both defendants caused the damage, and that, as between themselves, the court should
assess the contribution that is just and equitable having regard to their respective responsibilities for the damage in
question: see s 2(1) of the 1978 Act.
63. In support of these submissions, Mr Foster relies in particular on Rahman v Arearose Ltd [2001] QB 351. In that case,
the claimant who was employed by D1 was assaulted at work by two fellow employees and suffered an injury to his right
eye. As a result of medical negligence committed by D2 in the course of an operation, he later lost the sight in his eye
entirely. He also suffered post-traumatic stress disorder and depression. At p. 364D of his judgment, Laws LJ rejected the
submission that the case was one of "concurrent torts", since on the evidence the respective torts committed by the
defendants were the causes of distinct aspects of the claimant's psychiatric condition. At paras 26-33, he discussed the
issue of causation, and said: "Once it is recognised that the first principle is that every tortfeasor should compensate the
injured claimant in respect of that loss and damage for which he should justly be held responsible, the metaphysics of
causation can be kept in their proper place" (para 32). It is this passage on which Mr Foster places particular reliance. But
it is important to point out that Laws LJ also said at para 34:

"Once one leaves behind, as for the reasons I have given one should, the dogmas of novus actus and eggshell skulls,
there is nothing in the way of a sensible finding that while the second defendants obviously (and exclusively) caused
the right-eye blindness, thereafter each tort had its part to play in the claimant's suffering."

64. And at para 36, he said:

"Here, the question what the position would have been if the second tort had not been committed is highly material:
the second defendants are not to be held responsible for damage the whole of which had already been inflicted on the
claimant by the first defendants."
65. It seems to us that there is nothing in the decision in Rahman which supports Mr Foster's alternative submission.
66. Reference was made during the course of argument to Baker v Willoughby [1970] AC 467. In that case, the plaintiff's
leg, which was injured in a car accident caused by the negligence of the defendant, was later shot by some robbers. The
House of Lords held that the defendant was liable for the full consequences of the injury he caused regardless of the
second incident, and had to pay damages based on the plaintiff's losses beyond the time when his leg was amputated as a
result of the second incident. This decision was criticised by some of their lordships in the House of Lords
in Jobling v Associated Dairies [1982] AC 794. It is unnecessary to consider the speeches in Jobling. For present
purposes, it is sufficient to state that Baker should be regarded as an exception to the general "but-for" test, which was
justified by the principle of fully compensating the plaintiff for damage tortiously inflicted. It was recognised that, if the
defendant's argument were accepted, namely that he had no liability in respect of the period after the plaintiff's leg had
been amputated, the plaintiff would fall between two defendants, and not be entitled to full compensation.

67. This point was most clearly articulated by Lord Pearson who said of the defendant's argument at p. 495E:

"That is the argument, and it is formidable. But it must not be allowed to succeed, because it produces manifest
injustice. The supervening event has not made the plaintiff less lame nor less disabled nor less deprived of amenities.
It has not shortened the period over which he will be suffering. It has made him more lame, more disabled, more
deprived of amenities. He should not have less damages through being worse off than might have been expected.
 The nature of the injustice becomes apparent if the supervening event is treated as a tort (as indeed it was) and if one
envisages the plaintiff suing the robbers who shot him. They would be entitled, as the saying is, to 'take the plaintiff
as they find him'. (Performance Cars Ltd v Abraham [1962] 1 QB 33.) They have not injured and disabled a
previously fit and able-bodied man. They have only made an already lame and disabled man more lame and more
disabled."
68. Lord Reid had also referred to Performance Cars at p. 493F, and said at p. 493G:

"These cases exemplify the general rule that a wrongdoer must take the plaintiff (or his property) as he finds him:
that may be to his advantage or disadvantage. In the present case the robber is not responsible or liable for the
damage caused by the respondent: he would only have to pay for additional loss to the appellant by reason of his
now having an artificial limb instead of a stiff leg."
69. The importance of Baker for present purposes is that their lordships recognised that Performance Cars was good law.
Both Lord Reid and Lord Pearson explicitly stated that the robbers would not have been liable for the plaintiff's loss of a
good leg. It was precisely because Performance Cars was good law that under-compensation of the plaintiff could only be
avoided by making the defendant liable for the loss attributable to the leg injury even after the amputation. Accordingly,
the "but-for" test could not be applied, just as it has not been applied in cases involving multiple tortfeasors such
as Fairchild v Glenhaven Funeral Services Ltd [2003] UKHL 22, [2003] 1 AC 32.
70. In our judgment, Performance Cars is still good law. It has been frequently referred to in the textbooks and, so far as
we know, without disapproval. As a matter of logic and common sense, it is clearly correct. We do not consider that it
produces an unjust result. The claimant is entitled to recover damages from the first defendant for the losses inflicted by
him; and from the second defendant for any additional losses inflicted by him. It is true that, if the first defendant is not
before the court or is insolvent, the claimant will not be fully compensated for all the losses that he has suffered as a result
of the two accidents. But that is not a reason for making each defendant liable for the total loss. In Baker, the issue was
whether the tortfeasor who had caused the first injury was liable for its consequences after they had arguably become
merged in the consequences of the second injury. In the present case, the question is whether the second tortfeasor is
responsible for the consequences of the first injury. To that question, the answer can only be: no. It is true that, but for the
first accident, the second accident would have caused the same damage as the first accident. But that is irrelevant. Since
the claimant had already suffered that damage, the second defendant did not cause it. This is not a case of concurrent
tortfeasors.
THE COSTS ISSUE

71. Proceedings against the first defendant were started by the issue of a claim form on 14 September 1999. Proceedings
against the second defendant were commenced by the issue of a claim form on 12 March 2002. On 29 July 2002, an order
was made consolidating the two claims. On 9 May 2003, the first defendant's solicitors wrote to the second defendant's
solicitors:

"To dispose of all issues as between defendants/claimant, our clients offer to mediate the issues in this case. We have
no trial date yet but the trial window envisages a trial within the first three weeks of July. Mediation should take
place as soon as possible and certainly by early June.

This letter is being copied to the claimant's solicitors on an equal invitation.

We have also taken the step of asking the ADR Group to liaise with all parties with a view to proposing potentially
suitable mediators and agreeing a date for mediation if the parties agree mediation. Please let us know immediately
if you have any objection to seeking a mediator through the ADR Group.

In the event that any party refuses this offer of mediation, this letter will be drawn to the attention of the trial judge
and you will note that this is an open offer to mediate the case. We shall ask the judge to make a ruling as to costs in
the event that any party refuses a mediation. We believe that this case is eminently capable of being resolved by
mediation."

72. This offer was repeated to the claimant. By letter dated May 20, the first defendant's solicitors replied:1

"After giving very careful thought to the proposal, our insurance principals have come to the conclusion that this
would not be an appropriate case for mediation. The issue between the defendants is one of law and therefore is
requiring of a decision of the court. In such circumstances we cannot see there is any benefit to either side in
mediation.
 So as to make our position perfectly clear, our insurance principals would have no objection to mediation taking
place between yourself and the claimant with a view to resolving the claimant's claim."

73. By their letter dated May 27, the first defendant's solicitors responded, stating that they did not accept that the dispute
was incapable of resolution, although it related to a point of law. They added:

"If your clients persist in refusing to mediate this case, then we will have no option but to place this and our earlier
correspondence before the court. When the court comes to consider the question of costs and conduct in particular in
refusing mediation."

74. The second defendant's solicitors replied on May 28, saying: "We are not prepared to compromise on the point of law
and therefore mediation would be pointless."

75. Having decided the causation issue in favour of the second defendant, the Recorder turned to the question of costs. He
decided that costs should follow the event. His reasoning is set out in the following passage of his judgment:
"Well I am going to come to the same final view in relation to this case as it now arises before me. The possibility of
alternative dispute resolution was raised fairly late in the day here as far as the chronology of this case was
concerned. That is not to say that simply because it is raised late on means that it is of no consequence, far in fact
from it, but it is a factor in the equation. But here, where the issue that has arisen is the one that I identified earlier
today, which Mr Elgot goes as far as to describe as quite exceptional, using the language that arises in that case
of Hurst v Leeming, it seems to me that alternative dispute resolution would have been likely to achieve very little. I
do accept Mr Foster's general point, although it is not of application I think in the facts of this particular case, that
alternative dispute resolution brings to bear a different set of 'tools' than formal litigation in open court such as this,
and who knows what alternative dispute resolution can achieve in some cases. However here in this case, when Mr
Elgot poses for me the question what could alternative dispute resolution really have achieved at this particular late
stage of the litigation as far as this particular topic was concerned, I must say I wonder really what could have been
achieved."

76. In considering whether the first defendant has shown that the second defendant acted unreasonably in refusing the
offer of mediation, a number of points need to be borne in mind. The full value of the claim was agreed by the parties at
£195,000. The second defendant made a CPR Part 36 offer of £3,500 before proceedings started on the footing that this
was a generous assessment of the value of the three to six months' exacerbation of the symptoms caused by the second
accident. It can be seen, therefore, that almost £200,000 turned on the causation issue that was eventually tried by the
Recorder.
77. As in Halsey, so in this case, the court did not make any order encouraging the use of ADR. This is not, therefore, a
case where a party refused even to consider ADR despite a court order that it should do so.
78. This case raised the question whether Performance Cars is still good law, or whether it could be distinguished. Put like
that, the claim against the second defendant, therefore, raised a question of law. In our judgment, the second defendant did
not act unreasonably in saying that he (or more realistically his insurers) wanted to have that question resolved by the
court. In these circumstances, the nature of the dispute was one which was towards the "intrinsically unsuitable" end of
the spectrum. It is a far cry from a typical road traffic claim which raises no disputes of law, and where disputed facts are
intrinsically suitable for resolution by ADR.

79. The second defendant reasonably believed that the claim against him had no merit. We hope that we have not done
injustice to Mr Foster's submissions, but like the Recorder we think that the answer to the question raised by the causation
issue was plain. It follows that the first defendant has not shown that there was a reasonable prospect that a mediation
would have succeeded. The second defendant had decided to take a stand on the point of law. In doing so, he was not
acting unreasonably.

80. There are yet further factors which the second defendant was entitled to pray in aid in support of the reasonableness of
his refusal to agree to mediation. First, the costs of the mediation would have been excessive in comparison with the costs
of litigating the issue at trial. The issue was disposed of by the Recorder in about two hours. Mr Christopher Purchas QC
has suggested that the total costs of a mediation involving all three parties would have been of the order of £20,000. That
figure (which was not investigated before us) does look surprisingly high. But on any view this is a case where a
mediation would have been unlikely to be successful, and would probably have been relatively expensive when compared
with the cost of a trial which, in the event, lasted about two hours. Secondly, as the Recorder pointed out, the offer of
mediation came comparatively late in the litigation after substantial costs had already been incurred.
81. Taking all these factors together, we are in no doubt that the first defendant has not proved that the second defendant
acted unreasonably in refusing to agree to mediation in this case.

82. It follows that the first defendant's appeal is dismissed on both issues.

ORDER: Appeal dismissed with costs subject to detailed assessment.

(Order does not form part of the approved judgment.)

Allan Gore QC (instructed by Osborne Morris and Morgan) appeared for Halsey (appellant/claimant).
Christopher Purchas QC and Huw Lloyd (instructed by Barlow Lyde and Gilbert) appeared for the Milton Keynes General
NHS Trust (respondent/defendant).
Charles Foster (instructed by Crutes Law Firm) appeared for Joy (appellant/first defendant).
Christopher Purchas QC and Howard Elgot (instructed by Ricksons) appeared for Halliday (respondent/second
defendant).

The claimant (Steel) did not appear and was not represented.
Lord Lester of Herne Hill QC appeared for The Law Society as an Interested Party.
Michel Kallipetis QC and Philip Bartle QC appeared for The ADR Group as an Interested Party.
In this case where the Lord Justice Dyson held there should be no presumption in favour of mediation and that there
needed to be a real prospect of mediation succeeding before someone should be denied their legal costs. The guidance in
Halsey applied in the case of Burchell v Bullard [2005].
CASE NO: 03

Burchell
v

Bullard and Others

[2005] 3 Costs LR 507

Neutral Citation Number: [2005] EWCA Civ 358
Court of Appeal (Civil Division)
8 April 2005
Before:

Ward and Rix LJJ

Headnote
In this appeal against costs orders made in a heavily contested building dispute arising out of work done to the property of
the respondents by the appellant, the Court of Appeal expressed its regrets that a net judgment of £5,000 had been
procured at a cost to the parties of about £185,000 as a result of judgments on the claim and counterclaim and on a Part 20
claim against a sub-contractor. In considering the correct costs orders to be made, the Court of Appeal considered the
question of a party's refusal to mediate and referred to Halsey v Milton Keynes General NHS Trust [2004] 3 Costs LR 393
and Dunnett v Rail Track plc [2002] 3 CPLR 309 and also the question of costs of the counterclaim as embodied in the
case of Medway Oil and Storage Company Ltd v Continental Contractors Ltd [1929] AC 88; Costs LR Core Volume 1, p.
5.

Judgment

Introduction

1. WARD LJ: This is an appeal by a small builder, Mr Nicholas Burchell, brought with the permission of Waller LJ
against the costs orders that were made in heavily contested litigation arising out of work done to the property of Mr and
Mrs Bullard, the respondents.

The Background
2. By a contract evidenced partly in writing Mr Burchell agreed to build two large extensions to the home of Mr and Mrs
Bullard in Bournemouth. The work was detailed, perhaps not fully, in two plans, one drawn by the architect and another
by a structural engineer, and in the architect's construction specification. The agreement provided for four stage payments,
the first when the chamber joists went in, the second at plate high, the third when the roof was on and the final payment
on completion. On 31 August 2000 the builder submitted his claim for the third stage payment in the sum of £13,540.99.
This was never paid. Mr and Mrs Bullard complained about the work and wrote setting out what they said had to be done
before any further payment would be made. There followed more than one confrontation between the parties. In the
correspondence that ensued, each accused the other of refusing to honour the contract and blaming the other for the
difficulties. In the event Mr Burchell did not return to the site after 21 November 2000.

3. He instructed solicitors. On 14 May 2001 the solicitors wrote sensibly suggesting that to avoid litigation the matter be
referred for alternate dispute resolution through "a qualified construction mediator". The sorry response from the
respondents' chartered building surveyor was that "the matters complained of are technically complex and as such
mediation is not an appropriate route to settle matters". All the Bullards wanted was for the builder to complete the
contract and rectify the defective work.

4. On 5 February 2002 Mr Burchell brought his claim against Mr and Mrs Bullard for £18,318.45. The defendants
counterclaimed £100,815.34 and further damages which were then not fully particularised. Of that sum £23,646.88 related
to the roof which the defendants alleged needed to be "dismantled and reconstructed". In fact the roof had been built by a
sub-contractor, Mr Teversham and so on 1 May 2003 the claimant brought a Part 20 claim against him alleging that
insofar as the defendants had any claim in respect of the roof the subcontractor should indemnify him in respect of any
sums, including costs, that might be awarded against him in the proceedings as a consequence of any defective work
carried out by Mr Teversham.

The Trial

5. The litigation rumbled on. Case management directions for expert evidence and for experts to meet to agree were made
but it seems largely ignored. The case was heard in the Bournemouth County Court before District Judge Tennant, sitting
as a recorder. He heard evidence for five days and reserved judgment on 1 March 2004. He circulated his draft judgment
and it was handed down on 20 May 2004 when he entered judgment for the claimant against the defendants on the claim
for £18,327.04 but gave judgment for the defendants against the claimant on the counterclaim for £14,373.15. Allowing
for VAT and interest the result was that he ordered the defendants to pay the claimant the difference between the two
amounts, namely £5,025.63.

6. In summary this was how he arrived at those conclusions. He preferred the evidence of the claimant to that of the
defendants where their evidence differed saying:

"I found that the claimant was a transparently honest witness, more than ready to admit where he was wrong and to
shoulder responsibility for it ... I am satisfied that the claimant was an honest man and a conscientious builder. If he
had been allowed to do so he would probably have completed the contract and rectified any defects."

7. Dealing with how the contract came to an end, an important issue in the trial because the defendants' case was that if the
builder had repudiated, he would not be entitled to anything at all and his claim should be dismissed, the recorder
concluded that the fact that there might have been defects in the work done by the time the third stage payment was
sought did not entitle the defendants to refuse payment until the defects were put right. The contract came to an end on 22
November 2000 when, as he was satisfied, Mrs Bullard informed the claimant and the two men working for him that the
contract was at an end and that they should leave. The recorder was satisfied that when Mrs Bullard wrote saying there
was no point in any further meetings that amounted to a repudiation of the agreement by the defendants. He held that the
consequence was that the claimant became entitled to claim for the value of the work done and in addition either the loss
of his profit on the rest of the contract or his wasted expenditure and, although not precisely pleaded in that way, he was
happy to accept that the pleading was sufficiently expressed as a claim for the balance of the contract price less the cost of
the work not done. Any breach of contract by the claimant through faulty workmanship and poor materials had to be
looked at as part of the counterclaim. In his view:

"There is thus to be excluded from the counterclaim, the cost (to the defendants) of completing the work. The
defendants are not entitled to that as part of the counterclaim, as it was they who brought the contract to an end by
 their breach. The value of that work falls to be considered as an allowance against the contract price. The claimant's
case as pleaded was that the value of the work necessary to complete the contract was £5,805."

8. By their counterclaim the defendants alleged that a large number of items were part of the contract and that much more
should be allowed against the sum claimed by the claimant but the recorder was not satisfied that all of the items alleged
by the defendants to be included in the contract were in fact part of that contract. On this issue the claimant was
successful. After analysis of the individual items he came to the conclusion that the value of the contractual work which
the claimant failed to complete was £5,991.41.

9. So far as the counterclaim was concerned "a major part" of it related to the roof which the defendants alleged would
have to be rebuilt. There was a conflict of expert evidence drawn in respect of the alleged defective roof. There was a
measure of agreement between the surveyors that the roofing work was defective in the following respects:

"• No valley boards.

• No lay boards or tilt fillets.

• Nails missing rafters.

• Holes in the Tyvek roof covering.

• On the rear slope of the rear extension an overlap of 80 mm between two sheets of Tyvek."

10. As to the other matters in dispute the recorder preferred the evidence of the claimant's expert to that of the defendants'
expert for reasons he gave. The recorder was satisfied that:

"Mr Miles' [the defendants' expert's] opinion that the roof should be stripped was largely arrived at by applying a
standard approaching perfection that exceeded the contractual standard. ... [He] appears to have formed an opinion
as to what the roof might possibly contain, having inspected only a small part of it and that in circumstances where
there should have been little difficulty in examining the roof to the extent to which Mr Rougier [the claimant's
expert] apparently examined it. Mr Miles' evidence as to what might be the extent of the problems in the roof is mere
speculation. ... The defendants are only able to satisfy me on the evidence that the roof needs repair and that the
repairs [set out above] are appropriate."

11. He found that the amount to be allowed as the cost of repair was only £3,985 as against the sum of £23,646.88 claimed
by the defendants. In other words the defendants recovered only about 17% of this part of their counterclaim.

12. Dealing with the other defects, the recorder accepted that on analysis of the pleadings the claimant accepted that the
underlying work formed part of the contract and that the only real issue was the cost of carrying out the remedial work. He
assessed that at £10,259.40. The counterclaim for this other work was £77,168.46, more when the unparticularised defects
were added, and so the defendants succeeded to about 13% of this part of their counterclaim.

13. There was another very minor part of the counterclaim based upon an allegation that the claimant and his workmen
had damaged a number of items of the defendants' property. Two of the twelve items were proved and damages of
£128.75 awarded in respect of them, less than 1% of the £2,757.75 counterclaimed under this head.

14. Even if one ignores the extra but unquantified items in the schedule to the counterclaim, the defendants' overall
success rate was less than 15%.

15. As for the Part 20 claim the recorder stated:

"It is not surprising in the circumstances that the claimant brought a Part 20 claim against Dean Teversham for an
indemnity as to the roof."

He concluded, however, that it was plainly the responsibility of the claimant to fit the valley boards and tilt fillets so that
no part of the counterclaim in respect of that defective work could be laid at the Part 20 defendant's door. He said:
 "By far the major problem stems from the lack of valley boards and layboards. The other defects are relatively
minor. ... Thus, the Part 20 defendant is liable to the claimant for only £79.50 of the cost of the remedial work."

He entered judgment for the claimant accordingly.

16. The order made was first that there be judgment for the claimant against the defendant on the claim for £18,327.04 to
which should be added VAT and interest. The judgment for the defendants against the claimants on the counterclaim was
for £14,373.15 plus VAT and interest. The third order was, however, that "the defendants pay the claimant the difference
between the above amounts namely £5,025.63 by 17 June 2004". The fourth order was the judgment for the claimant
against the Part 20 defendant for £79.50.

The Judgment as to Costs

17. When judgment was handed down there was argument about the appropriate orders to make. The recorder held that he
had a discretion as to whether there should be judgment by way of set off or separate judgments on the claim and
counterclaim. He was satisfied there should be separate judgments:
"It reflects the reality of what has happened and is clearer. To do otherwise would distort the VAT position and
might lead to difficulties. It will make no difference as to costs. The court has a wide jurisdiction which it must
exercise to see that the case is dealt with justly. This will not be affected by the way in which the judgment is
expressed." (I add the emphasis.)

18. As for the costs he observed that the costs outweighed the amount in dispute and had "swamped the litigation". He
approached the matter in this way:

"There were no payments into court and no Part 36 offers. In the context of the Civil Procedure Rules, those who do
not take advantage of Part 36 run serious risks as to costs. The starting point is that the claimant must have the costs
of the claim, the defendant must have the costs of the counterclaim, and the claimant must have the costs of the Part
20 claim. The court has a wide discretion which it must exercise to ensure that the case is dealt with justly. The Civil
Procedure Rules allow for the costs to be dealt with on the basis of issues. If the court makes an order that requires
an analysis of work done on particular issues, it makes the preparation of a bill of costs for detailed assessment much
more difficult and enormously complicates the process of detailed assessment. It just risks substantially increasing
the costs in a case in which the costs outweigh the value of the matters in dispute. It is better if possible to deal with
the matter another way."

19. Then he said:

"Before the Civil Procedure Rules, if the court made an order that the defendants had the cost of a counterclaim
without qualification, the defendants would only recover the additional costs of the action occasioned by the
counterclaim itself. That is no longer the position."

20. The basis of his judgment then followed:

"There are faults on both sides, and I exclude the Part 20 defendant, as to the conduct of the litigation. On balance
however, I am satisfied that quite apart from the net amount actually recovered by the claimant, the defendants are
more at fault than the claimant in the sense that they have conducted the litigation more unreasonably. It is of course
speculation as to what would have happened if the defendants had taken up the offer of mediation made by the
claimant. There is a difference between mediation that fails and mediation that does not even start because one party
refuses to participate at all. This type of dispute should have lent itself to that approach. On the other hand, the
outcome is always difficult to predict and largely a matter for speculation. I accept that most of the work may have
been [done in] association with the counterclaim. That remains to be seen. ... I am satisfied that at this stage the only
possible order that will do justice is an order that the defendants pay the costs of the claimant of the claim and the
claimant pays the defendants' costs of the counterclaim. Of course it may well be appropriate to disallow some costs
particularly some of the costs of Mr Rougier though not all of them. That can only be done after analysing his fees.
An order to disallow part of them will be arbitrary. This is particularly so, because I propose to reserve the detailed
assessment of costs to myself as district judge. Most of the considerations urged by the parties can be dealt with in
that context."
21. So far as the costs of the Part 20 claim are concerned his decision was:

"I am satisfied that the claimant should be ordered to pay those costs. The idea that the Part 20 defendant should be
ordered to pay the claimant's costs when he has lost to the extent of £79.50, and that when he has made offers to
settle from the beginning, seems to me to be almost absurd. It would certainly not be just. The fact is that he has
succeeded on the issues. There can be no question of the defendants being ordered to pay those costs. The Part 20
defendant was just that, not a joint defendant. He was not a party to the contract between the claimant and the
defendant. I do not consider that an order is appropriate that those costs should be recovered by the claimant from
the defendants. I accept that the claimant was placed in a difficult position when the counterclaim was made
particularly in relation to the roof. It is not surprising that given the nature of the counterclaim, the claimant should
have made a claim against the Part 20 defendant, but that does not mean that it was wise. The claimant might have
protected his position in a different way perhaps by putting the Part 20 defendant on notice of a possible claim
depending upon the fate of the counterclaim. The claimant nevertheless took a risk when dragging the Part 20
defendant into the litigation. Again, I will reserve the assessment of costs to myself as a district judge."

22. There is no appeal against the decision to enter judgment on the claim and counterclaim separately. The appeal relates
only to the award of costs. The appellant submits that the judge ought to have given the appellant his costs not only of the
claim but also the counterclaim or at least his costs of the counterclaim insofar as it related to the issue of the roof, with no
order as to the rest of the counterclaim. He also submits that the judge ought to have allowed him to recover the Part 20
defendant's costs from the respondents. There is no respondents' notice.

23. On 20 July 2004 Waller LJ gave permission to appeal because it seemed to him "that an injustice may have been done
in the way the costs orders work out". We explored this a little further when the appeal opened. As we had expected, an
horrific picture emerges. In this comparatively small case where ultimately only about £5,000 will pass from defendants to
claimant, the claimant will have spent about £65,000 up to the end of the trial and he will also have to pay the
subcontractor's costs of £27,500. We were told that the claimant might recover perhaps only 25% of his trial costs, say
£16,000, because most of the contest centred on the counterclaim. The defendants' costs of trial are estimated at about
£70,000 and it was estimated the claimant would have to pay about 85%, i.e. £59,500. Recovery of £5,000 will have cost
him about £136,000. On the other hand the defendants who lost in the sense that they have to pay the claimant £5,000 are
only a further £26,500 out of pocket in respect of costs. Then there are the costs of the appeal - £13,500 for the appellant
and over £9,000 for the respondents. A judgment of £5,000 will have been procured at a cost to the parties of about
£185,000. Is that not horrific?

24. But I must add to the horror. After permission to appeal had been given because of arguable injustice, the appellant's
solicitors wrote on August 11 enquiring whether the respondents "would submit the question of costs to mediation
pursuant to the Court of Appeal Scheme". The response the following day was:

"Our clients' position is very clearly set out in counsel's skeleton argument. The issues are straight forward and
although our clients would remain willing to listen to any sensible proposals that your client has to make in this
matter, we do not see that involvement of the Court of Appeal mediation scheme would be necessary or
appropriate."

This response will have no bearing on the issue of costs in the court below but it may be a factor which becomes relevant
when dealing with the costs of the appeal.

Discussion on the Appropriate Order for Costs

25. Appeals against orders for costs are notoriously difficult to sustain. That is because the trial judge has a wide
discretion with the result that this court will only interfere with his decision if he has exceeded the generous ambit within
which there is usually much room for reasonable disagreement or because, even more unusually, he has erred in principle.
The point is firmly taken by Mr Counsell for the respondents and I must bear it well in mind.
26. Nonetheless, aspects of the recorder's approach do cause me concern. He correctly set out the position "before the civil
procedure rules" summarising what is set out in the headnote to Medway Oil & Storage Co Ltd v Continental Contractors
Ltd [1929] AC 88:

"Where a claim and counterclaim are both dismissed with costs, upon the taxation of the costs, the true rule is that
the claim should be treated as if it stood alone and the counterclaim should bear only the amount which the costs of
 the proceedings have been increased by it. No costs not incurred by reason of the counterclaim can be costs of the
counterclaim. In the absence of special directions by the court there should be no apportionment. The same principle
applies where both the claim and the counterclaim have succeeded."

I do not know why he said that is no longer the position. Part 48 of the CPR sets out the "general principles and case law
relating to costs and their assessment" and in the introductory note at 48.11.1 it is stated that:

"This section is not intended to be a definitive work on the general principles of assessment, but a compilation of
decisions and commentary which may from time to time need be referred to."
Part 48.15.3 deals with a counterclaim and cites Medway Oil & Storage Co with apparent approval. Although I disagree
with the Recorder's observation, it is not a point going to the heart of this appeal.

27. Once the recorder had decided to enter judgment on the claim and the counterclaim separately and not to set off one
against the other, then to take as his starting point that costs should follow the event on each on claim and counterclaim is
understandable. It is, however, only the starting point. In any event he said, "It will make no difference as to costs." He
was also correct to direct himself that the court's wide discretion had to be exercised so as to ensure that the case was dealt
with justly.

28. CPR 44.3 gives help in coming to the right decision:

"(2) If the court decides to make an order about costs -

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order. ...

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances,
including -

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention
(whether or not made in accordance with Part 36).

(5) The conduct of the parties includes -

(a) conduct before, as well as during, the proceedings, ...

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

(6) The orders which the court may make under this rule include an order that a party must pay -

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;

(c) costs from or until a certain date only; ...

(f) costs relating only to a distinct part of the proceedings; ...

(7) Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable,
make an order under paragraph (6)(a) or (c)."
29. The modern tendency is at least to consider the award of costs on an issue by issue basis. The recorder addressed that
but dismissed it because of the difficulty in the preparation of a bill of costs and the enormous complication of the process
of detailed assessment. I agree with that. I also agree with him that it is better if possible to deal with the matter another
way. His judgment shows, however, that he did not find another way: he resorted to costs following the event. In doing so
I fear he fell into error.

30. His error in my judgment was to fetter his discretion and not to go on to consider, as he should have considered, what
alternatives were available to him. The most obvious and frequently most desirable option is that signposted in CPR
44.3(6)(a), namely to order a proportion of the party's costs to be paid. The recorder had directed his mind to paragraph
6(f), namely ordering costs relating only to a distinct part of the proceedings but he seems to have overlooked paragraph
(7) which required him, where he would otherwise have considered confining costs to part of the proceedings only, to
make instead, where practicable, an order under (6)(a) for a proportion of the costs. Ordering a proportion of costs
obviates all the difficulties he acknowledged in an assessment of how much is properly to be allocated to each and every
issue considered in isolation. Better by far to decide, despite the difficulty and imprecision of the calculation, that the
relevant issue or issues should bear a percentage of the costs taken overall. As the recorder erred in principle, the appeal
on this aspect must be allowed.

31. He also erred in his treatment in the costs of the Part 20 claim. Having accepted that "the claimant was placed in a
difficult position when the counterclaim was made" and that "it was not surprising that given the nature of the
counterclaim, the claimant should have made a claim against the Part 20 defendant", his conclusion that it was unwise to
join the Part 20 defendant cannot be supported. This was a paradigm case for third party proceedings. The defendants
were asserting that the roof had to be replaced. The roof had been built by the subcontractor. In my judgment it would
have been unwise for the builder not to have brought his subcontractor into these proceedings because that was the only
proper way he could have protected his position. Giving him notice of a possible claim depending upon the fate of the
counterclaim was no protection because there would be no issue estoppel unless all three parties were engaged in the same
litigation. The claimant would have run a risk of the court coming to a different conclusion if separate proceedings were
brought. Better by far that all the evidence be available at the same time before the same judge. In my judgment the
recorder was wrong and the appeal against that part of his order must also be allowed.

32. The question then arises as to whether or not the matter should be remitted to the recorder for reconsideration or
whether this court is in a position to exercise the discretion itself. Although we cannot capture the full flavour of the
hearing which lasted five days and certain nuances of the judgment will be lost to us, I am quite satisfied that we are
sufficiently able to capture the essential features of the case so as to exercise our own judgment. Certainly I am totally
satisfied that it would be utterly wrong to incur the waste of costs which would result from sending the matter back to the
court below.

33. I take as my starting point the recorder's decision, which I would honour, to exercise his discretion to give separate
judgments on claim and counterclaim on the basis that it would make no difference as to the costs. The order as drawn did
in fact allow the set off because paragraph 3 of the judgment ordered the defendants to pay the claimant the difference
between the sum awarded to the claimant on his claim and the sum awarded against him on the defendants' counterclaim.
How, in circumstances like that, does one decide who the unsuccessful party is? This was, after all, a form of commercial
litigation where each side was claiming money from the other. Costs following the event is the general rule and in this
kind of litigation the event is determined by establishing who writes the cheque at the end of the case. Here the defendants
do. They were the unsuccessful parties and my starting point is that the claimant is entitled to the costs of the proceedings,
claim and counterclaim taken together.

34. The circumstances of the case may justify a departure from the general rule and so the conduct of the parties, and
questions of whether they have not been wholly successful become relevant. CPR 44.3(5) identifies specific aspects of
conduct for the court to consider including conduct before as well as during the proceedings, the reasonableness of the
party's raising, pursuing or contesting particular allegations or issues, the manner in which he has done so and the extent
to which, though successful, he has exaggerated his claim.

35. Dealing with those matters in reverse order, it is clear to me that in this case the claimant hardly exaggerated his
claim: in fact his claim was for £18,318.45 and he actually recovered more than that, namely £18,327.04. On the other
hand the defendants most certainly exaggerated their counterclaim. The counterclaim was for £100,815.34 plus the cost of
ten other items "to be advised". It is impossible for us to estimate how much more was involved in those extra items. As I
have pointed out, succeeding to the extent of £14,373.15 was succeeding to about only 15% of the sum claimed. The
defendants were markedly unsuccessful judged even by the figures being put forward in the closing submission when the
value of the counterclaim was estimated at £49,745.

36. The next factor to consider is the manner in which the parties pursued their claims. The judge was critical of the way
in which expert evidence was deployed. Mr Miles, instructed by the defendants, was criticised because he had not
inspected the roof fully yet advised that it needed to be replaced. He was originally a jointly instructed expert but the
claimant was - rightly as it transpires - dissatisfied with his opinion and so instructed Mr Rougier. The defendants had a
Mr Vincent, presumably the same surveyor as had advised them not to mediate, and shortly before the trial a direction was
made that he and Mr Rougier and if thought necessary Mr Miles and the third party's roofing expert meet to prepare a
joint statement setting out areas of agreement and disagreement. That was never complied with because the defendants
dispensed with the services of Mr Vincent. With the trial looming they had no evidence to support the counterclaim that
the items of work were defective as alleged. They were largely reliant on admissions made in the reply. On 7 January
2004 an order was made that Mr Rougier prepare a schedule of the works to be done to take the property to mortgagable
condition, with a Mr Gardner, originally retained by the claimant, to attach costings to the various items. In fact Mr
Rougier prepared two schedules one of which was ruled inadmissible and it may be for that reason that the recorder made
the adverse comment that it may well be appropriate to disallow some of his costs on the assessment which he would
conduct. The recorder was nevertheless satisfied that Mr Rougier's reasoned criticisms that Mr Gardner's prices were high
were convincing. That doubtless explains why the claimants abandoned Mr Gardner. In the curious game of musical
chairs played in this litigation the recorder noted:

"Worse still, the defendants then 'adopted' Mr Gardner as their 'expert' and took issue with the contribution of Mr
Rougier."

37. In the event, whilst accepting Mr Rougier's criticisms, the recorder took the Gardner figures as his starting point and
discounted them to allow for the criticism. He did not proceed on the figures produced by Mr Rougier himself which were
too low. The interlocutory dance was, therefore, something of a muddle, the full effect of which it is difficult for this court
to assess. All we can do is take account of the recorder's views that:

"There are faults on both sides ... as to the conduct of the litigation. On balance however, I am satisfied that quite
apart from the net amount actually recovered by the claimant, the defendants are more at fault than the claimant in
the sense that they have conducted the litigation more unreasonably."

That is a finding which must bear upon the allocation of costs.

38. Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue is a relevant factor and
needs to be looks at in a little more detail. The defence to the claim was firstly that the claimant had repudiated. The
defendants lost that issue. They asserted that much more was left undone than the claimant asserted to have been within
his contract. On that the defendants lost. The roof was a major issue. The defendants lost their case that the roof had to be
replaced. The defective work was obviously a large part of the counterclaim. The defendants had to rely on admissions to
prove their case because they had little or no expert evidence available to them. In some instances the claimant resiled
from admissions and to that extent prolonged the case. The defendants had no evidence to support their costing of their
counterclaim until they embraced Mr Gardner at the very last minute. Looking at the matter in the round, the defendants
lost much more than they won.

39. Neither party made any payment into court or any admissible offer to settle so far as we know. Given the claim would
be set off against counterclaim and that the claimant was the eventual winner, the onus was slightly more on the
defendants to pay into court than on the claimant to pay money in satisfaction of the counterclaim which, if taken, still left
his claim to be fought to judgment.
40. The defendants' refusal to mediate does need careful analysis. The offer to refer the matter for mediation was made in
May 2001, long before the action started and long before the crippling costs had been incurred. The issue which arises is
whether the defendants acted unreasonably in refusing ADR. In Halsey v The Milton Keynes General NHS Trust [2004]
EWCA Civ 576, [2004] 1 WLR 3002 this court gave some guidance as to how that question should be answered. Among
the relevant matters to take into account here are (a) the nature of the dispute; (b) the merits of the case; (c) whether the
costs of the ADR would be disproportionately high and (d) whether the ADR had a reasonable prospect of success.
41. Dealing with those in turn, it seems to me, first, that a small building dispute is par excellence the kind of dispute
which, as the recorder found, lends itself to ADR. Secondly, the merits of the case favoured mediation. The defendants
behaved unreasonably in believing, if they did, that their case was so watertight that they need not engage in attempts to
settle. They were counterclaiming almost as much to remedy some defective work as they had contracted to pay for the
whole of the stipulated work. There was clearly room for give and take. The stated reason for refusing mediation that the
matter was too complex for mediation is plain nonsense. Thirdly, the costs of ADR would have been a drop in the ocean
compared with the fortune that has been spent on this litigation. Finally, the way in which the claimant modestly presented
his claim and readily admitted many of the defects, allied with the finding that he was transparently honest and more than
ready to admit where he was wrong and to shoulder responsibility for it augured well for mediation. The claimant has
satisfied me that mediation would have had a reasonable prospect of success. The defendants cannot rely on their own
obstinacy to assert that mediation had no reasonable prospect of success.
42. It seems to me, therefore, that the Halsey factors are established in this case and that the court should mark its
disapproval of the defendants' conduct by imposing some costs sanction. Yet I draw back from doing so. This offer was
made in May 2001. The defendants rejected the offer on the advice of their surveyor, not of their solicitor. The law had
not become as clear and developed as it now is following the succession of judgments from this court of
which Halsey and Dunnett v Railtrack plc (Practice Note) [2002] 1 WLR 2434 are prime examples. To be fair to the
defendants one must judge the reasonableness of their actions against the background of practice a year earlier
than Dunnett. In the light of the knowledge of the times and in the absence of legal advice, I cannot condemn them as
having been so unreasonable that a costs sanction should follow many years later.
43. The profession must, however, take no comfort from this conclusion. Halsey has made plain not only the high rate of a
successful outcome being achieved by mediation but also its established importance as a track to a just result running
parallel with that of the court system. Both have a proper part to play in the administration of justice. The court has given
its stamp of approval to mediation and it is now the legal profession which must become fully aware of and acknowledge
its value. The profession can no longer with impunity shrug aside reasonable requests to mediate. The parties cannot
ignore a proper request to mediate simply because it was made before the claim was issued. With court fees escalating it
may be folly to do so. I draw attention, moreover, to paragraph 5.4 of the pre-action protocol for Construction and
Engineering Disputes - which I doubt was at the forefront of the parties' minds - which expressly requires the parties to
consider at a pre-action meeting whether some form of alternative dispute resolution procedure would be more suitable
than litigation. These defendants have escaped the imposition of a costs sanction in this case but defendants in a like
position in the future can expect little sympathy if they blithely battle on regardless of the alternatives.

44. Balancing all those factors how then is justice to be done? The claimants cannot have the whole of their costs which
follow the event that they were successful to the tune of £5,000 odd. Some recognition has to be paid to the fact that a
large part of the trial was taken up with the counterclaim on which the defendants did have some, albeit limited, success.
The object of the exercise is to make a just and fair award of costs. Standing back and looking at the matter in the round it
seems to me that the claimant enjoyed the greater share of the spoils of victory. In my judgment justice is achieved by
awarding the claimants 60% of the costs of the proceedings, claim and counterclaim, lumping them together. The district
judge assessing these costs will still be able to decide to what extent Mr Rougier's fees must be disallowed.

45. For reasons I have given there was no justification for refusing to make some order in the claimant's favour in respect
of the costs he has been required to meet in the Part 20 proceedings. Joining the subcontractor was a reasonable and
proper course to take. It flowed entirely from the counterclaim and the substantial challenge to the fitness of the roof. I
start with allowing the claimant the whole of those costs but then I have to have regard to the fact that the substantial part
of the proven defective work was in fact the responsibility of the claimant. It was not a clear-cut case of the
subcontractor's full responsibility for all the work done on the roof. The claimant's own failures must be marked to some
extent in costs. Doing the best I can, and taking a broad view of the justice of the case overall, I conclude that he should
have the same proportion of his costs of the third party proceedings as he does of the proceedings overall.

46. In the result I would allow the appeal, discharge the recorder's orders for costs and direct that the defendants pay 60%
of the claimant's costs of the claim, counterclaim and Part 20 proceedings and 60% of his liability to pay the Part 20
defendants' costs.

47. We have not heard argument on the costs of this appeal. In order that more costs are not wasted, I say that my
preliminary view is that costs of the appeal should follow the event. The appellant has been successful and as at present
advised and having regard to the checklist of relevant considerations set out in CPR 44.3, I can see no justification for his
not having the costs of the appeal. Counsel will, however, have an opportunity to address the court further when this
judgment is handed down.
48. RIX LJ: I agree, and add a few words of my own only to underline my concern for the expenditure of such large costs
in such a case and my support for what my Lord, Lord Justice Ward, has said about mediation and Halsey.
49. Lord Justice Ward has set out the current estimates of the parties' costs to date in paragraph 23 above. It is a matter of
real and substantial concern that parties are taking, or being forced to take, such great risks in the expenditure of costs in a
case where the claim was essentially admitted and the £100,000 counterclaim (and more, if account is taken of further
unparticularised items) succeeded in the sum of only some £14,000. I do not know if litigants are being fully advised as to
the risks involved in a "kitchen-sink" approach to litigation. I do not say that that was the defendants' approach in this
case: but, having regard to the very limited success which the counterclaim received and the recorder's views that the
defendants were being unreasonable in their approach to litigation, it is hard to eliminate the possibility that the
defendants thought that, once committed to litigation, they might as well put their case as high as it could possibly be put.
Now, however, that CPR 44.3, quoted in my Lord's judgment above, has given to the courts such flexibility in the
awarding of costs, litigants should be aware, and should be made aware by the lawyers whom they consult, that there are
considerable perils in adding to a good case other aspects or items of dubious merit.
50. As for mediation and Halsey, I agree entirely with what Lord Justice Ward has said. The merits of the case, its
structure, and the great risks involved in fighting it to a conclusion, favoured mediation, and did so at an early stage,
before substantial costs began to be incurred. In the present case, Mr Burchell offered mediation at an early stage, long
before litigation started. I agree that mediation here would have had a reasonable prospect of success and that a party
cannot rely on its own obstinacy to assert that it would not. I would also add that it may not be able to rely on its solicitor's
or expert's advice either, where the result shows that mediation ought reasonably to have been attempted. I suspect that
there are many disputes of this kind where one party offers and desires mediation and is simply met by a blank refusal.
The court is entitled to take an unreasonable refusal into account, even when it occurs before the start of formal
proceedings: see CPR 44.3(5)(a).
51. In Halsey, this court was particularly concerned with the problem of whether an unreasonable refusal of mediation
could prejudice a successful party in costs. The present case illustrates that the problem may arise in many different
situations, as here where the counterclaiming defendants were (a) the overall losers in the litigation and (b) exaggerated
their counterclaim so as to receive only a small percentage of it. In such circumstances, it seems to me to be in principle
easier than in the Halsey situation to give effect to an unreasonable refusal of mediation in costs.

ORDER:

1. The appeal be allowed and the cost order as between the appellant and the respondents made by the Recorder at the trial
of this matter be discharged.

2. The respondents do pay 60% of the appellant's costs of the claim, counterclaim and Part 20 proceedings, and do pay
60% of the costs which the appellant is liable to pay to the Part 20 Defendants to be the subject of detailed assessment on
the standard basis if not agreed.

3. The respondents do pay the appellant's costs of the appeal to be the subject of detailed assessment on the standard basis
if not agreed, any such assessment to be heard together with the assessment of the costs below.

4. Permission to appeal to the House of Lords refused.

(Order does not form part of approved judgment.)

Alexander Hutton (instructed by Turners) appeared for the appellant.
James Counsell (instructed by Ian Newbery & Co) appeared for the respondent.
CASE NO: 04

PGF II SA
v

OMFS Company 1 Ltd

[2013] 6 Costs LR 973

Neutral Citation Number: [2013] EWCA Civ 1288
Court of Appeal (Civil Division)
23 October 2013
Before:
Maurice Kay, McFarlane and Briggs LJJ

Headnote
Appeal against a costs sanction arising from the defendant's failure to respond in any way to a serious invitation to
participate in mediation. The trial judge had deprived the defendant of the costs to which it would otherwise have been
entitled by virtue of the claimant's late acceptance of a Part 36 offer, on the basis that the defendant's silence amounted to
a refusal, and applying the guidelines in Halsey v Milton Keynes General NHS Trust [2004] 3 Costs LR 393; [2004] 1
WLR 3002, the refusal was unreasonable. Both parties appealed. As a general rule silence in the face of an invitation to
participate in ADR is, of itself, unreasonable, regardless of 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.
A failure to provide reasons is destructive to the ADR process. The judge's decision was within his broad discretion.
Appeal and cross-appeal dismissed.

Judgment
BRIGGS LJ:

Introduction
1. This appeal raises, for the first time as a matter of principle, the following question: what should be the response of the
court to a party which, when invited by its opponent to take part in a process of alternative dispute resolution ("ADR"),
simply declines to respond to the invitation in any way? An unreasonable refusal to participate in ADR has, since 2004,
been identified by this court as a form of unreasonable conduct of litigation to which the court may properly respond by
imposing costs sanctions: see Halsey v Milton Keynes General NHS Trust [2004] 3 Costs LR 393; [2004] 1 WLR 3002.
After a general review of the progress of ADR, and mediation in particular, with the assistance of intervention by the Law
Society and several bodies engaged in the development of ADR, this court laid down non-exclusive guidelines for
deciding whether, in particular cases, a refusal to participate in ADR could be shown to be unreasonable. Those guidelines
have stood the test of time, and the crucible of application in subsequent reported cases. A common feature of most of
them, including the two cases reviewed in the Halsey case itself, was that the refusing party had communicated its refusal
to the inviting party, with succinct reasons for doing so.
2. In the present case, a serious and carefully formulated written invitation by the claimant's solicitors to participate in
mediation was met with complete silence by the defendant. The offer was repeated just over three months later and,
despite promising a full response to the letter in which it was contained, the defendant's solicitors thereafter made no reply
or comment about it at all. After the case was compromised, save as to costs, by the last minute acceptance by the
claimant of the defendant's Part 36 offer, the trial judge Mr Recorder Furst QC, sitting as a deputy judge of the Queen's
Bench Division in the Technology and Construction Court, acceded in part to the claimant's application for a costs
sanction on the ground that the defendant had unreasonably refused to mediate, by depriving the defendant of the costs to
which it would otherwise have been entitled under Part 36, but he declined to take the further step of making the
defendant pay the claimant's costs, incurred during the same period. [See [2012] 3 Costs LO 404.] The judge decided first
that the defendant's silence amounted to a refusal and secondly, applying the Halsey guidelines, that its refusal had been
unreasonable.

3. Both parties appealed. The defendant submitted that the judge had been wrong on both points. Its silence did not
amount to refusal, and even if it did, that refusal was on reasonable grounds. For the claimant, Mr Jonathan Seitler QC
made what he acknowledged was a novel submission, namely 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. He said that a civil litigant's first duty in response to such an invitation was to engage with it, rather than ignore it,
even if such engagement led in due course to a reasonable refusal or to the pursuit of some different, or differently timed,
process of ADR than that contained in the invitation.
4. Although Mr Seitler could rely upon on no direct authority for his submission he derived considerable support (as will
appear) from the contents and general thrust of the recently published Jackson ADR Handbook by Messrs Blake, Brown
and Sime, supported by a distinguished editorial advisory board, and endorsed by the Judicial College, the Civil Justice
Council and the Civil Mediation Council. The ADR handbook was prepared and published in response to an invitation in
Jackson LJ's review of Civil Litigation Costs, see para 3.8 in Chapter 36 of the Final Report. His invitation arose from a
conclusion that a culture change was needed among the civil litigation community, so that the widespread benefits of
participating in ADR were better recognised.

The Facts
5. The claimant (and respondent to this appeal) PGF II SA is the freehold owner of a mixed commercial and office
building at 33 Lombard St, London EC3 (the Building). The defendant (and appellant) OMFS Company 1 Ltd took
assignments of office leases of the first, second and fourth floors of the Building, for the residue of terms expiring in
2009. Each of the leases imposed a full repairing liability on the tenant, limited to the interior skin of the office
accommodation on the relevant floor. In due course the defendant sub-let all three floors to other occupiers, so that it had
not been in occupation for some time when the leases all expired in 2009.

6. After notices to repair served by the claimant on the defendant in November 2008, schedules of dilapidations were
served in 2009, alleging breaches of the tenant's repairing covenants in the aggregate value (for all three floors) of slightly
more than £1.81 million. Thereafter the claimant carried out a substantial refurbishment of the Building for the cost of
which the defendant declined to offer any reimbursement.

7. The claimant therefore issued proceedings in the Chancery Division in October 2010, claiming in aggregate slightly
more than £1.9 million. The defence denied liability entirely, its main point being a denial that such disrepair as might
have existed had caused any damage to the reversion, relying for that purpose on s 18 of the Landlord and Tenant Act
1927.

8. At or shortly before the commencement of proceedings, the claimant made a Part 36 offer to accept £1.125 million in
settlement, thereby leaving a substantially narrower gap between the parties than that visible to the court on the face of the
pleadings.

9. Standard directions for disclosure and expert evidence were ordered by Master Price, by consent, on 31 March 2011,
pursuant to which the case was transferred to the Technology and Construction Court.

10. There was an exchange of email correspondence between the parties on 11 April 2011. None of them appear to be
responsive to each other, and they may be said to have passed, electronically, in the post. The claimant made a second Part
36 offer, superseding the first, to accept £1.25 million plus interest from June 2009 in settlement. This, incidentally,
slightly widened the gap between the parties. By a separate letter the claimant invited the defendant to take part in an early
mediation. The letter assumed that the defendant would wish to review the claimant's disclosure, and that a meeting and
exchange of information might usefully take place between experts, before a mediation commenced. The claimant offered
to send the defendant its s 18 valuation. Numerous specific dates in May and June 2011 were proposed and additions were
made to a previously notified list of suggested mediators. The letter concluded by seeking the defendant's agreement to
mediate, and an explanation for any refusal. It sought confirmation as to documents and information which the defendant
might wish to see before mediation, an exchange of dates and the defendant's list of proposed mediators. It was, overall, a
thorough, carefully thought through and apparently sensible mediation proposal, taking full account of the likelihood that
the defendant, which had not been in occupation of any part of the Building for several years, would wish to obtain further
information before taking part.

11. For its part, again on the same day, the defendant sent the claimant a Part 36 offer of £700,000 inclusive of interest,
promising an explanation of its reasoning under separate cover, which was not thereafter provided nor, for that matter,
asked for.

12. The effect of the exchange of Part 36 offers was, on a without prejudice basis, to narrow the gap between the parties to
£550,000 plus interest, little more than a quarter of the difference on the face of the statements of case, and half that which
it had been prior to April 11.

13. Neither of the competing Part 36 offers was accepted and the claimant's invitation to mediation received no response
from the defendant of any kind.

14. On July 19 the claimant by its solicitors sent a further invitation to the defendant to mediate. It formed one of four
matters raised in a short letter, stating:

"Please confirm whether your client is willing to attend a mediation and, if so, provide us with your dates of
availability. If you are not prepared to attend a mediation, please could you let us know why."
After a chasing letter on August 1 the defendant's solicitors promised a "full response" on August 3. On August 15 they
responded in some detail in relation to one of the matters raised. Again, nothing whatsoever was said by way of response
to the invitation to mediate.

15. On December 20 the claimant made a further Part 36 offer, to accept £1.05 million plus interest, thereby narrowing the
gap between the parties' offers to £350,000 plus interest.

16. The trial had been fixed for 11 January 2012. In its skeleton argument, exchanged on 10 January 2012, the defendant
took for the first time the point that an air-conditioning system in respect of which we were told that about £250,000 was
claimed by way of dilapidations did not form part of the demise. The defendant gave notice of its intention to seek leave
to amend its defence to that effect at the beginning of the trial.

17. The claimant's response, by email later on the same day, was to accept the defendant's £700,000 offer, thereby settling
the proceedings save as to costs. The ordinary consequence of that acceptance would have been that the claimant was
obliged to pay the defendant's costs from 2 May 2011 until 10 January 2012 ("the relevant period") unless the court
ordered otherwise: see CPR 36.10(4) and (5). Nonetheless the claimant by its email gave notice that it would seek on the
following day an order for costs in its favour in respect of the relevant period on the then sole ground of the defendant's
late raising of the point about the air conditioning.
18. The hearing duly took place on January 11 before Mr Recorder Furst QC. In the intervening period the claimant
alighted on the point (not mentioned in its email of the previous day) that the defendant might be said unreasonably to
have refused to participate in ADR. Both the late amendment and ADR points were run and contested before the judge.
The late amendment point failed, and permission to appeal that part of the judge's analysis was refused. The ADR point
succeeded in part, in the sense that, while depriving the defendant of its costs for the relevant period, the judge did not
accede to the claimant's submission that it should also be paid its costs for that period. Permission to appeal the ADR
point was granted by Gross LJ on the ground that the application of the Halsey case to the facts might be of potentially
wide importance.

Law and Practice

PART 36

19. CPR Part 36 lays down automatic costs consequences where a Part 36 offer is accepted (rule 10) and where at trial a
claimant fails to improve upon it (rule 14). In the latter case, rule 36.14(2) preserves the court's discretion to order
otherwise where "it considers it unjust" to make an order as prescribed by the rule.
20. By contrast, rule 10(5) provides only that the specified costs consequences will ensue "unless the court orders
otherwise", with no specific reference to an injustice test. Nonetheless the judge, following Lumb v Hampsey [2011]
EWHC 2808 (QB) concluded that the same test should be applied under rule 10 as under rule 14, including the non-
exclusive guidelines set out in rule 14(4). Since then, that approach has been endorsed by this court in SG v Hewitt [2012]
5 Costs LR 937; [2012] EWCA Civ 1053. Where that threshold test is satisfied, the judge then has a wide discretion as to
the form of costs order to be made in substitution for the prescribed consequences: see per Arden LJ in the Hewitt case at
para 76.
21. Part 36 is itself designed to encourage parties to make, and promptly to accept, realistic offers of settlement. It may
fairly be described as lying at the interface between litigation and ADR, see para 10.25 of the ADR Handbook. It is
however also designed to provide parties with a measure of protection against costs risk: see Matthews v Metal
Improvements Co. Inc [2007] EWCA Civ 215 and the Hewitt case (supra) at para 75. It may for example be used by a
defendant to encourage its opponent to accept a lower offer than its own valuation of the claim, on account of the
claimant's limited appetite for costs risk. It is a procedure frequently used by parties determined to pursue litigation to
trial, precisely for the purpose of obtaining one or more layers of insulation against the costs risk arising from an uncertain
outcome.
ADR
22. The Halsey case was the first in which the Court of Appeal addressed, as a matter of principle, the extent to which it
was appropriate for the court to use its powers to encourage parties to civil litigation to settle their disputes otherwise than
by trial. It is sufficient to summarise the principles laid down, because none of them were in dispute on this appeal:

i) The court should not compel parties to mediate even were it within its power to do so. This would risk contravening
article 6 of the Human Rights Convention, and would conflict with a perception that the voluntary nature of most ADR
procedures is a key to their effectiveness.
ii) Nonetheless the court may need to encourage the parties to embark upon ADR in appropriate cases, and that
encouragement may be robust.

iii) The court's power to have regard to the parties' conduct when deciding whether to depart from the general rule that the
unsuccessful party should pay the successful party's costs includes power to deprive the successful party of some or all of
its costs on the grounds of its unreasonable refusal to agree to ADR.

iv) For that purpose the burden is on the unsuccessful party to show that the successful party's refusal is unreasonable.
There is no presumption in favour of ADR.

Supplementing those statements of principle, the Court of Appeal adopted and explained a non-exclusive list of factors
likely to be relevant to the question whether a party had unreasonably refused ADR proffered by the Law Society (which
had intervened):

a. The nature of the dispute;

b. The merits of the case;

c. The extent to which other settlement methods have been attempted;

d. Whether the costs of the ADR would be disproportionately high;

e. Whether any delay in setting up and attending the ADR would have been prejudicial;

f. Whether the ADR had any reasonable prospect of success.

Again, none of these guidelines was significantly in dispute on this appeal, although their applicability to the particular
facts of this case was hotly debated, both before the judge and on appeal.

23. The court acknowledged (at para 6) a continuing debate about the virtues of mediation, being then, as now, the most
common form of structured ADR. Nonetheless it took the view that many civil disputes were suitable for mediation on the
basis of encouragement in the Woolf reforms and the CPR, provisions to that effect in the practice guides of the Chancery
and Queen's Bench Divisions, the Admiralty and Commercial Court and the Technology and Construction Court, and also
support from Government.
24. In the nine and a half years which have elapsed since the decision in the Halsey case, much has occurred to underline
and confirm the wisdom of that conclusion, reached at a time when mediation in particular had a track record only half as
long as it has now. First, statistical research conducted by the Centre for Effective Dispute Resolution ("CEDR") in 2010
and 2012 asserts that, when it is undertaken, mediation achieves a remarkable level of success, within a growing market of
the order (in 2012) of approximately 8000 cases per annum. The 2012 reported success rates can be summarised as 70%
on the day, with 20% more settling shortly thereafter. In 2010 comparable figures were 75%:14%.

25. These figures need to be treated with some caution. Although the process by which they were generated is described
as an audit, it appears to have been based upon a survey of voluntary returns by some 238 mediators. It is open to the
criticism that the more successful mediators may be supposed to have been the most enthusiastic voluntary respondents.
Nonetheless, results even approaching that level of success are powerful testimony supportive of the value of the process,
in the cases where it has been undertaken. Even the Court of Appeal's own pilot scheme, with its 50% current success rate,
demonstrates the effectiveness of the process, not least because mediation before trial is, on the face of it, likely to be
much more cost-effective than mediation before appeal.

26. Secondly, the intense focus in Jackson LJ's report into civil litigation costs upon achieving proportionality between the
cost of litigation and the value of that which is at stake led, as I have described, to his clear endorsement of ADR as a
process which is still insufficiently understood and still under-used.

27. Thirdly, the constraints which now affect the provision of state resources for the conduct of civil litigation (and which
appear likely to do so for the foreseeable future) call for an ever-increasing focus upon means of ensuring that court time,
both for trial and for case management, is proportionately directed towards those disputes which really need it, with an
ever-increasing responsibility thrown upon the parties to civil litigation to engage in ADR, wherever that offers a
reasonable prospect of producing a just settlement at proportionate cost. Just as it risks a waste of the court's resources to
have to try a case which could have been justly settled, earlier and at a fraction of the cost by ADR, so it is a waste of its
resources to have to manage the parties towards ADR by robust encouragement, where they could and should have
engaged with each other in considering its suitability, without the need for the court's active intervention.

28. The practice guides of both the Chancery Division and the Technology and Construction Court provided at the time
material to these proceedings (and now) that legal representatives in all cases should consider with their clients and the
other parties concerned the possibility of attempting to resolve the dispute or particular issues by ADR, and that they
should ensure that their clients are fully informed as to the most cost-effective means of resolving their dispute.
29. There are a few small indications in Court of Appeal authority that support the view that, at least in an appropriate
case for ADR, a party cannot just ignore a request to participate in mediation. In Burchell v Bullard [2005] 3 Costs LR
507; [2005] EWCA Civ 358, at para 43, Ward LJ treated the Halsey case as making it clear that:

"The parties cannot ignore a proper request to mediate simply because it was made before the claim was issued …"
In Rolf v De Guerin [2011] 5 Costs LR 892; [2011] EWCA Civ 78, at para 46, Rix LJ described successive offers of
mediation as having been "spurned" by the party's failure to reply.
30. The ADR Handbook, first published in 2013, after the period relevant to these proceedings, sets out at length at para
11.56 the steps which a party faced with a request to engage in ADR, but which believes that it has reasonable grounds for
refusing to participate at that stage, should consider in order to avoid a costs sanction. The advice includes:

a) Not ignoring an offer to engage in ADR;

b) Responding promptly in writing, giving clear and full reasons why ADR is not appropriate at the stage, based if
possible on the Halsey guidelines;

c) Raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR,
together with consideration of how that shortage might be overcome;

d) Not closing off ADR of any kind, and for all time, in case some other method than that proposed, or ADR at some later
date, might prove to be worth pursuing.

That advice may fairly be summarised as calling for constructive engagement in ADR rather than flat rejection, or silence.
It is apparent from the footnotes that the authors drew heavily on the first instance decision in the present case, to which I
now turn.

The Judgment Below

31. The defendant resisted the "unreasonable refusal to engage in ADR" basis for a special costs order before the judge on
three grounds. First it denied that its silence amounted to refusal. Secondly it denied that any deemed refusal was
unreasonable. Third, it was submitted that, since the expenditure of £250,000 odd by each side during the relevant period
was attributable to the claimant's failure to accept a reasonable Part 36 offer until the day before trial, no departure from
the Part 36 costs consequences should be ordered.
32. In a careful judgment which dealt at length with the first two of those three submissions, the judge rejected all of them.
The thrust of his reasoning was that the defendant's silence did amount to a refusal and that, applying
the Halsey guidelines in detail, the refusal was unreasonable. He did not in terms engage with the question whether silence
in face of a serious invitation to engage in ADR was itself unreasonable.

33. Nonetheless, in para 44, he did say this:

"In general it would seem to me that … the court should be wary of arguments only raised in retrospect as to why a
party refused to mediate or as to why it cannot be demonstrated that a mediation would have had a reasonable
prospect of success. First, such assertions are easy to put forward and difficult to prove or disprove but in this case
unsupported by evidence. Secondly, and in any event, it is clear that the courts wish to encourage mediation and
whilst there may be legitimate difficulties in mediating or successfully mediating, these can only be overcome if
those difficulties are addressed at the time. It would seem to me consistent with the policy which encourages
mediation by depriving the successful party of its costs in appropriate circumstances that it should also deprive such
a party of costs where there are real obstacles to mediation which might reasonably be overcome but are not
addressed because that party does not raise them at the time."
Discussion
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. I put this forward as a general rather than
invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to
characterise silence as unreasonable would be pure formalism. There may also be cases where the failure to respond at all
was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made, but in such
cases the onus would lie squarely on the recipient of the invitation to make that explanation good.
35. There are in my view sound practical and policy reasons for this modest extension to the principles and guidelines set
out in the Halsey case, which concerned reasoned refusals, provided in prompt response to the request to participate in
ADR. The first is that an investigation of alleged reasons for refusal advanced for the first time, possibly months or even
years later, at the costs hearing, where none were given at the time of the invitation, poses forensic difficulties for the
court and the inviting party including, in particular, the question whether the belatedly advanced reasons are genuine at
all. The manner in which this issue was debated both before the judge and on this appeal is illustrative of those
difficulties.
36. The thrust of Mr Guy Fetherstonhaugh QC's submission for the defendant was that the Halsey tests for the
unreasonableness of a refusal were to be assessed purely objectively, by reference to the material facts about the litigation
at the time, so that it made no difference whether the refusing party provided or withheld its reasons at the time of the
invitation. I disagree. When the question concerns the reasonableness or otherwise of a party's conduct, the party's own
perceptions may play an important part in the analysis, as is apparent from the treatment of a party's reasonable belief in
the strength of its case, in the Halsey case at para 26, rejecting as too narrow the purely objective approach applied by
Lightman J in Hurst v Leeming [2003] 1 Lloyds Rep 379; [2003] 2 Costs LR 153.

37. Secondly, a failure to provide reasons for a refusal is destructive of the real objective of the encouragement to parties
to consider and discuss ADR, in short to engage with the ADR process. There are many types of reasonable objection to a
particular ADR proposal which, once raised, may be capable of being addressed. Mediation may be resisted on the basis
that some other type of ADR, such as early neutral evaluation, may be equally suitable and preferred by the objecting
party. A proposed mediation may be expensive to the other party if, as is usual, the mediator's fees are shared equally. In
such a case it is not unknown for the proposing party to offer to bear the whole fee, or for some cheaper form of ADR,
including judicial early neutral evaluation or financial dispute resolution, to be provided more cheaply by the court. ADR
may be proposed before the other party has the requisite information, a difficulty capable of being addressed either by
limited voluntary disclosure, or by ADR at a later date than that proposed.

38. Difficulties of this kind constantly arise in civil litigation, and the culture is now well-established under which the
parties should discuss these difficulties, and seek to narrow their differences, before those which are irreconcilable are put
to the court for determination. This occurs routinely in relation to expert issues, and is now prescribed practice ahead of
case management conferences and pre-trial reviews. I can see no reason why the same should not apply to ADR, thereby
saving valuable court time in the case management process which, as the practice guides now all make clear, extends to
the encouragement of ADR rather than merely to the giving of directions for trial.
39. This second reason is partly a matter of practicality, but also serves the policy of proportionality. A positive
engagement with an invitation to participate in ADR may lead in a number of alternative directions, each of which may
save the parties and the court time and resources. The invitation may simply be accepted, and lead to an early settlement at
a fraction of the cost of the preparation and conduct of a trial. ADR may succeed only in part, but lead to a substantial
narrowing of the issues. Alternatively, after discussion, the parties may choose a different form of ADR or a different time
for it, with similar consequences. In some cases the exchange of views may lead to an early appreciation that the interests
of the parties would best be served by the earliest possible trial of an issue of law or construction, as indeed occurred in
the second of the cases under review in Halsey where, in the event, the trial lasted a mere two hours.
40. The foregoing analysis is enough, on the face of the correspondence between the parties, to justify a conclusion that
the defendant's silence in face of two requests to mediate was itself unreasonable conduct of litigation sufficient to warrant
a costs sanction, without the need for the detailed point by point analysis of the Halsey guidelines, carried out both before
the judge and on this appeal, on the basis of the allegation that silence amounted to a deemed refusal. But the sanction
imposed by the judge followed his determination that there had indeed been a refusal, and that it had been unreasonable.
On those two points I find myself in full agreement with the judge's analysis, at paras 42 to 46 of his judgment, subject to
one small point to which I refer below. Nonetheless I shall briefly address the main submissions made by Mr
Fetherstonhaugh for the defendant on this appeal.
WAS THERE A REFUSAL?

41. Mr Fetherstonhaugh made two main points. First, the silence was equivocal and might be attributable to various
explanations, only one of which was a refusal. The second was that at no time did the claimant complain about the silence,
suggest in correspondence that it amounted to a refusal, or raise the matter with the court, for example at the directions
hearing which occurred in May 2011.

42. While, in agreement with the judge, I find it a little surprising that the claimant did none of these things, it would in
my view be perverse not to regard silence in the face of repeated requests as anything other than a refusal, all the more so
because the first request was couched in such detailed and sensible terms that it could not reasonably have been regarded
as mere tactics.
WAS THE REFUSAL UNREASONABLE?
43. The judge correctly regarded the burden of proof in this respect as lying squarely on the claimant although, following
the Halsey case at para 28, he described the burden of demonstrating that ADR stood a reasonable prospect of success as
not being an onerous one.

44. Mr Fetherstonhaugh's main points on this part of the appeal really boiled down to two, both based heavily on his
client's Part 36 offer of £700,000. First, he submitted that the making of that offer, and leaving it there until trial without
subsequent adjustment, was a living demonstration of the defendant's belief in the strength of its case, a belief which,
since the claimant eventually accepted it, cannot have been otherwise than reasonable. Secondly he submitted that, mainly
because of the monetary distance between the parties' respective Part 36 offers, both of which he characterised as their
respective bottom lines, mediation stood no reasonable prospect of success. More generally he submitted that this was a
hard-nosed commercial dispute about money between parties with no continuing relationship, and therefore not
susceptible to the ability of a mediator to devise solutions beyond the capacity of the court to order.

45. I have not been persuaded by any of these submissions. First, it is in my view simply wrong to regard a Part 36 offer,
without any supporting explanation for its basis, as a living demonstration of a party's belief in the strength of its case. As
I have said, defendants' Part 36 offers are frequently made at a level below that which the defendant fears having to pay at
trial, in the hope that the claimant's appetite for, or ability to undertake, costs risk will encourage it to settle for less than
its claim is worth.

46. Nor do Part 36 offers necessarily or even usually represent the parties' respective bottom lines. There was,
accordingly, no unbridgeable gulf between these parties' respective Part 36 offers, which could not in any circumstances
have been overcome in a mediation. The gap of some £550,000 which existed in April 2011, after the defendant's
£700,000 offer, was little more than a quarter of the gulf separating the parties on their statements at case, and half what it
had been before that offer was made. Standing back, the parties may fairly be said to have been converging at a rate which
made a mediation or some other form of ADR highly appropriate, not least because, as the parties would have appreciated
if given realistic budgets by their respective solicitors, an amount broadly equivalent to that gap would have to be
expended in yet further costs in order to have the dispute resolved at a trial.

47. More generally, I consider that the dispute was, by April 2011, eminently suited to mediation. Breach of the repairing
covenants was not seriously denied, and the only issue which might have been said to go to liability arose from the
defendant's reliance upon s 18, a matter heavily dependant upon competing valuation evidence. The dispute gave rise to
complicated matters of detail eminently likely to cost a disproportionate amount to litigate to trial, even ignoring the
attrition upon management time likely to be required for that purpose.

48. It is no small irony that the dispute did indeed settle before trial. Mr Fetherstonhaugh submitted that this was because
of a defect in the claimant's case upon which neither party had alighted until just before trial. In a perhaps unguarded
moment, he submitted that it needed a fresh mind to spot it. I agree, but that is precisely the sort of insight which a trained
and skilled mediator, experienced in the relevant field, can bring to an apparently entrenched dispute. In that small respect
I do not share the judge's view that this point would probably not have emerged at a mediation. He was nonetheless right
in my judgment to conclude that mediation had a reasonable prospect of success when offered by the claimant in April
2011.
DISCRETION

49. The defendant's final criticism of the judgment was that, having concluded that an offer of mediation had been
unreasonably refused, the judge then mechanistically deprived the defendant of the whole of its costs entitlement against
the claimant during the relevant period, without weighing all other relevant matters in the balance, including the
claimant's responsibility for failing to accept the defendant's well-judged Part 36 offer until the eve of the trial. By its
cross appeal the claimant asserted that the judge should not merely have deprived the defendant of its costs, but ordered
the defendant to pay the claimant's costs as well, in respect of the relevant period.

50. Neither of these points was pursued beyond a mere mention in counsel's oral submissions, although the defendant's
point was sufficiently fleshed out in Mr Fetherstonhaugh's skeleton argument and by no means abandoned at the hearing.
51. I agree with the general thrust of Mr Fetherstonhaugh's submission, that a finding of unreasonable conduct constituted
by a refusal to accept an invitation to participate in ADR or, which is more serious in my view, a refusal even to engage in
discussion about ADR, produces no automatic results in terms of a costs penalty. It is simply an aspect of the parties'
conduct which needs to be addressed in a wider balancing exercise. It is plain both from the Halsey case itself and from
Arden LJ's reference to the wide discretion arising from such conduct in the Hewitt case, that the proper response in any
particular case may range between the disallowing of the whole, or only a modest part of, the otherwise successful party's
costs.
52. There appears no recognition in the Halsey case that the court might go further, and order the otherwise successful
party to pay all or part of the unsuccessful party's costs. While in principle the court must have that power, it seems to me
that a sanction that draconian should be reserved for only the most serious and flagrant failures to engage with ADR, for
example where the court had taken it upon itself to encourage the parties to do so, and its encouragement had been
ignored. In the present case the court did not address the issue at all. I therefore have no hesitation in rejecting Mr Seitler's
submission that the judge did not go far enough in penalising the defendant's refusal to engage with ADR.

53. I have had more difficulty with Mr Fetherstonhaugh's submission. It is true that, reading the judge's careful reserved
judgment, he gives the impression of moving straight from his conclusion that there was an unreasonable refusal to
depriving the defendant of its costs, without any express balancing of all relevant considerations. That may have been no
more than a reflection of the way in which the matter had been argued before him, both orally and in supplemental written
submissions. That is certainly how the matter was argued orally on appeal.

54. Had I been free to do so, I would have concluded that, notwithstanding a blameworthy failure to engage with a serious
invitation to participate in ADR, and indeed an unreasonable refusal to do so, the overall responsibility for the expenditure
of a further £500,000 odd in costs during the relevant period nonetheless still lay primarily with the claimant. While,
viewed from the perspective of Part 36, the judge's order only deprived the defendant of half the benefits which would
otherwise have accrued from its use of that procedure, I would nonetheless have concluded that this was a case in which
only some proportion of its costs as the successful party, rather than the whole of them, should have been disallowed.

55. Nonetheless, the discretion is clearly that of the judge. He was plainly conscious throughout that he was exercising a
broad discretion, and his approach to the basis upon which the court could properly depart from the otherwise automatic
consequences of Part 36 was entirely correct. To deprive the defendant of the whole of its costs during the relevant period
was within the range of proper responses to the seriously unreasonable conduct which the judge identified, and the lack of
an express balancing exercise, after a lengthy analysis of the points put before him by counsel, by no means demonstrates
that he did not in fact carry it out in his mind.
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.

57. I would therefore dismiss both the appeal and the cross appeal.
58. MCFARLANE LJ: I agree.
59. MAURICE KAY LJ: I also agree.
Guy Fetherstonhaugh QC (instructed by Kingsley Napley) appeared for the appellant.
Jonathan Seitler QC (instructed by Browne Jacobson) appeared for the respondent.
The Debate on Mandatory Mediation
The debate on mandatory mediation revolves around balancing individual rights and promoting alternative dispute
resolution. Proponents argue it reduces court congestion and costs, while opponents emphasize the importance of
preserving individuals’ autonomy in choosing resolution methods.
However, Government policy since the late 1990s has favoured the promotion of mediation for civil, commercial and
family disputes. It has also encouraged the use of mediation in employment disputes and even judicial review cases. The
government believes that the widespread use of mediation would reduce expenditure for the justice system and legal aid
and that it would save legal costs for litigants.
Again, the government has been in favour of moving towards a mandatory mediation system, in which disputing parties
will be required to attempt mediation before they can have access to court services but this is an approach that it has been
adopted to a certain extent for some civil and family cases in other jurisdictions.
Example: (In Australia and Canada).
Recently it changes to civil and family procedures in England and Wales have continues the emphasis on attempting
mediation before accessing court procedures because under CPR 26.4A, all cases allocated to the small claims track in the
Country Court will now be automatically referred to a mediation service unless the parties object.
Moreover, a key issue is whether a party could ever be forced to use ADR instead of the court system. It is possible that
this might be a breach of Article 6 of the European Convention on Human Rights.
Article 6: European Convention on Human Rights.
Right to a fair trial
01. In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a
fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment
shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interests of
morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the
private life of the parties so require, or to the extent strictly necessary the opinion of the court in special circumstances
where publicly would prejudice the interests of justice.
02. Everyone charged with a criminal-offence shall be presumed innocent until proved guilty according to law.
03. Everyone charged with a criminal-offences has the following minimum rights.
(a) To be informed promptly, in a language which he understands and in detail of the nature and cause of the accusation
against him.
(b) To have adequate time and facilities for the preparation of his defence.
(C To defend himself in person or through legal assistance of his own choosing or if he has not sufficient means to pay for
legal assistance, to be given it free when the interests of justice so require.
(d) To examine or have examined witnesses against him and to obtain the attendance and examination of witness on his
behalf under the same conditions as witnesses against him.
(e) To have the free assistance of an interpreter if he cannot understand or speak the language used in court.

Evaluation of ADR
ADR or Alternative dispute resolution encompasses various methods to resolve disputes outside traditional litigation. Its
evaluation depends on factors.
Such as-
01. Efficiency.
02. Cost-efficiency.
03. Fairness.
ADR methods like mediation and arbitration are often praised for quicker resolutions and lower costs compared to court
proceedings, However, effectiveness can vary based on the complexity of cases and the willingness of the parties to
cooperate. Continuous assessment and adaption of ADR processes are essential to ensure their ongoing success.
Again mediation can lead to a conclusion of a dispute quite quickly and it is compared with the cost of a trial which is
likely to be less expensive for the parties. However, it is also clear from mediation research that the process may magnify
power imbalances between the parties and that weaker parties may be disadvantaged in mediation compared with court
proceedings. It is a potential strength of ADR that the parties can choose the legal code or principles to be followed in
settling the dispute. There may be concerns if the result is that a party gets significantly less than he or she might be
entitled to in a court process.
In this ADR there is also a question of the extent to which mediation and other ADR processes contribute to the concept
of access to justice. The government and to some extent the judiciary increasingly present mediation not merely as a
useful alternative or supplement to public courts but as an equal or indeed, preferable method of handling disputes that
increases access to justice.