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ADR Practitioner Update – June 2015

Date: June 8, 2015 Posted by No Comments

This Update highlights a few confidentiality issues to have arisen recently as well as an interesting decision in which sanctions were not imposed on a party despite its unreasonable refusal to mediate.


Confidentiality – a bit of a bloomer!

At a joint meeting recently, a party (not his advisor) unexpectedly paraphrased an exchange I had had with his team in an earlier caucus session during a spot of reality jousting. It was ok, and in fact caused a fair degree of amusement all round, although more so to the other side who lost no time in tweaking the tail of their opponents by commenting…. ‘No need for us to deal with X, sounds like Jon has already had a discussion with you about that issue.. hee, hee, hee’.

Most mediation agreements, in fact most of what is written about confidentiality, concentrates on the restriction of disclosure of what a party says to the mediator, not the other way around. But confidentiality works both ways. As Ramsey J reminded us in Farm Assist, a mediator has an enforceable right of confidentiality. There will no doubt be some who think that a mediator should never say anything to one side in private, that he wouldn’t say to the other, so it shouldn’t matter. To my mind, that view is flawed. But in any event, the sanctity of the caucus session must remain sacrosanct. Of course, by agreement, anything can be disclosed but the default position must be that everything that is said as between mediator and party should remain confidential, not just what the party tells the mediator.

The client at this mediation realised his faux pas as the words came out of his mouth. Luckily, no harm was done, the topic of the disclosed exchange being a ‘bugbear’ of the party concerned, but of no real consequence to the case or eventual settlement. In fact, the amusement the disclosure caused released a great deal of tension in the room. But it could have been serious and that led me to wonder whether a slight change in emphasis may be called for given that it was clear, despite what I had said when explaining the ground rules, what the party’s lawyers had said to him in their pre-mediation briefing and the express words of the mediation agreement, that this particular client assumed the obligations of confidence, as between him and me, were one-sided.


Confidentiality – permitted disclosures

The second issue on confidentiality to have arisen concerns exceptions to the general prohibition on disclosure to be found in most mediation agreements.

A draft mediation agreement was circulated to the parties prior to a recent mediation. The mediation was taking place pursuant to a mediation clause in a contract. That clause provided for mediation under the auspices of a particular organisation, the rules of which provided for disclosure of the fact that a mediation had taken place. The draft mediation agreement circulated did not. However, both the rules and the mediation agreement expressly provided for disclosure if required by law. It was the variance between the organisation’s rules and mediation agreement which led to a discussion, and from that discussion an interesting issue arose.

All parties were happy with the blanket prohibition on disclosure provided for in the mediation agreement. However, some of the parties were public companies domiciled in different jurisdictions and subject to different disclosure requirements. In the circumstances of this particular dispute, some felt that they would be required to disclose that a mediation had taken place, but others, subject to different disclosure regimes, did not. Had this issue not surfaced and the dispute not been resolved, we would have had an asymmetrical and no doubt very unhappy situation, with shareholders in one public company being told more about the management of a dispute than shareholders in another public company involved in the same dispute. Whilst this may seem like a relatively narrow issue, with high profile disputes involving public companies, particularly where stewardship of a business maybe under the microscope, information dissemination is critical. If there is more information coming out from one camp than another, difficult questions may be raised.

In many cases, on settlement, a confidentiality regime will be established which in large part supersedes or supplements that established by the mediation agreement. But in the few cases that don’t settle, the confidentiality regime established in the mediation agreement is likely to survive unchanged. In circumstances where the parties have agreed that not even the fact of mediation can be disclosed, thought needs to be given as to whether any legal obligation of disclosure is likely to apply to only one, some but not all of the parties to a dispute and what that might mean in practice. If asymmetrical disclosure could be a concern, it might be sensible to ensure a level playing field. This could be achieved by having a clause enabling all parties to disclose what could conceivably be required by way of disclosure from a party which considers itself subject to a legal obligation to disclose. Usually, a clause allowing for disclosure of the fact that a mediation has taken place, will suffice.


Confidentiality – who is bound?

Finally, and probably the least significant of the points, it is perhaps sensible to ensure, for clarity, that the obligations of confidentiality include and bind the parties to a mediation, including but not just the people attending the mediation on their behalf. This was also the subject of a recent debate on the wording of an (unfamiliar) mediation agreement.


Case Review

Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No 2) [2014] EWHC 3148 (TCC)

February’s Update looked at the case of Phillip Garritt-Critchely, a case in which sanctions were imposed because of an unreasonable failure to engage in mediation. This Update looks at a case in which it was also decided that there had been an unreasonable refusal to mediate, but in contrast to Phillip Garritt-Critchely and earlier cases, no sanctions were imposed.

Northrop (NGM), in a part 8 Claim, sought a declaration that BAE was not entitled to terminate a software licence agreement. It lost. NGM accepted the principle that BAE was entitled to its costs, but argued that they should be reduced by 50% on account of its unreasonable refusal to mediate.

Before reaching a conclusion on the issue, Ramsey J made findings in relation to the various ‘Halsey’ factors.

Nature of the dispute‘I regard this case as being like many cases, where points of construction are major issues at the centre of a financial claim. In all such claims a skilled mediator can assist the parties in resolving the dispute by finding a solution to disputes which each party would regard as incapable of being settled and would be unable to settle without such assistance.’

Merits of the case‘I have come to the conclusion, after considering the arguments, that this was a strong case by BAE…. It was a case where BAE reasonably considered that it had a strong case. ….’.I consider that BAE’s reasonable view that it had a strong case is a factor which provides some but limited justification for not mediating.’

Extent to which other settlement methods were attempted‘This is not a case where there was an offer to mediate and no response or, where the parties did not have some communication with a view to settlement.’

…there was a meeting between in-house lawyers on 22 November 2012 at which mediation was suggested by NGM and rejected by BAE….

The more significant matter is the exchange of ‘without prejudice save as to costs’ offers. BAE offered to settle on the basis of no payment, with each party bearing their own costs. This is an offer which, if it had been accepted by NGM, would have put NGM in a better position than it is in terms of the outcome of the hearing. It has received no payment and accepts that it will have to pay BAE 50% of its costs. This offer was rejected by NGM who referred to its offers of mediation.

… I think that, overall, this factor is neutral or marginally in BAE’s favour in its impact in assessing the refusal to mediate. I shall consider, separately, the important effect of the offer made by BAE’.

Costs of ADR‘… the costs of ADR cannot be said to be disproportionately high’.

Prejudicial delay caused by ADR‘This is not a factor in this case. Mediation could have taken place without affecting the litigation’.

Prospects of successful ADR‘This was a classic case where I consider that a mediator could have brought the parties together. In assessing the prospects of success I do not consider that the court can merely look at the position taken by the parties.

The published success rate of mediation … shows that generally mediation is likely to be successful. In this case … I consider that this is a dispute between parties where a mediated settlement would have been likely. There were therefore reasonable prospects of success’.

Ramsey J concluded his analysis by saying that the nature of the case made it susceptible to mediation, that mediation had reasonable prospects of success and that whilst BAE reasonably considered it had a strong case and that its view provided some justification for not mediating, other factors demonstrated that it was unreasonable for it not to mediate.

However, he went on to say that refusal to mediate was not the only factor to take into account when it comes to costs. He referred to CPR 44.2(4)(c) pointing out that circumstances to be taken into account in deciding the appropriate order include ‘any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply’, noting that the ‘without prejudice save as to costs’ letter on behalf of BAE was just such an admissible offer. He added that ‘Whilst the existence of the letter does not justify a refusal to mediate, it is independently a relevant factor that BAE made an offer which NGM was not successful in bettering. NGM’s conduct in not accepting that offer is similarly a matter to be taken into account’.

Ramsey J then weighed up the conduct of each party against the backdrop of BAE’s success in the action, stating that ‘A refusal to mediate means that the parties have lost the opportunity of resolving the case without there being a hearing. A failure to accept the offer has equally meant that the parties have lost the opportunity of resolving the case without a hearing’.

In the end, the Judge decided that ‘…the fair and just outcome should be that neither party’s conduct should be taken into account to modify what would otherwise be the general rule on costs.

Accordingly, the appropriate order is that NGM should pay BAE its costs, to be assessed on a standard basis, if not agreed, without any reduction’.

It is interesting that Ramsey J, in the course of his Halsey analysis, found that the ‘without prejudice save as to costs’ offer from BAE (combined with the WP meeting between in-house lawyers), was ‘..neutral or marginally in BAE’s favour …’, went on to decide that, in the round, it was in fact unreasonable for BAE not to mediate, but then concluded, balancing the ‘without prejudice save as to costs’ offer against the unreasonable refusal to mediate, that no costs sanction should apply.

In circumstances where a ‘Halsey’ factor is regarded as neutral or pro refusenik, but nevertheless insufficient to prevent a finding of unreasonable refusal to mediate, it seems curious that that very same factor operates to excuse the refusenik from sanctions.

It will be interesting to see if this approach is followed in subsequent cases.


Jon Lang
June 2015