Mediation: getting the timing right

Mediation has been part of the dispute resolution landscape for many years now, with parties to disputes engaging in mediation on a voluntary basis. However, in the recent decision of Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, the Court of Appeal has allowed an appeal in part, holding that the court can lawfully stay proceedings for, or order parties to engage in, a non-court based dispute resolution process. This is provided that the order does not impair the essence of the claimant’s right to proceed to a judicial hearing and is proportionate to the legitimate aim of settling the dispute fairly, quickly and at reasonable cost. This is an important development as the court now has the power to stay proceedings and order the parties to participate in ADR. There is still no obligation to take part in mediation from this ruling, but mediation is the most widely used form of ADR and so the court’s decision gives the timing of mediation a new focus.

In professional indemnity claims (and similar), the issue has historically been not so much whether to mediate or not, but rather what the timing of the mediation should be. In view of the substantial increase in costs upon issue of proceedings, there is much commercial sense in agreeing  that mediation should take place during the relevant Protocol period. This is something that is happening with increasing frequency in both low and high value claims alike, including in relation to multi-party construction claims, where mediation is often used as an alternative to the holding of a Protocol meeting. These tend to be the kinds of claims which generate the biggest legal costs and therefore potentially these have the biggest gains for the parties if the claim can be resolved and the issuing of proceedings avoided.

In order to have a worthwhile mediation where a claim is covered by insurance, meaning one where the insurers, the policyholder and the legal team understand the key aspects of the claim and therefore the risk posed by the claim and what an appropriate settlement range, if any, would be, it is essential that the claimant is prepared to share all the necessary information, usually by way of agreeing a timetable for the exchange of disclosure type documents and quantum substantiation. In substantial construction claims, this is an exercise that can take some months, especially where, as is increasingly the case, the claimant has sent the Letter of Claim simply stating the headline losses claimed, without the careful collation of the substantiating documentation that the court will eventually require. Most claimants will want to agree to an opportunity to resolve the claim at an early stage and so using the prospect of mediation to extract the key documents from the claimant is a key step. In the event that the mediation does not resolve the claim, then the defendant may well have gained the necessary information to make an informed and potentially cost protective offer, should that be advisable.

Of course, exchanging information relating to the issues in the claim need not include exchanging liability reports, even on a “without prejudice” basis and it is not uncommon for a claimant to have provided the defendant with a liability report, without the claimant either knowing about or seeing the draft report of the defendant. There is always a tactical consideration for the defendant as to whether any draft liability report is sufficiently favourable to the insured to be deployed at the mediation.

Early mediation is just as advantageous where the insured has a strong defence to the claim as when the policyholder is vulnerable to a high risk of losing the claim. In the former situation, the mediation can be very effective at managing and reformulating the claimant’s assessment of the strength of its own claim to the extent where the claim is not pursued at all and proceedings not issued, even though the claimant had clearly been of the view, prior to the mediation, that its prospects were very good.

In circumstances where the claimant agrees to early mediation in principle but then is not prepared to supply key documents, there is an assessment to be made for the defendant as to whether to proceed with the planned mediation, taking the claimant’s reluctance or inability to “prove” its case as a way to put pressure on the claimant at the mediation. However, in the absence of key documents, any settlement terms proposed will need to reflect the uncertainty about the strength of the claim at that early stage and the possibility that, with more time, the claimant will be able to get together the proof that it will need to succeed.

The advantage of deferring mediation until after the issue of proceedings is that the statements of case will have “fine-tuned” the allegations, which often do not precisely reflect the contents of the Letter of Claim that has been sent under the relevant Protocol. This is always helpful, especially in multi-party claims. Of course, the risk can be more clearly assessed and it is easier to focus on the issues which are likely to determine whether or not the mediation will succeed. The obvious downside is the additional legal costs which will be incurred by all parties getting to that position, which may add another layer of difficulty to finding mutually agreeable settlement terms and eat into reserves that might be better put towards a settlement sum. In high value cases, this can be a necessary and worthwhile investment which enables the parties to reach a position where the issues and evidence are clear enough to make a successful mediation viable.

It is always sensible to consider strategy right at the outset as to what the optimum timing for holding a mediation would be from the perspective of insurers and their policyholder, including taking into account the stress the policyholder may feel responding to the claim and the amount of time which is taken away from the policyholder in running the business by having to deal with the claim itself. The recent decision in “Churchill” is a further reason to consider mediation before proceedings are issued, given that courts may now impose a stay to facilitate ADR.