Mediation and Property Law - Rupert Cohen, Hardwicke

MEDIATION AND PROPERTY LAW

RUPERT COHEN, HARDWICKE

December 2017

The importance of alternative dispute resolution in modern day practice cannot be overstated. The means by which the courts have incentivised ADR is twofold; being both direct and indirect. The direct means is by penalising parties who have shown a failure to have due regard to ADR through the litigious process. The indirect method is by reducing recoverable costs such that even victory comes at a cost.

With respect to the former cases such as PGF II SA V OMFS CO 1 Ltd [2013] EWCA Civ 1288; Northrop Grumman v BAE Systems Ltd [2014] EWHC 3148; Laporte v Commissioner of Police of the Metropolis [2015] EWHC 371 (QB) and Gore v (1) Naheed (2) Ahmed [2017] EWCA Civ 369 all of which have built on the seminal decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 give an indication of the direction in which the wind is blowing. PGF II itself concerned proceedings brought by the claimant freeholder for breach of repairing covenant in which the claimant sent the defendant two invitations to participate in ADR to which the defendant gave no response. On the eve of trial the claimant accepted a Part 36 offer which had been given by the defendant some 8 months previously. The Court of Appeal held that the judge was right to disallow the defendant the costs that it would otherwise have been entitled pursuant to Part 36 in light of its failure to respond to the invitation to mediate from the period from the date of the Part 36 offer to the date of its acceptance. Northrop is an interesting case in which the court counterbalanced an unreasonable rejection of an invitation to mediate in circumstances in which there was a reasonable prospect of mediation succeeding against the other party’s failure to better an offer made at trial. In Laporte despite successfully defending proceedings a police commissioner was found to have failed without justification to engage in ADR such that his costs were reduced by a third. The court held that the case was not one which, by its very nature, made it unsuitable for mediation and, accordingly, the costs order should reflect the failure by the police commissioner to justify his refusal. Finally, in Gore, the Court of Appeal agreed with the trial judge that the action, being one which concerned the construction of historical conveyances, the presence of rights of access and difficult disputes as to fact was such that it was not unreasonable for a party to refuse mediation.

With respect to irrecoverable costs the changes to CPR 44.3 in April 2013 have heralded the primacy of proportionality over reasonableness with respect to the quantum of recoverable costs. This means that, in assessing costs, the court is to rely on hindsight and evaluate the total recoverable costs against: (a) the sums in issue in the proceedings, (b) the value of any non-monetary relief in issue in the proceedings, (c) the complexity of the litigation, (d) any additional work generated by the conduct of the paying party and (e) any wider factors involved in the proceedings. The application of these principles is best enunciated in the decision of Master Rowley in May v Wavell [2016] 3 Costs LO 455. The case itself involved proceedings for private nuisance arising from works undertaken to a basement excavation in which the claimant accepted, post-issue, a monetary offer of £25,000 and undertakings as to the nature of the works. The claimant’s bill amounted to £208,236.54 which, after applying the new test of proportionality, was reduced to a mere £35,000. Winning parties need be more aware than ever of the spectre of irrecoverable costs.

Tips for mediation

In the context of the above the importance of successfully mediating a dispute is ever greater. With that in mind a practitioner will be well-advised to consider the following when approaching a mediation.

1.       Choose your mediator with care: A mediator is more than simply a go between. He or she needs to convey a suitable amount of empathy to enable trust to flow without losing the consistency of, and purpose behind, the mediation. This requires authority and a degree of discipline. Both clients and practitioners need to know that the process is being managed by a capable independent individual who will cajole (without doing so unduly) a party into taking a position which is consistent with their priorities. Those priorities are likely to be informed just as much by commercial realities and emotion as the expected outcome at trial. Moreover, the selection of the mediator will need to dovetail with the nature of your client. A client who is emotionally involved in the dispute is likely to respond better to a mediator who empathises and probes the underlying issues which informs the stance the client is minded to take. Conversely a hard-headed developer may need a mediator who can install a degree of realism into the position they adopt to ensure that their expectations reflect the merits of the dispute and the costs liability of going to trial.

2.       Information: Entering a mediation armed with the all relevant information which will underpin you client’s negotiating stance is imperative. This goes beyond the price they are willing to pay or accept as a condition of settlement to practical considerations. Time is frequently wasted as questions are posed and information obtained about, for example, the client’s ability to pay in the short term or a position a relevant third party is likely to take. This point gains greater force when tangential issues have the potential to play a part in a settlement. Disputes can often be successfully mediated by bring ancillary issues to the fore. Might, for example, a dispute about the presence of a right of way be settled by the creation of a separate right of way over different land combined with a monetary payment?

3.       Authority: The point is self-explanatory and usually finds definition in the context of companies and representative bodies. If the client is a management company does the director have the authority to bind the company (ie have appropriate resolutions be passed?) and if so to what extent (ie financial limit) does he have authority? If the client is a residents’ association similar issues may arise. This point most often finds definition in disputes concerning service charges. A representative of the managing agents will often be in attendance which will require investigation into the degree to which he or she can bind the principal.

4.       Costs exposure: Costs are invariably raised in mediations. The effect of costs budgets enable practitioners to advise clients with much greater certainty as to the likely costs recovery from, and potential liability to, opponents. In practice disputes of a purely financial nature are more amenable to settling by reason of “costs” pressure than those which involve real property rights. Equally focusing on the costs exposure is a useful means of establishing the issues which underlie a parties’ position. The truth (which is often brought home in a mediation) is that “principles” can be enormously expensive. We are all protective of our homes but often the game will not be worth the candle.

5.       Productive use of the process: Mediations involve an enormous amount of dead time. Mediators shuttle between parties giving rise to periods of comparative calm during which next steps can be discussed. From a mediator’s perspective there are few things more frustrating than returning to a party after a 20 minute session with the other party to find that no meaningful discussion has occurred as to the terms of a future offer or the weight to be attributed to particular issues. Time in the absence of the mediator is time to be used advising of next steps, considering the terms of an eventual settlement and evaluating what further information is required from the other party. Equally there will be points when those issues are exhausted in which case sending the client out for 15 minutes to stretch their legs is a useful way of finding strength in what can occasionally be a febrile and testing process.

6.       Offers: Considering the value to be placed on issues is a helpful way of coming towards an offer. Indeed, when making an offer being able to explain to the mediator the reasons underpinning the nature of the offer and sanctioning the disclosure of that explanation to the other party encourages movement. Put simply, offers without reference to the value (whether it be a value reflective of the merits or the importance to your client) of the issues between the parties tends to obfuscate rather than provide clarity. The clearest exponent of this point are cases which involve a number of heads of claim (ie composite damages). A value can be ascribed to each element of the damages and a final figure arrived at. That final figure will generally be within the bounds of the realistic best and worst outcome for your client. The best outcome will be represented by victory minus irrecoverable costs. The worst, loss plus own side costs and a proportion of the other sides costs. The “realism” is introduce by applying a prospects evaluation to each outcome.

7.       Ultimate outcome: When considering the desired outcome ancillary issues need to be addressed. In a TOLATA dispute going to beneficial interests in a property might the parties wish to agree to enter a From A restriction in the title register? Who, for example, is going to lodge the consent order? Are payments to be staged? Is a Tomlin Order appropriate? Might a confidentiality clause be incorporated? Equally a degree of realism needs to be incorporated into the potential structure of any agreement. Take for example, the value of a confidentiality clause in a settlement of service charges with a difficult tenant. You might incorporate it into an agreement but your client-landlord will be well advised to put little in store by it and to expect claims from other tenants in respect of those service charges in turn.