Mediation – an alternative to litigation?

About the author

Bill Lister is a partner and IP Solicitor at Appleyard Lees IP LLP. Bill has a wide range of experience advising UK, US, European and global clients, with a substantial reputation spanning branding issues, registered and unregistered trade marks, copyright, design, patents and trade secrets. Bill advises a number of global household names, in conjunction with public and private companies, and public sector organisations. 

Many businesses, large and small, are often faced with the problem as to how to deal with a dispute regarding their intellectual property rights, or, indeed, any commercial rights. The cost of litigation, whether one is trying to enforce one’s rights against an infringer, or one is faced with an allegation that one has infringed someone else’s tights, can be daunting, especially when the outcome can be far from certain.

Trying to negotiate a settlement is often the best solution, but what happens when negotiation stalls or is otherwise impractical?

 

Alternative Dispute Resolution

A number of Alternative Dispute Resolution (“ADR”) strategies have been developed over the last few decades.

Arbitration is quite common in commercial or construction disputes – many commercial or construction agreements will contain a clause providing for arbitration in the case of a dispute arising. However, in intellectual property disputes, where the actual damages may not be high, but the value in the dispute is preventing acts of infringement, the cost of arbitration can be disproportionately high. In any event, it is in its format essentially a private trial whereby the parties are contractually bound by the outcome. The scope for lateral thinking in the resolution of the dispute is limited and given that the process includes many of the procedural steps of actual litigation, it can be expensive, especially after an arbitrator has had to be paid for his or her time.

Early Neutral Evaluation (“ENE”) does not have associated with it the relatively high cost of arbitration, but is not intended to resolve a dispute, but rather concentrate the thinking of the parties as to the risks were they to go to trial. The parties appoint an expert in the field to review the case as put to him or her and then to give a written opinion on his or her view of the likely outcome. However, this does not bind the parties, and even if they agreed to be bound by this decision, they have no control over the process, and it does not resolve the issue of financial remedies. However, it is useful if the underlying issue in the dispute is not one of fact, but one of law upon which the dispute turns.

In patent disputes, a not dissimilar service is offered under Section 74A Patents Act 1977 where a proprietor of a patent my request the Comptroller of Patents to give an Opinion as regards the patents, usually as to validity. However, this is non-binding and although it may focus thinking, may well not resolve the dispute. Indeed, it may make matters worse if the Opinion is not what had been hoped for.

I will describe in another article how mediation works, but it is by far the most flexible dispute resolution process leaving the parties in control (so far as they wish to be) throughout the process and enabling them to walk away with nothing lost (except relatively modest costs) if the mediation does not produce a settlement result that they can at least live with (if not wholly delighted with).

 

The Regulatory Framework

The basis for mediation in the UK lies with report of the former Master of the Rolls and Lord Chief Justice Lord Woolf in 1996 entitled “Access to Justice”. This report stated that the use of ADR should be encouraged by the courts and introduced the principle of pecuniary cost orders being made if a party unreasonably refuses ADR. The report formed the basis of The Civil Procedure Rules 1998 (“CPR”) (which replaced the earlier Supreme Court Rules), which have been continuously developed since they came into force in 1999.

 

Why mediate at all

Leaving all else aside, the success rate speaks for itself. Depending on which figures one uses, the success rate in the mediation is between 70% and 80%. Of those cases which do not settle in the mediation, some 75% settle fairly shortly afterwards.

 

Advantages over other forms of ADR

  1. Mediation is much cheaper. The use of lawyers in not compulsory (although advisable, even if only to draw up any legally binding agreement that results from the mediation and to define and argue any issues of law which might be involved in the dispute). The cost of the mediator is typically split between the parties (so no party can claim to pay the piper and call the tune). In cases where the costs of litigation might rise to £100,000, and perhaps way beyond, mediation can cost a tiny fraction of this.
  1. The parties remain in control of the process and can leave it at any time.
  1. The process is confidential and privileged (without prejudice) – what happens in a mediation stays in the mediation (except where there is fraud or illegality). The parties are not required to air any of what they might consider sensitive commercial information in public, and in particular do not need to disclose what they may regard as commercially sensitive or confidential documents.
  1. There is no requirement for the disclosure of documents. Parties may, if they wish, merely disclose those documents they wish to rely upon to make out their argument.
  1. Nothing is agreed until it is set down in writing and signed off by all parties.
  1. Once an agreement is signed off, its terms can, if the parties so wish, be confidential and it is legally enforceable as a contract.
  1. The parties can agree whatever they want and are not limited to the somewhat binary outcome of a trial. Often the outcome of a mediation can be a win-win, such as a distribution or licence agreement between the parties.
  1. The parties can remain on speaking terms! Very few parties shake hands after leaving court!
  1. It can humanise the parties which is useful where there may have been some degree of acrimony which might be a bar top settlement.

 

Strategic considerations

Serious cost consequences can follow a refusal by a party to mediate. Accordingly, the offering of mediation in a dispute can give the offering party a significant strategic advantage.

In the case of Dunnett v Railtrack Plc (2002), the court declined to make an order for the payment of costs by the losing party to the winning party (as is the expected normal order) where the winning party had refused to mediate.

In Halsey v Milton Keynes General NHS Trust (2004) the court went further. It considered the following non-exhaustive factors to be relevant to the court’s assessment of the parties’ conduct and, in particular, whether a party had unreasonably refused to engage in ADR (having regard to all the circumstances of the case):

  • The nature of the dispute.
  • The merits of the case.
  • The extent to which other settlement methods had been attempted.
  • Whether the costs of ADR would be disproportionately high.
  • Whether any delay in setting up and attending the ADR would have been prejudicial.
  • Whether the ADR had a reasonable prospect of success.
  • Whether a party has refused to enter into ADR despite the court’s encouragement.

In a recent case in 2020 (Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd and another), following judgment in favour of the defendants,

the court found that the defendant’s unreasonable refusal to engage with ADR proposals:

meant that the parties were denied the opportunity to fully canvass and engage with the underlying issues”, and that, had they been willing, “there would in all likelihood have been a… mediation in which all the material issues were properly considered and addressed”.

 

What about where the party refuses mediation because it believes it is unlikely to lose at trial?

The court’s ruling in DSN v Blackpool Football Club Ltd dealt with the danger of parties relying upon the perceived strength of their own case as justification for refusing to engage in Mediation. In Halsey the court had suggested that a party’s view of the merits of its case might justify it refusing to mediate. The court in DSN disagreed.

During the proceedings, the defendant had repeatedly rejected mediation proposals on the basis that it “continue[d] to believe that it ha[d] a strong defence”. However, ruling in the claimant’s favour, the judge stated that:

“… [n]o defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded.”

 

Can the court order mediation?

In the UK, the court has no power to order mediation, but can order a Stay (or suspension of the case) either at the Case Management Conference or on an application, for the parties to consider mediation or to try and mediate.

However, the court does have a couple of weapons in its armoury that can concentrate thinking:

1.Ungley Orders

An Ungley Order is an order staying proceedings while the parties mediate or, at the very least, consider mediation. If one party considers that the case is not suited for mediation, they must file a witness statement at least 28 days before trial explaining why. The Court will then consider the explanation when dealing with costs.

2. A Jordon Order requires the above witness statement to be filed immediately.

 

Strategic use of mediation

Even if a mediation does not result in a settlement, it can nevertheless have a strategic importance in that it can provide useful answers to a number of questions:

  • What are the other side’s negotiation parameters?
  • How determined are they? – Do they really want to settle at all?
  • How easy to deal with are they?
  • Crash-testing your own case
  • Getting a better insight into their case
  • Where are the holes in our case?
  • Crash-testing experts (if necessary)
  • Get early albeit limited disclosure of at least some basic documents
  • Get an opportunity, in a safe, confidential but informal environment, prior to entering a formal and public court room, to explain one’s position to the other side in person.

 

A final word

Parties are sometimes worried about whether they may be seen as being the first to blink by offering mediation. However, the courts expect parties to try and mediate and therefore face cannot be lost merely by making mediation proposals to the other side. At the very least, leaving to one side the strategic advantages to making mediation proposals, it puts pressure on the other side to agree given the cost consequences of refusal and the high settlement rate within a mediation.

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