Should I be thinking about mediation for debt litigation?

August 2014

Should I be thinking about mediation for debt litigation?

In recent years parties have been asked whether they would like to use the Court’s free small claims mediation service.  If the parties agreed, the more straightforward cases were referred to trained court service staff who would conduct the mediation appointment by telephone (usually an hour maximum) without any cost to the parties. More complex cases were referred to the national mediation helpline and allocated to a Civil Mediation Council approved mediator who would conduct the mediation for a relatively small fee. The results speak for themselves. In the foreword to the Government’s response to the consultation on reforming civil justice, it states that within the last two years almost 15,000 small claims disputes have been resolved through mediation, with very high levels of customer satisfaction.

That being the case, and with such good results, why did Lord Justice Jackson recommend making changes? After all, as the saying goes - if it ain’t broke don’t fix it.

In practice, last year’s civil litigation reforms do not seek to change the small claims mediation process per se, but instead, to expand the take up of mediation by introducing an automatic referral process for all small claims. The referral does not impose mediation upon the parties but involves referral to a mediator to consider whether the case is suitable.

Of course, 2013’s increase in the small claims threshold from £5,000 to £10,000, means that the number of mediation referrals is likely to significantly increase. In addition, the process is likely to capture more cases that involve complex factual issues or substantive points of law where the costs of litigating will no longer be recoverable, but where the outcome (in terms of the amounts at stake) remains key whether you are an individual, SME or larger corporation with a number of ongoing money disputes.

What is clear from these reforms is that mediation is set to become an important part of our civil justice system, not only in relation to small claims but for all matters, and the promotion of mediation and early settlement is likely to continue to increase in the future.

Inevitably this will put additional strain on the County Courts’ service at a time of wide ranging funding cuts and increased administration as a result of last year’s overhaul. However, there are already a number of trained staff and locally arranged links with mediation service providers which provides cause for optimism, and whilst the small claims service is essentially free it is always open to the parties to use a mediator on a private fee basis. Where appropriate, the Courts will direct parties to the Civil Mediation Council (“CMC”). The CMC is said to have in the region of 400 individual mediator members and around 100 organisation mediation service providers. There are also prescribed or guideline fees which, for claims of less than £15,000, are broadly in the region of £100 per hour per party, a sum that is likely to be well spent where both parties agree to mediate at an early stage.

Although the referral procedure supports the government’s objective of achieving more effective litigation costs management and promoting better access to justice, it nevertheless falls short of making mediation compulsory (for which some have pressed). This leaves the decision about whether or not to mediate firmly in the hands of the parties. That said, any refusal may be scrutinised by the courts and in the absence of proper (and not retrospective) justification could lead to a party facing the risk of having to pay costs to the other side if the court considers the failure to engage in mediation was unreasonable. Recent case law has also suggested that even failing to discuss whether mediation is appropriate can result in negative costs consequences at trial.

Therefore, whilst in the past, for some, mediation may have only ever been given “tick box” consideration, it can no longer be ignored and in fact should be considered in the early stages of all disputes. For small claims in particular, mediation has distinct advantages. If it is successful, it can result in a significantly quicker resolution, especially where complex or tricky issues, which would have taken time to determine, are involved. Mediation is also much less adversarial, which can be valuable for maintaining customer or client relationships.

There are also obvious financial benefits given the limited circumstances in which costs can be recovered on the Small Claims Track. Around 95% of all mediations currently take place by telephone, meaning the parties can engage in mediation without the costs of attending court.

In future, particularly for claims at the upper end of the Small Claims limit, it may be cost effective to involve legal representatives where they are experienced in dealing with mediations and so more easily able to narrow the issues for effective negotiation. This should increase the prospects of settlement, potentially offsetting any additional cost. If costs are an issue they may be controlled by agreeing a fixed fee arrangement, or limiting your representatives’ involvement to preparation of a mediation statement  (a case summary for the mediator which may allow for more time to be spent on negotiation at the mediation appointment), or simply ensuring that they will be available by telephone should an issue crop up during the negotiations.

However, whilst there are evident advantages to mediation, it will still not be appropriate in every case. The decision to mediate must be carefully considered, taking into account the specific circumstances of the dispute, the time and input likely to be involved and the relationship between the parties – if the relationship has already broken down then in some cases only formal adjudication by a court will suffice. It is important that any refusal is reasoned and adequately explained or recorded, so as to avoid any later complaint that it was an unreasonable position to adopt.

So it is clear, haste in refusing an opportunity to mediate could lead to sanctions for unreasonable conduct and it is evident the focus on mediation is only likely to increase. Dealt with in the right way, mediation could mean a cost-effective resolution of your dispute with the added benefit of maintaining those valuable customer or client relationships.