Milestone Civil Justice Council Report Out for Comment

An expert working group of the Civil Justice Council has published a comprehensive interim report on the role of ADR in civil justice in England and Wales.

The CJC is now seeking written submissions and recommendations of the report, ahead of organising a seminar at which the proposals can be discussed and a final report prepared and submitted to the Government.

Chairman of the CJC Working Group is Brick Court’s Bill Wood QC

ADR has failed to achieve the integral position in the civil justice system that was intended and expected for it at the time of Woolf. The CJC assembled this Working Group (including representatives of the Bench, the professions, the ADR community and an academic) to try to understand the reasons for failure and to suggest some possible solutions.

Our aim is to stimulate a debate between all stake-holders as to the nature of the problem and the possible practical solutions, including the thorny issue of mandatory mediation. With the Online Court in development and pilot local mediation schemes up and running in a number of centres, this is an exciting time. The Report does not try to be utterly comprehensive nor does it purport to have all the answers but we hope it can make a contribution, and that in due course a final report can set out a widely-supported basis for moving forward.

Chairman of the CJC, Sir Terence Etherton, the Master of the Rolls

ADR is a very effective means of resolving civil disputes quickly and cheaply. This report explores the current use of ADR and the reasons why it is not used more frequently. As we prepare to enter a digital age of dispute resolution it is an ideal time to look in detail at how the potential for ADR can be maximized.

Read the full report

Written submissions by Friday 15 December 2017 to civiljusticecouncil@judiciary.gsi.gov.uk.

In other BC news, Bill Wood has recently been reappointed to the Civil Justice Council until 2020.

A New Seat at the Mediation Table? The Impact of Third-Party Funding on the Mediation Process (Part 1)

In the first of a two-part article, Geoff Sharp looks at the development of third-party funding of litigation, arbitration and mediation in part 1 and later in part 2 we will look at how TPF impacts the mediation process

litigation-funding-image

Third party funding (TPF) of claims has been around for quite some time. Historically however, some jurisdictions have prohibited a stranger to a lawsuit financing the claim of another in return for a share of the spoils.

Over time that has changed as many jurisdictions overcome fears that litigation financing somehow perverts the course of justice – that a third-party funder “might be tempted, for his own personal gain, to inflame the damages, to suppress evidence or even suborn witnesses” (Lord Denning in the Trepca Mines Case 1963). 

Over the intervening years, concerns over access to justice have come to trump the very real risks of third-party funding and as a result many jurisdictions have relaxed notions of champerty and maintenance.

Just in the last fortnight the Court of Appeal (UK) confirmed that position in the long running Excalibur Ventures v Texas Keystone case saying “Third party funding is a feature of modern litigation” and that it is “an accepted and judicially sanctioned activity perceived to be in the public interest.”

So the tide has definitely turned and the last couple of years have seen a dramatic increase in the level of TPF generally, with most funding confined to lawsuits (i.e. those claims bought in the courts). However, we are now seeing a similar rise in levels of arbitration funding and in particular, the international commercial arbitration community appear to be embracing TPF with many jurisdictions like Singapore and Hong Kong responding with enabling legislation. 

These South East Asian jurisdictions are reforming to allow funded arbitration to ensure their continuing status as favoured dispute resolution hubs. On 7 November 2016 the Civil Law (Amendment) Bill was introduced in the Singaporean Parliament allowing for third-party funding of arbitration by early 2017 and Hong Kong is currently in a consultation process that will see a similar result.

With the rise of TPF in litigation and arbitration, it follows that funding of mediation is also on the increase, given that much mediation happens along side these two dispute processes and in the 2nd part of this article we will look at the consequences of TPF for the mediation process itself, in particular the dynamics of the mediation table itself, but first…

What is TPF and how does it work?

Well, at its most simple, it’s not complicated.

Although TPF products offered by third-party funders are now quite sophisticated, basically TPF is the funding of litigation or arbitration parties (usually claimants and increasingly class claimants) in return for a share of the proceeds. 

“Litigation funding is where a third party provides the financial resources to enable costly litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings. In return, if the case is won, the funder receives an agreed share of the proceeds of the claim. If the case is unsuccessful, the funder loses its money and nothing is owed by the litigant” (Association of Third Party Funders – England and Wales)

On one view, TPF is simply another way to fund claims there having always been a number of ways to pay the costs of pursuing a claim in the courts or in arbitration – obviously, parties can simply fund their own costs, or equally, they may finance them by a loan from their bank or they may negotiate a fee structure with their lawyer (e.g. a no win, no fee contingency arrangement or a success fee conditional upon the result of the litigation).

Third-party funding however is different – a funded party will not normally have to pay any amount back to the third-party funder if the proceedings are unsuccessful. And these days it’s not only for financially distressed claimants who lack the ability to bring a claim.

As Ruth Stackpool-Moore, Director of Litigation Funding at Harbour Litigation Funding says, claimants approach her organisation with a request to fund for a variety of reasons ranging from hedging risk to not having a legal budget to fight the case.

To record the funding arrangement, the third-party funder and the funded party sign a Third-Party Funding Agreement covering the matters you would expect, including what and how the funder gets paid out of a money judgement or award, the degree of the funder’s control over the conduct of the proceedings, what happens if there is a disagreement (for instance, around settlement), the funders liability for things like adverse costs orders or security for costs etc. Such agreements are usually bespoke and very much depend on the individual circumstances.

TPF Issues

One of the issues currently exercising a number of jurisdictions is whether there should be greater regulation of the TPF industry to mitigate risk of abuse.

Some, like in England, favour self-regulation where funders subscribe to a voluntary code of conduct setting out capital adequacy requirements, ethical matters, limitation on the withdrawal of funding and what happens in the event of disagreement etc. A particularly important question is the funder’s level of control and ability to influence the conduct of a claim. There are competing views depending upon the jurisdiction – for instance ALF’s voluntary code takes a relatively conservative position requiring a funder “not seek to influence the Funded Party’s solicitor or barrister to cede control or conduct of the dispute to the Funder”.

The alternative view is that since a funder is putting up the money and has a stake in the outcome, important decisions like who to appoint as arbitrator or whether to settle at a particular level are quite properly a matter for funder input.

Jane Player of King & Spalding says “As an adviser I think funders are here to stay  and the good ones leave you alone to run the case and report  back at regular intervals on a risk assessment basis… I see [funders] as a positive influence as they often lend objective thinking to ultimate settlement offer discussions”

The reality is that there is usually little disagreement between the parties to a Third-Party Funding Agreement where it has been well drafted following a solid due diligence process and more importantly where there is effective communication between the parties who understand what is expected of each other.

Ruth Stackpool-Moore again; “When we do our due diligence we try to establish not only the legal merits of the claim, but also the realistic value and the realistic budget. We then agree the cost of funding based on the risks, the size and length of the case. Our pricing process – agreed upfront with the claimant – includes discussions regarding their settlement expectations. Our terms are clearly expressed in our funding agreement, so the claimant can calculate with ease how much they will owe us at all times“. 

Steven Friel, Chief Investment Officer at Woodsford Litigation Funding says;

“Ultimate control rests with the claimant and the claimant’s lawyers. We have the right to provide input, but we don’t necessarily have veto rights. Ultimately, however, my objective as a commercial funder is to ensure that I choose and cultivate the relationships with my claimants in such a way that I rely on cooperation, rather than strict contractual rights, when advancing my position in relation to settlement.

I am delighted to say that I have never found myself in dispute with one of my claimants in relation to settlement (or anything else, for that matter). If there is a dispute however, it is open to either party to refer it for expert determination”.

So, what kind of claims attract third-party funding?

Well, they are usually high value and often international.

There are varying reports of how strong a case must be before it will interest a third-party funder – some reports have that as low as 60% chance of success or as high as 85% – the Jackson Preliminary Report (2009) put it at around 70% for UK funders. Harbour Litigation Funding will fund a claim value greater than £10 million and the only cases unsuitable for funding are divorce and personal injury cases.

One thing is for sure, funders will normally undertake their own case assessment and only fund a very small proportion of the those offered to them.

 Steven Friel again;

“We will only fund meritorious claims, pursued by motivated claimants against solvent defendants, where costs are proportionate to the likely recovery, and where the governing law and jurisdiction afford relative certainty”.

In part two of this article Geoff Sharp will look at what factors are taken into account in deciding whether or not to take a funded case to mediation, how funders decide whether to attend on mediation day and what impact that has on the mediation dynamic, what role they do play if they do attend and the volume of funded cases actually going to mediation… and more

In the meantime, an excellent publication with a focus on contemporary issues in third-party funding of arbitration is Norton Rose Fulbright’s International Arbitration Report, issue 7, September 2016

Court Involvement in Mediation

Many jurisdictions have grappled with the extent to which their courts should get themselves involved in the mediation of litigated cases.

Many different approaches have found favour around the globe, with diverse programs being implemented in courts from Hong Kong to Florida and places in between. Some courts are hands off while others are heavy handed – regulating every aspect and some even use judges to mediate.

Some programs are creatures of statute, others are mandated by procedural rules while others simply rely on a mediation friendly presiding judge. Some courts, I suspect, see mediation as a competitor – taking the best cases out of the system and contributing to the vanishing trial phenomena occurring in many jurisdictions.

At a recent Resolution Institute conference (formerly LEADR) in Auckland, New Zealand a panel including a High Court Judge, Brick Court’s Bill Wood QC and Geoff Sharp together with a couple of senior NZ barristers discussed the appropriate degree of mediation involvement of courts in the New Zealand context in a session entitled Courts and Mediation: A Symbiotic Relationship?

Some would say New Zealand is, on any measure, a mature even sophisticated mediation jurisdiction. So the question arises in NZ and elsewhere, do our courts really need to nudge litigated matters towards mediation or are we better to simply build it and they will come? The research is mixed however it’s clear many litigated cases do not find their way to mediation without encouragement and direction from the court.

Our panel discussed the Continuum of Court Involvement below – being a spectrum ranging from hands off/light touch to mandatory referral of all civil matters.

NZ is in the judicial persuasion space verging on some fairly weak tick box case management levers. I would like to see it move right.

England and Wales are a little further along, utilising pre action protocols and soft (financial) sanctions for unreasonable refusal to mediate.

Singapore is further along still – subscribing to a presumption of ADR (parties can opt out with reasons) in its Subordinate Courts – resulting in around 6000 mediations annually.

At the far right of our continuum are many courts in mature jurisdictions, most notably some states in the US and Australia, which not so much nudge as two hands push disputes out of the courtroom into the mediation room.

Some refer selected litigants to mediation without their consent however most stop short of a wholesale referral of all civil filings. Or as Nadja Alexander puts it, there exists discretionary mandatory, soft mandatory and routine mandatory.

CourtInvolve

To some extent, many of the issues that arise within the court environment (confidentiality, status of the outcome etc.) are different from those where mediation is outside it, however part of the problem with court programs is that often they are designed by people who know little about mediation but know everything about court process. Add to that judges who use the ability to refer cases out as a blunt instrument (maybe even as a hospital pass) without understanding the nuances of the process.

If one gets past that old chestnut of mediation being a voluntary process therefore how can there be any coercion of any kind by anybody (coercion into mediation/coercion within mediation) then the litigation community’s primary concerns appear to be;
1. what cases are mediated
2. how that referral takes place
3. who selects the mediator
4. who pays the mediator

Florida and the England are good examples of how two justice systems have approached these issues.

Florida is widely seen as the pre-eminent US state when it comes to court connected mediation. Some figures have over 100,000 cases being referred out annually. Florida judges have the ability to order cases to mediation and parties have the ability to challenge that referral on grounds that the case has already been mediated or that it involves a question of law only or “for other good cause”. Florida’s success is in large part due to the fact that parties can choose their own mediator.

The English soft sanctions approach is perhaps more familiar to readers of this blog. It is one that I favour as stopping short of mandatory referral but having enough teeth to nudge cases that would not otherwise get to the mediation table. While there is much to say and cases to read, essentially the English position allows judges to impose financial sanctions (in the form of costs) if a party unreasonably declines to mediate, in some cases whether or not they prevail at trial. One of the latest cases in the Halsey line of cases is Laporte & anor v Commissioner of Police of the Metropolis

Other Common Law jurisdictions take a similar approach, for instance, Hong Kong’s District Court recently imposed adverse costs orders against a party who unreasonably refused to mediate; Wu Yim Kwong Kingwind v Manhood Development 

[a useful summary of both cases by Herbert Smith Freehills here and here]

*This post was first published last week at Kluwer Mediation Blog

Tony Willis on Civil Justice Reform….

The new Lord Chancellor Michael Gove rightly describes delay and cost in the Civil Justice system in England & Wales as unacceptable. It must be said that the grotesque filing fees now imposed on claimants are a serious blot on access to justice but the fundamental problem lies in delay before getting in front of a Judge for trial.

As mediators down in the entrails of real cases all the time we regularly see the problems up close and (for the parties), very personal.

Fiddling with cost budgets, nostrums like early judicial evaluation or significant additions to the Rules burden are likely to make delays worse and so increase cost.

More Judges able to take control of cases and imposing early trial dates would be the answer provided the rules are pruned.

 

BIT’s and BAT’s

Rainbow Warrior in Auckland Harbour after bombing by French secret service agents.Gary Born, Chair of the International Arbitration Practice Group at Wilmer Cutler Pickering Hale and Dorr LLP, was in New Zealand this week as part of his appointment as the Inaugural Senior Visiting Research Fellow at Victoria University Law Faculty’s New Zealand Centre for International Economic Law.

His visit marked the 30 year anniversary of the Rainbow Warrior case that shook a nation (those of us old enough to remember will recall the case of two French secret agents who blew up a Greenpeace ship in Auckland harbour). Mr Born acted as counsel for Greenpeace.

In addition, I was lucky enough to catch Gary speaking on his most recent initiative around a Bilateral Arbitration Treaty Regime, that aims to provide a default arbitration mechanism for the resolution of defined international commercial disputes.

The mechanism (fondly known as a BAT) would utilize the UNCITRAL Arbitration Rules, providing a means of resolving commercial disputes when nationals from contracting states had not agreed upon an alternative means of dispute resolution. Awards would be subject to recognition in the contracting states under the New York Convention and, subject to additional arrangements, in all New York Convention contracting states.

And the connection with mediation?

Bilateral Investment Treaty (BIT) investor-state dispute settlement (ISDS) relies heavily on arbitration and traditionally mediation has not figured. But, there is a feeling that this is changing since the International Bar Association published its Rules for Investor State Mediation in late 2012 – much has been written in the past year or so on whether investor state-mediation really is one of the last great unexplored tracts of the mediation landscape.

Gary’s initiative takes this one step further and all power to him – the challenge for those of us in the international mediation community is to find how the mediation process can be included in these regimes to add value to both BITs and BATs.

More to come on this topic … and special thanks to Dr Petra Butler who was instrumental in Gary’s visit to NZ.

Further information;

A draft Model BAT can be seen here. A commentary on the Model BAT’s provisions can be got from here. Further details about the Model BAT and its rationale can be found in an article here