Unreasonable refusal to engage in ADR
June 15, 2020
In a stark reminder to litigants and their advisers, the High Court has once again emphasised that an unreasonable failure to engage in ADR may justify the imposition of a costs sanction. In BXB v (1) Watch Tower and Bible Tract Society of Pennsylvania, (2) Trustees of the Barry Congregation of Jehovah’s Witnesses (No.2)  EWHC 656 (QB), Chamberlain J ordered that the Defendants should pay the Claimant’s costs on the indemnity basis, following the Defendants’ refusal to attend a joint settlement meeting. He did so notwithstanding that the Defendants had reasonable grounds for defending the claim, and that the damages sought by the Claimant were considerably in excess of those eventually recovered.
The facts of the case were these. The Claimant (Mrs B) and her husband were Jehovah’s Witnesses. They became friendly with Mark Sewell, an unpaid “elder” of the Barry Congregation, and his wife. In 1990, when Mrs B was aged 29, the two couples went “pioneering” (door-to-door evangelising). Mr Sewell drank heavily at lunchtime and, upon returning to his home, he raped Mrs B. She did not report the rape until the following year, when she discovered that he had also sexually abused a 14 year-old girl who was a member of the Congregation. The allegations were investigated by a committee of elders, but found not proven. It was not until decades later, in 2014, that Mark Sewell’s offences were investigated by the police, and he was convicted at trial of raping Mrs B and indecently assaulting two girls. Mrs B issued proceedings in 2014, seeking damages for PTSD and depression suffered as a result of the rape, including a substantial claim for loss of earnings on the basis that, but for the rape, she would have trained and obtained better-paid employment as a teacher. The claim was defended on the basis that it was statute-barred and that the Defendants were not vicariously liable for the rape.
In his judgment in the primary action  EWHC 156 (QB), Chamberlain J allowed the claim to proceed under s33 of the Limitation Act 1980 and held that the Defendants were vicariously liable for the psychiatric injuries, which he accepted were attributable to the rape. However, he rejected the claim for loss of earnings. He gave total judgment for £69,500, a figure which exceeded the Claimant’s Part 36 offer of £62,750 made on 9.7.19. The Defendants accepted that they were liable under CPR 36.17 to pay her costs on the indemnity basis from 30.7.19, and the judge awarded enhanced interest on those costs at 4% above base rate. However, the Claimant sought an order for payment of all of her costs on the indemnity basis, in view of the Defendants’ unreasonable refusal to engage in ADR.
When directions were issued on 20.4.18, they included a standard ADR paragraph, as follows:
“At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise.”
On 17.1.19, the Defendants suggested on a without prejudice basis the making of a “global offer” in settlement of the claims brought by Mrs B and the two girls. The Claimant’s solicitors made clear that this would give rise to a conflict of interest, and invited separate offers. Although the Defendants agreed to attend a JSM in respect of the two girls, they stated, on 25.2.19, that they had no authority to negotiate settlement of Mrs B’s claim, but would consider any proposals made. A JSM in March 2019 led to settlement of the claims brought by the two girls, but there was no further discussion of Mrs B’s case until her Part 36 offer on 9.7.19. That offer was rejected without giving a reason on 31.7.19. A further Part 36 offer to accept £25,000 was likewise rejected without giving reasons on 7.11.19.
The Claimant argued that the Defendants had made no real attempt to settle the claim, and were in breach of the directions order. The Defendants maintained that they had not acted unreasonably, in that, since Mrs B was an adult at the time of the rape and a friend of Mr Sewell, there was a proper factual and legal basis for them to defend her claim, as different issues in relation to both limitation and liability arose in her case. In no previous judgment had a religious organisation been held liable for the rape of an adult by an unpaid, volunteer minister. Further, the sum claimed in the schedule of loss (over £500,000) was “grossly inflated” in comparison with the damages actually awarded.
Chamberlain J noted that an award of indemnity costs required something which takes the case outside the norm. An unreasonable refusal to engage in ADR might justify indemnity costs, even where the claimant recovers substantially less than originally claimed, as the parties do not know whether in truth they are too far apart unless they sit down and explore settlement. Most importantly, he observed that “Silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable”, regardless of whether a refusal might have been justified by the identification of reasonable grounds. He cited the judgment of Briggs LJ in PGF II SA v OMFS Co Ltd  EWCA Civ 1288 that “a failure to provide reasons for a refusal is destructive of the real objective of the encouragement to parties to consider and discuss ADR, in short to engage with the ADR process”.
The court’s direction imposed two obligations on the parties: first, to consider ADR at all stages; second, to serve a witness statement explaining any refusal within 21 days. The Defendants refused on 25.2.19 to attend a JSM. In breach of the direction, they failed to serve a witness statement explaining why. That conduct was unreasonable.
Although the Defendants could reasonably conclude that they had stronger arguments to defend her claim than those of the two children, that did not mean that there was nothing to discuss. One important purpose of a JSM is to convey a defendant’s view about the strength of its case. In any event, the possibility of agreeing quantum subject to liability provided a good reason to engage in discussions, and would have shortened the trial and avoided some of the intrusive questioning which was necessary. The fact that the Claimant was seeking sums considerably in excess of those eventually recovered did not excuse the failure to engage at all with the proposal for a JSM. Given her subsequent Part 36 offer, there is every reason to think that the Claimant would have made known her willingness to settle the case for less than she was ultimately awarded.
In those circumstances, it was appropriate to order that the Defendants paid the Claimant’s costs incurred after 25.2.19 on the indemnity basis.
Whilst a direction for ADR is now the norm in all personal injury cases, I wonder to what extent parties seek to rely upon its terms if one or other refuses to engage? I recently acted for the claimant in a brain injury case in which, having been invited by the defendants to attend a JSM, they withdrew at very short notice, after service of a schedule of loss valuing the claim at over £10m. Given that we were willing to negotiate a settlement which took into account potential weaknesses in our expert evidence, the claimant’s team agreed that we should press for a statement from the defendants explaining their refusal to engage. A statement was subsequently served, which merely suggested that the proposals in our schedule of loss provided no realistic basis for settlement. It was apparent from subsequent correspondence that it was the insurers, rather than the defence solicitors, who were refusing to engage. In the event, common sense prevailed, and the JSM was re-arranged 3 months later, when the claim settled for £3.8m. The insurers’ conduct achieved nothing other than an increase in the costs, due to the need to prepare for two JSMs rather than one.
If you act for a claimant, I would advise that, if you face any reluctance from a defendant to attend a JSM or engage in ADR, you remind them of the court’s direction (if applicable) and require service of a statement explaining the reasons for any refusal. Silence in the face of an invitation is, on the face of it, unreasonable. If it is suggested that the parties are too far apart, you should stress that neither party will really know until they sit down and explore settlement. Ultimately, the potential sanction of indemnity costs should be sufficient to engage those who may be reluctant.
For a defendant, you must be prepared at the very least to justify any refusal to engage in ADR through a meaningful statement. However, that begs the question of why anyone would refuse to engage in ADR. Even if you feel that you have a strong defence, why not take the opportunity to convey that view at a JSM? Frank discussions about the relative strengths and weaknesses of each party’s case may cause one or other to re-evaluate their position. Alternatively, what not take the opportunity to agree quantum or otherwise try and narrow issues? There are enormous advantages to a face-to-face (or even video-link) discussion, which may be lost if the parties take entrenched positions through correspondence. In really tricky cases, the involvement of a skilled mediator may enable the parties to solve even the most intractable dispute. It will only be in a very limited number of cases that a refusal to engage in ADR can ever be justified.