MOJ plans to impose compulsory mediation for all County Court claims

The Ministry of Justice has announced plans to impose compulsory mediation (currently a 1-hour telephone call) in small claims and, eventually, in all County Court claims. The MOJ is also considering how the civil mediation market should be regulated. We explain and critique the current proposals and encourage lawyers, their insurers and brokers to provide feedback to the MOJ.

What has been proposed?

Parties to small claims are already automatically referred to the Small Claims Mediation Service ("SCMS"), which offers a free one-hour telephone mediation, but this can only be used where all parties agree. According to the MOJ's figures, the SCMS is only used in 15-21% of cases, but, under its new proposals, attendance at the telephone mediation will become compulsory.  The claim will be automatically stayed for 28 days after close of pleadings to enable the telephone call to take place, which must happen before the case can be listed for a hearing. 

The MOJ's move has been prompted by a report from the Civil Justice Council's Judicial ADR Liaison Committee which concludes that imposing compulsory mediation is lawful provided it is not "disproportionately onerous" and does not preclude a party's "effective access" to the court. Since the parties cannot be forced to settle (even if they can be forced to attend mediation), the MOJ's position is that there will be no "unacceptable constraint" on the right of access to a court. We discuss this issue below.  Another CJC report proposed compulsory mediation in claims for £500 or less, but the MOJ proposes to go much further, capturing claims up to £10,000 in the first instance, with a view to expanding the scheme to all County Court claims.

Will this lead to more settlements?

The MOJ expects a 13 to 55% reduction in small claims hearings, with:

• about 272,000 people receiving access to free mediation;
• 20,000 additional settlements to be achieved every year as a result of the scheme; and
• a freeing up of 7,000 judicial sitting days for more complex cases.

Encouraging litigants to engage in ADR is important, and exposure to a professional, independent mediator at an early stage is likely to be very helpful; particularly where the litigant is not represented (as is more often the case in small claims), so has not had the benefit of advice from a solicitor about ADR.  Unfortunately, according to MOJ figures, only 55% of cases using the SCMS settle.  That does, however, mean that, statistically, compulsory mediation should be successful in the majority of cases and, even if this early intervention does not result in a settlement at that stage, it may result in a subsequent settlement once the parties have the opportunity to mull over the comments they have received from the mediator. Given the existing obligations upon parties to consider ADR (which are underpinned by the threat of costs sanctions if a party fails to do so), it is difficult to see what more can reasonably be done to encourage ADR stopping short of mandating it.  Forcing the unwilling may, however, have no impact whatsoever on the settlement rate; sometimes parties simply do not want to settle, particularly if the case involves what is perceived as a point of principle, and where the risk of being ordered to pay an opponent's legal costs in the small claims court - even when a party has acted unreasonably - is likely to remain low.  

Whilst these proposals have the potential to increase costs for legally represented County Court litigants, the increased costs should be modest in cases where solicitors have already advised their clients adequately on ADR, and costs overall should decrease to reflect the number of cases that settle as a result of implementation of compulsory ADR. 

The Law Society has highlighted the MOJ's acknowledgment that "lawyers may lose work" as a result of the implementation of the scheme; however, the MOJ "assume that they will find work of equal or next best economic value". Interestingly, they do not elaborate on this assumption and is difficult to reconcile it with the SRA's analysis of the 472 firms that closed during the 12-month period to the end of April 2022.  

Which claims will be affected?

The proposed scheme will apply to all claims allocated to the small claims track in the first instance; with a view to referring other County Court litigants to an external (i.e. non-HMCTS) mediator in the longer term.

There is not yet a proposed date that these measures will come into force. 

What sanctions will be imposed if a party does not want to settle?

Whilst the MOJ states that parties will not be forced to settle their case if they do not want to, they will not be able to opt out of the scheme "simply because they wish to"; instead, requests for exemption are likely to be assessed by a judge applying discretion on a case-by-case basis.  The MOJ is also considering whether there are any categories of case that should be exempt from the scheme. 

If a party is judged not to have "adequately engaged" with the mediation, a further stay will be offered.  In instances of "continued non-compliance", a judge will be able to impose a sanction, which could be a costs sanction or an order striking out the claim or defence.  

The MOJ consultation paper does not elaborate on what constitutes "adequate engagement".  This is crucial to understand in circumstances where the possible sanction is as draconian as the striking out of the claim or defence (which would, ironically, preclude access to justice, potentially bringing into question the lawfulness of the scheme).   

Possible considerations include: (1) Has a party adequately engaged if they make an offer, but they do not move when it is not accepted?  (2) What if they make an offer to accept 99% of the claim?  And (3) how will this information be conveyed to the judge assigned to assess the parties' engagement?  Although the MOJ's consultation paper does not say, presumably the content of the mediation itself will be 'without prejudice'.

Whilst the proposed timing of the mediation (after close of pleadings) captures cases early in the proceedings (with a view to saving costs if a settlement is possible), there can be very good reasons for waiting until disclosure and/or witness statements have been dealt with before attempting settlement, so that the parties can properly assess the merits.  Requiring parties to mediate at a stage when settlement is unlikely to be achieved goes against the aim of the new proposal – parties could end up mediating twice.  Is it fair to penalise litigants who are prepared to engage in ADR but only when the timing is more appropriate? One option which might increase the rate of settlements is to allow the parties to defer the mediation until a later stage in the proceedings.

It is understandable for the MOJ to try to gauge response to the broad idea before ironing out theparticulars , but this is a very important detail.  It might be tempting for the MOJ to leave the assessment to the discretion of the judiciary, but this has the potential to introduce too much uncertainty and the absence of any guidance will make it difficult for the judiciary to consistently enforce.  

Who will the court-appointed mediators be?

The MOJ say that they are "developing plans" for the recruitment and training of additional mediators to provide the telephone appointment to parties to small claims, but when the scheme expands to all County Court claims, parties will be referred to external mediators.

As such, the MOJ is considering how to support and regulate the civil mediation market. Although its research has not identified "any serious market failure", many respondents supported more formal standards for mediators and MOJ involvement in overseeing the market.

Many mediators are professionals (solicitors, barristers or technical professionals such as surveyors or engineers), so already have ethical standards imposed by their own regulator.  The solicitors involved in a mediation can often be reluctant to provide constructive feedback as they will be aware that, like themselves, mediators trade off of their reputation and a party to a mediation only has half the picture.  Whilst there is a case for imposing ethical standards on mediators that are not otherwise regulated, it is difficult to say how the quality of a particular mediator can be regulated, save in the most egregious of cases (which are very rare).

Perhaps to reflect this difficulty, the MOJ's current proposals are either a voluntary MOJ-endorsed accreditation schemes or the creation of a voluntary national standard for mediation.

Is it really free?

Whilst the MOJ refers to its proposed mediation services as "free", the more realistic observer will appreciate that funding for this service must come from somewhere, and a further hike in Court fees is the obvious method - paradoxically, making litigation overall more expensive for all litigants (and insurers). The MOJ's "impact analysis" calculates an estimated cost to HMCTS of £2.8m per year. 

How can I provide feedback?

The MOJ has published a consultation seeking views from interested parties which is open until 4 October 2022.