15
Arbitration, Tribunal Adjudication and Alternative Dispute Resolution

15.1 Introduction

Law is one method of resolving disputes when, as is inevitable, they emerge. All societies have mechanisms for dealing with such problems, but the forms of dispute resolution tend to differ from society to society. In small-scale societies, based on mutual co-operation and interdependency, the means of solving disputes tend to be informal and focus on the need for mutual concessions and compromise to maintain social stability. In some such societies, the whole of the social group may become involved in settling a problem, whereas in others, particular individuals may be recognised as intermediaries, whose function it is to act as a go-between to bring the parties to a mutually recognised solution. The common factor remains the emphasis on solidarity and the need to maintain social cohesion. With social as well as geographical distance, disputes become more difficult to deal with.

It should not be thought that this reference to anthropological material is out of place in a book of this nature. It is sometimes suggested that law itself is a function of the increase in social complexity and the corresponding decrease in social solidarity – the oppositional, adversarial nature of law being seen as a reflection of the atomistic structure of contemporary society. Law as a formal dispute resolution mechanism is seen to emerge because informal mechanisms no longer exist or no longer have the power to deal with the problems that arise in a highly individualistic and competitive society. That is not to suggest that the types of mechanisms mentioned previously do not have their place in our own society: the bulk of family disputes, for example, are resolved through internal informal mechanisms without recourse to legal formality. It is generally recognised, however, that the very form of law makes it inappropriate to deal adequately with certain areas, family matters being the most obvious example. Equally, it is recognised that the formal and rather intimidatory atmosphere of the ordinary courts is not necessarily the most appropriate one in which to decide such matters, even where the dispute cannot be resolved internally. In recognition of this fact, various alternatives have been developed specifically to avoid the perceived shortcomings of the formal structure of law and court procedure.

In its 1999 Consultation Paper, Alternative Dispute Resolution, the Lord Chancellor’s Department (LCD) redefined ‘access to justice’ as meaning:

[W]here people need help there are effective solutions that are proportionate to the issues at stake. In some circumstances, this will involve going to court, but in others, that will not be necessary. For most people most of the time, litigation in the civil courts, and often in tribunals too, should be the method of dispute resolution of last resort (emphasis added).

That extremely useful Consultation Paper also set out the following list of types of alternative dispute resolution (ADR) mechanisms:

While ADR is usually regarded as referring to arbitration and mediation and the operation of the Ombudsman scheme, this chapter will extend this meaning to allow an examination of the role of the various administrative tribunals that exercise so much power in contemporary society.

ADR in the European Union

The importance of resolving commercial disputes, and the role of ADR in that process, was not lost on the European Union. The fundamental tenet of the EU, the free movement of goods and services within a unified market, runs in to difficulties when consumers are not confident that any problems relating to a particular transaction can be resolved. The single market only works when consumers have confidence that problems can be resolved effectively and relatively cheaply; however, for the moment consumers may be reluctant to enter into cross-border transactions for fear of what happens when things go wrong. An EU-wide system of dealing with such transactions, and particularly online transactions which are most likely to be involved, clearly would greatly facilitate the operation of the market. The EU Commission estimates that if EU consumers could rely on well-functioning and transparent ADR for their disputes, they could save around €22.5 billion a year, corresponding to 0.19 per cent of EU GDP.

In line with this line of reasoning, in June 2013, the European Parliament published a Directive on ADR (Directive 2013/11/EU) for consumer disputes together with Regulation on Online Dispute Resolution for consumer disputes (ODR Regulation (EU) 524/2013). Member states were required implement the Directive by July 2015. The Regulation came into force in January 2016.
The ODR Regulation

The Regulation requires the establishment by the EU Commission, of an online, interactive portal (the ‘ODR platform’) for resolving contractual disputes. The Regulation applies to consumer/trader disputes, domestic and cross-border disputes. Member states must propose an ODR contact to assist with disputes submitted through the ODR platform. Once the EU consumer submits their dispute online, they are linked with national ADR providers who will help to resolve the dispute. According to the Commission the procedure will operate as follows:

  • Consumers who encounter a problem with an online purchase will be able to submit a complaint online through the ODR platform, in the language of their choice. The ODR platform will notify the trader that a complaint is lodged against him. The consumer and the trader will then agree on which ADR entity to use to solve their dispute. When they agree, the chosen ADR entity will receive the details of the dispute via the ODR platform.
  • The ODR platform will be connected to the national ADR entities set up and notified to the Commission, in line with the new rules of the ADR Directive. The platform will help speed up the resolution of the dispute by allowing ADR entities to conduct the proceedings online and through electronic means. A set of common rules will govern the functioning of the ODR platform. These will include the role of national contact points acting as ODR advisers in their respective countries. Their task will be to provide general information on consumer rights and redress in relation to online purchases, assist with the submission of complaints and facilitate communication between the parties and the competent ADR entity through the ODR platform. For this purpose, ODR advisers will also be linked electronically to the platform.

Implementation of the Directive for consumer ADR in the UK

In November 2014, following a consultation exercise, the Department for Business Innovation and Skills published its proposals for bringing the EU rules into effect within the required time period (Alternative Dispute Resolution for Consumers). The document set out the intentions as follows:

In April 2015 the government implemented its proposals to comply with the directive and regulation through the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations (SI 2015/542). Amendments to the regulations soon followed (ADR for Consumer Disputes (Amendment) Regulations 2015 (2015/1392), to allow for the extension of the time for businesses to comply until 1 October 2015 and allowing non-UK based ADR providers to apply to operate.

In the simplest terms the regulations:

Apart from the business information requirement, the regulations came into force in July 2015, the former took effect from October 2015. For the purposes of the regulations,

The CTSA website, www.tradingstandards.uk/advice/AlternativeDisputeResolution.cfm provides a number of extremely useful guides on such aspects of the scheme such as how to apply to become an ADR approved body, what businesses must do to conform with the regulations and a list of approved ADR bodies.

It should also be mentioned that this change accompanied a major alteration in the law relating to consumer transactions, with the passing of the Consumer Rights Act 2015.

15.2 Mediation and Conciliation

A number of alternatives to court proceedings have already been listed, but the two most common, or certainly the two that most immediately spring to mind when the topic of ADR is raised, are mediation and conciliation, and as a consequence, although distinct, they are dealt with together.

15.2.1 Mediation

Mediation is the process whereby a third party acts as the conduit through which two disputing parties communicate and negotiate, in an attempt to reach a common resolution to a problem. The mediator may move between the parties, communicating their opinions without their having to meet, or alternatively the mediator may operate in the presence of the parties, but in either situation the emphasis is on the parties themselves working out a shared agreement as to how the dispute in question is to be settled.

Before the Woolf reforms introduced the three-track system, the small claims process was referred to as mediation, due to its much less formal procedural rules and practices. Although the small claims track is still relatively informal in comparison with the other tracks (see above, 7.5), the Court Service introduced a distinct and specific mediation process as an alternative to the court-based procedure. This small claims mediation scheme was funded by HMCS and consequently was free to court users who had a defended small claim.

The scheme was assessed positively after a pilot at Manchester County Court, and in 2007 HMCS began to appoint a number of small claims mediators across England and Wales. By June 2008 each of the 23 HMCS Court Areas in England and Wales had an in-house small claims mediator to deal with appropriate cases. The Ministry of Justice also developed a Mediation Helpline to assist individuals to access mediation. However, in October 2011, an online civil mediation directory replaced the National Mediation Helpline. A spokesperson for the ministry was quoted as saying that ‘over recent years calls, mediation referrals and settlements had continued to fall’ and ‘approximately two-thirds of all calls to the helpline had nothing to do with mediation’. As a result, it was felt not to be worth the £90,000 spent on it annually. Such a statement and action does not fit particularly well with government’s supposed commitment to an increased use of ADR.

The new directory has replicated some of the previous functions of the helpline in that it allows individuals to find a mediation provider accredited by the Civil Mediation Council anywhere in England and Wales. The cost of such mediation is based on a fixed fee, depending on the value of the dispute and, although not free, is much cheaper than making use of lawyers and going to court.

The fees for using the National Mediation Scheme are:

Amount claimed Fees (per party) Length of session Extra hours (per party)
£5,000 or less* £50 + VAT 1 hour £50 + VAT
£100 + VAT Up to 2 hours
£5,000-£15,000 £300 + VAT Up to 3 hours £85 + VAT
£15,000-£50,000** £425 + VAT Up to 4 hours £95 + VAT

Mediation is also available for higher value claims and fees are negotiable.

LawWorks (www.lawworks.org.uk), a legal pro bono charity, offers free civil and commercial mediation to those unable to afford to pay for a commercial provider and without other means of paying. This service is available throughout England and Wales and is free to both parties if one party qualifies for pro bono help. Fee remission is an automatic gateway; in other cases, LawWorks will assess whether the applicant can afford to pay.

In the same year as the Helpline was closed, the Legal Services Commission withdrew funding (£12,000) from the ADRnow website, a resource provided by the Advice Services Alliance (http://asauk.org.uk) aimed at steering the public towards mediation and other forms of alternative dispute resolution. As a result, ASA had to cease updating its extremely informative and useful ADR material. The Family Mediation Council provides an online service explaining and promoting the advantages of mediation in separation, divorce and other family law issues. It also operates a compulsory accreditation scheme for all family mediators and helps to locate suitable mediators.

The way in which mediation operates will become clear from the cases considered below. However, the mediator may settle the majority of disputes over the telephone without the need for either party to attend a hearing, consequently reducing time and expense. However, if necessary, face-to-face mediation can be arranged, either on court premises or elsewhere as deemed appropriate. In the event of the parties not being able to reach a settlement at the mediation appointment, the case will be listed for a small claims hearing. As the mediation process is confidential, the judge who deals with the subsequent case in court will not be informed of the content of any discussions at any previous mediation proceedings.

In his final report into the structure of the civil courts: The Civil Courts Structure Review July 2016, Lord Justice Briggs had some critical things to say about the removal of previous ADR facilities:

… [T]he court service used to provide free space after court hours for short mediations, and then funded the National Mediation Helpline. I have tried to ascertain why those two services were discontinued. It appears that the after-hours service was regarded as less satisfactory than a nationally organised service, and that the latter was discontinued because of the expense to the MoJ of funding its administration (but not its performance) on a contracted-out basis. Whatever may have been the justification for the discontinuation of those services, and their replacement by a service which only addresses small claims, (and only a moderate proportion of those), I regard the outcome as less than satisfactory.

Consequently he recommended the re-establishment of a court-based out of hours private mediation service in County Court hearing centres prepared to participate, along the lines of the service which existed prior to the establishment and then termination of the National Mediation Helpline.

15.2.2 Mediation in Divorce

Mediation has an important part to play in family matters, where it is felt that the adversarial approach of the traditional legal system has tended to emphasise, if not increase, existing differences of view between individuals and has not been conducive to amicable settlements. Thus, in divorce cases, mediation has traditionally been used to enable the parties themselves to work out an agreed settlement rather than having one imposed upon them by the courts.

This emphasis on mediation was formally strengthened in the Family Law Act 1996. Before receiving legal aid for representation in a divorce case a person was expected to have a meeting with a mediator to assess whether mediation was a suitable alternative to court proceedings. The only exception to this requirement was in relation to allegations of domestic abuse. However, excluding those exempted for reasons of domestic abuse, only 20 per cent of people publicly funded in divorce proceedings actually got involved in mediation.

In April 2011 the scheme applying to those making use of legal aid was extended to all parties wishing to go to court to resolve children or property issues following a separation or divorce. Consequently, all applicants to court on family proceedings were expected to show that they have already considered mediation and other dispute resolution options by attending a Mediation Information and Assessment Meeting (MIAM). However, the fact was that many applicants did not comply with the expectation.

The expectation that applicants should attend MIAMs became a requirement in April 2014 following the enactment of the Children and Families Act 2014 (s 10). The fact that the requirement only applies to applicants and not respondents inevitably reduces the effectiveness of the provision. In November 2014 the Justice Ministry announced that the first mediation session would be funded for both parties, provided at least one of them is already legally aided. Both of these measures may be understood as an attempt to deal with a crisis developing in the recently unified Family Court.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 introduced reforms, effectively designed to remove legal aid for divorce cases, unless they involve allegations of domestic violence or child abuse. The new Act came into force in April 2013. Among the justifications for cutting legal aid in this particular area was not just the fact that it saved money and reduced pressure on the courts, but that it would also have the additional benefit of reducing antagonism between separating couples as they opted for the, certainly cheaper, but also, unarguably, less confrontational form of mediation. Unfortunately the provisions seem to have had not only an unexpected, but a contrary, outcome. In effect, by removing most access to legal aid in relation to divorce, the government removed the signposts to mediation, which actually led not just to a reduction in the use of mediation, but to a corresponding increase in recourse to the courts and also an increase in self-representation in those courts. In turn, this had the consequence of slowing up of court proceedings as those unused to law and legal procedures attempted to represent themselves.

Following a freedom of information request by family mediator Marc Lopatin, the founder of Lawyer Supported Mediation (now Dialogue First http://dialoguefirst.co.uk/), statistics compiled by the Ministry of Justice revealed a large drop in the number of couples attending family related mediation meetings since the implementation of the legal aid cuts in April 2013. Between April and June 2012, 7,381 couples attended mediation information and assessment meetings in England and Wales, but in the same period in 2013, only 3,854 couples attended such meetings, a drop of 47 per cent.

The irony is that legal aid for mediation was still available; indeed, the government had made an extra £10 million available for such purposes, but no referrals were being made. Couples were avoiding what they saw as the unaffordable expense of funding lawyers through a full divorce hearing, but in so doing they were also avoiding the gatekeepers who could have guided them to a simpler process. Lord McNally, then the Family Justice Minister, was quoted in the press as responding as follows:

We are aware there has been a recent drop in referrals to mediation and are working closely with the Family Mediation Council and legal profession to address this… We are also now changing the law so anyone considering court action over disputes about children or finances will be legally obliged to attend a mediation meeting first.

As stated, making mediation compulsory under the Children and Families Act 2014 would appear to be the response, but whether it is sufficient remains problematic. The underlying tension came to a head in August 2014 when, in a series of linked cases, Q v Q, Re B and Re C [2014] EWFC 31, president of the Family Court Sir James Munby asked the Justice Ministry to explain how the cases in question could proceed without legal aid. In Munby’s words:

[T]hese are problems which pre-date the implementation in April 2013 of the relevant provisions of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). They are, however, problems which most practitioners and judges with any practical experience of the family justice system would recognise as having been very considerably exacerbated by LASPO…

There has been a drastic reduction in the number of represented litigants in private law cases. The number of cases where both parties are represented has fallen very significantly, the number of cases where one party is represented has also fallen significantly and, correspondingly, the number of cases where neither party is represented has risen very significantly.

It is important to realise that there are potential problems with mediation. The assumption that the parties freely negotiate the terms of their final agreement in a less than hostile manner may be deeply flawed, to the extent that it assumes equality of bargaining power and knowledge between the parties to the negotiation. Mediation may well ease pain, but unless the mediation procedure is carefully and critically monitored, it may gloss over and perpetuate a previously exploitative relationship, allowing the more powerful participant to manipulate and dominate the more vulnerable and force an in equitable agreement. Establishing entitlements on the basis of clear legal advice may be preferable to apparently negotiating those entitlements away in the non-confrontational, therapeutic, atmosphere of mediation.

15.2.3 Conciliation

Conciliation takes mediation a step further and gives the mediator the power to suggest grounds for compromise and the possible basis for a conclusive agreement. Both mediation and conciliation have been available in relation to industrial disputes under the auspices of the government-funded Advisory, Conciliation and Arbitration Service (ACAS). One of the statutory functions of ACAS is to try to resolve industrial disputes by means of discussion and negotiation or, if the parties agree, the service might take a more active part as arbitrator in relation to a particular dispute.

The essential weakness in the procedures of mediation and conciliation lies in the fact that, although they may lead to the resolution of a dispute, they do not necessarily achieve that end. Where they operate successfully they are excellent methods of dealing with problems, as the parties to the dispute essentially determine their own solutions and feel committed to the outcome. The problem is that they have no binding power and do not always lead to an outcome. As a result, it is always possible that parties will go through the time and expense of mediation, only to find that, at the end of the procedure, one of them does not agree to a proposed resolution. As a result, the whole process ends up taking longer and being more expensive than it would have been if the dispute had been taken directly to court.

A case study in how not to do it: Burchell v Bullard [2005] EWCA Civ 358

This unfortunate case, for everyone apart perhaps from the lawyers engaged to pursue it, can be taken as a signal example of the dangers and inappropriateness of pursuing legal action in the courts when ADR is available and a better way of deciding the contended issue.

The appellant in the case was a builder who had contracted to build two large extensions onto the defendants’ home. The dispute arose because the Bullards claimed that some of the work carried out by Burchell’s subcontractor was substandard. They refused to make a payment, due under the contract, until the allegedly defective work had been rectified. As a result, Burchell left the site. In an attempt to resolve the dispute, Burchell suggested that the dispute be referred to mediation, but on the advice of their chartered surveyor the Bullards refused to mediate, claiming that due to the complexity of the issues the case was not appropriate for mediation.

At first instance the judge, District Judge Tennant, was clear that (para 20):

There are faults on both sides… [o]n balance, however, I am satisfied that quite apart from the net amount actually recovered by the claimant, the defendants are more at fault than the claimant in the sense that they have conducted the litigation more unreasonably.

Nonetheless, he decided that each of the parties should pay the costs of the other in relation to the main claim in the action. Burchell subsequently appealed against those costs orders.

The attitude of the Court of Appeal is scathingly evident in the judgment of Ward LJ. As to the offer of mediation he stated that (para 3):

[Burchell’s] solicitors wrote sensibly suggesting that to avoid litigation the matter be referred for alternate dispute resolution through ‘a qualified construction mediator’. The sorry response from the respondents’ chartered building surveyor was that ‘the matters complained of are technically complex and as such mediation is not an appropriate route to settle matters’ (emphasis added).

However, as Ward LJ pointed out, ‘All the Bullards wanted was for the builder to complete the contract and rectify the defective work.’ So what was the underlying ‘technically complex’ issue that prevented mediation? As Ward LJ examined the facts of the case he found things, regrettably but not unexpectedly, getting worse (para 23):

As we had expected, an horrific picture emerges. In this comparatively small case where ultimately only about £5,000 will pass from defendants to claimant, the claimant will have spent about £65,000 up to the end of the trial and he will also have to pay the subcontractor’s costs of £27,500. We were told that the claimant might recover perhaps only 25 per cent of his trial costs, say £16,000, because most of the contest centred on the counterclaim. The defendants’ costs of trial are estimated at about £70,000 and it was estimated the claimant would have to pay about 85 per cent, i.e. £59,500. Recovery of £5,000 will have cost him about £136,000. On the other hand the defendants who lost in the sense that they have to pay the claimant £5,000 are only a further £26,500 out of pocket in respect of costs. Then there are the costs of the appeal – £13,500 for the appellant and over £9,000 for the respondents. A judgment of £5,000 will have been procured at a cost to the parties of about £185,000. Is that not horrific? (emphasis added)

In examining the situation, Ward LJ emphasised the fact that the appellant’s offer to mediate was made long before the action started, and long before the crippling costs had been incurred. The issue to be decided, therefore, was whether the respondents had acted unreasonably in refusing the offer of mediation. While Ward LJ recognised that Halsey v The Milton Keynes General NHS Trust had set out the manner in which such a question should be answered, he declined to follow it in the immediate case. His reasoning was as follows (para 42):

It seems to me, therefore, that the Halsey factors are established in this case and that the court should mark its disapproval of the defendants’ conduct by imposing some costs sanction. Yet I draw back from doing so. This offer was made in May 2001. The defendants rejected the offer on the advice of their surveyor, not of their solicitor. The law had not become as clear and developed as it now is following the succession of judgments from this court of which Halsey and Dunnett v Railtrack plc (Practice Note) [2002] 1 WLR 2434 are prime examples. To be fair to the defendants one must judge the reasonableness of their actions against the background of practice a year earlier than Dunnett. In the light of the knowledge of the times and in the absence of legal advice, I cannot condemn them as having been so unreasonable that a costs sanction should follow many years later.

However, Ward LJ was as emphatic as he was admonitory in his assessment of the present case and his view as to how future cases should be treated. As he put it (paras 41–43):

a small building dispute is par excellence the kind of dispute which, as the recorder found, lends itself to ADR. Secondly, the merits of the case favoured mediation. The defendants behaved unreasonably in believing, if they did, that their case was so watertight that they need not engage in attempts to settle. They were counterclaiming almost as much to remedy some defective work as they had contracted to pay for the whole of the stipulated work. There was clearly room for give and take. The stated reason for refusing mediation, that the matter was too complex for mediation, is plain nonsense. Thirdly, the costs of ADR would have been a drop in the ocean compared with the fortune that has been spent on this litigation. Finally, the way in which the claimant modestly presented his claim and readily admitted many of the defects, allied with the finding that he was transparently honest and more than ready to admit where he was wrong and to shoulder responsibility for it augured well for mediation. The claimant has satisfied me that mediation would have had a reasonable prospect of success. The defendants cannot rely on their own obstinacy to assert that mediation had no reasonable prospect of success… The profession must, however, take no comfort from this conclusion. Halsey has made plain not only the high rate of a successful outcome being achieved by mediation but also its established importance as a track to a just result running parallel with that of the court system. Both have a proper part to play in the administration of justice. The court has given its stamp of approval to mediation and it is now the legal profession which must become fully aware of and acknowledge its value. The profession can no longer with impunity shrug aside reasonable requests to mediate… These defendants have escaped the imposition of a costs sanction in this case but defendants in a like position in the future can expect little sympathy if they blithely battle on regardless of the alternatives (emphasis added).

In the final analysis, the Court of Appeal directed the defendants to pay 60 per cent of the claimant’s costs of the original claim and counterclaim and related proceedings. However, there was still a sting in the tail, for as Ward LJ stated (para 47):

We have not heard argument on the costs of this appeal. In order that more costs are not wasted, I say that my preliminary view is that costs of the appeal should follow the event. The appellant has been successful and as at present advised and having regard to the checklist of relevant considerations set out in CPR 44.3, I can see no justification for his not having the costs of the appeal.

So the Bullards faced even more costs for their failure to take advantage of the earlier offer of mediation. (For another case of money being thrown away in pursuit of a ‘matter of principle’, and perhaps even more scathing comments by Ward LJ, see Egan v Motor Services (Bath) Ltd (2007) in which a claim for about £6,000 damages cost £100,000 in fees.)

15.3 The Courts and ADR

15.3.1 The Woolf and Jackson Reforms

Alternative Dispute Resolution mechanisms have assumed an increasingly central place in the English legal system in fairly recent times.

Central to Lord Woolf’s review of the civil law system was the perception of the lack of control over the antagonistic process of civil litigation allowing, if not necessarily directly leading to, inherent problems of cost, complexity and delay (see 7.2).

And central to Woolf’s solution was the avoidance of litigation and the promotion of early, cost-effective settlement.

In his final report, Access to Justice, Woolf prefigured a new landscape for civil justice for the 21st century in which ‘litigation will be avoided wherever possible’. To achieve this end:

However, although a proponent of ADR, Lord Woolf was very much of the opinion that it could never be forced on individuals if they did not wish to make use of it. However, they should be actively encouraged and indeed might suffer in costs if they did not avail themselves of the opportunities and advantages afforded by such alternative methods of dispute resolution.

In April 1999, new Civil Procedure Rules (CPR) and Practice Directions came into force. As part of the civil justice reforms, the general requirement placed on courts to actively manage cases includes ‘encouraging the parties to use an alternative dispute resolution procedure if the court considers that to be appropriate and facilitating the use of such procedure’ (CPR 1.4(2)). Rule 26.4 of the CPR enables judges, either on their own account or at the agreement of the parties, to stop court proceedings where they consider the dispute to be better suited to solution by some alternative procedure, such as arbitration or mediation.

CPR 44.2(2) provides that ‘if the court decides to make an order about costs:

  • (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
  • (b) the court may make a different order’.

CPR 44.2(4) provides that in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including the conduct of the parties, and r 44.2(5) provides that the conduct of the parties includes ‘(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol’.

If, subsequently, a court is of the opinion that an action it has been required to decide could have been settled more effectively through ADR, then under r 44.2(1) of the CPR, it may penalise the party who insisted on the court hearing by awarding them reduced, or even, no costs should they win the case.

Some 10 years after Lord Woolf’s review of the operation of general civil law system, it fell to Lord Justice Jackson to conduct a review of the specifics of the cost of that system, and his Review of Civil Litigation Costs was issued in January 2010. While the report covered some 45 subject areas and ran to 557 pages, with recommendations across the whole spectrum of civil litigation, it did have some specific points to make about ADR. It was Jackson LJ’s view that ADR was not fully appreciated by legal practitioners, the public generally and small businesses in particular. Consequently he felt it was under-used, and he strongly supported its increased use, concluding that ADR and, in particular, mediation had a vital role to play in reducing the costs of civil disputes, by facilitating the early settlement of cases. In particular he disagreed with the widespread belief that mediation was not suitable for personal injury cases, as long as such mediations are carried out by mediators with specialist experience of personal injuries litigation. However, he did not consider ADR to be a panacea and recognised that mediation can be expensive and does not always end successfully.

Although not central to the report, in line with the foregoing, Jackson did have two particular recommendations to make with regard to ADR:

  • (i) there should be a campaign to ensure that all litigation lawyers and judges are properly informed about the benefits which ADR can bring and to alert the public and small businesses to the benefits of ADR;
  • (ii) an authoritative handbook should be prepared, explaining clearly and concisely what ADR is and providing practical and concise guidance on all aspects of ADR. This handbook should be the standard text for use at all Judicial College seminars and CPD training sessions concerning mediation.

Subsequently, such an authoritative handbook, The Jackson ADR Handbook, was produced by authors Susan Blake, Julie Browne and Stuart Sime of City University, London. The handbook has been endorsed by Lord Justice Jackson, the Judicial College, the Civil Justice Council and the Civil Mediation Council. It is proposed that it and every judge who hears civil cases will receive a copy as an aide. Its use was recognised and endorsed by the Court of appeal in PGF II SA v OMFS Company 1 Ltd (2014) (see, further, below).

The main aim of the Jackson report was to deal with the escalating costs of personal injury cases and, although not strictly within the ambit of this chapter, it cannot go unrecognised that it already has had a significant impact on the substance and process of English law. The legislation introducing these changes was the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and most of the relevant provisions came into force on 1 April 2013.

Amendments to the Civil Procedure Rules

Since April 2013 the Civil Procedure Rules have a revised overriding objective: to enable the court to deal with cases justly and at proportionate cost.

Although proportionality is not defined, r 44.3(5) states that costs incurred are proportionate if they bear a reasonable relationship to:

  • (a) the sums in issue in the proceedings;
  • (b) the value of any non-monetary relief in issue in the proceedings;
  • (c) the complexity of the litigation;
  • (d) any additional work generated by the conduct of the paying party; or
  • (e) any wider factors involved in the proceedings, such as reputation or public importance.

Significantly, and perhaps worryingly, r 44.3 states that costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred.

The judicial development of ADR

The potential consequences of not abiding by a recommendation to use ADR may be seen in Dunnett v Railtrack plc (2002). When Dunnett won a right to appeal against a previous court decision, the court granting the appeal recommended that the dispute should be put to arbitration. Railtrack, however, refused Dunnett’s offer of arbitration and insisted on the dispute going back to a full court hearing. In the subsequent hearing in the Court of Appeal, Railtrack proved successful. The Court of Appeal, however, held that if a party rejected ADR out of hand when it had been suggested by the court, they would suffer the consequences when costs came to be decided. In the instant case, Railtrack had refused to even contemplate ADR at a stage prior to the costs of the appeal beginning to flow.

The Court of Appeal subsequently applied Dunnett in Leicester Circuits Ltd v Coates Brothers plc (2003) where, although it found for Coates, it did not award it full costs on the grounds that it had withdrawn from a mediation process. The Court of Appeal also dismissed Coates’ claim that there was no realistic prospect of success in the mediation. As Judge LJ stated (para 27):

We do not for one moment assume that the mediation process would have succeeded, but certainly there is a prospect that it would have done if it had been allowed to proceed. That therefore bears on the issue of costs.

It is possible to refuse to engage in mediation without subsequently suffering in the awards of costs. The test, however, is an objective rather than a subjective one, and a difficult one to sustain, as was shown in Hurst v Leeming (2002). Hurst, a solicitor, started legal proceedings against his former partners and instructed Leeming, a barrister, to represent him. When the claim proved unsuccessful, Hurst sued Leeming in professional negligence. When that claim failed, Hurst argued that Leeming should not be awarded costs, as he, Hurst, had offered to mediate the dispute, but Leeming had rejected the offer. Leeming cited five separate justifications for his refusal to mediate. These were:

  • the heavy costs he had already incurred in meeting the allegations;
  • the seriousness of the allegation made against him;
  • the lack of substance in the claim;
  • the fact that he had already provided Hurst with a full refutation of his allegation;
  • the fact that, given Hurst’s obsessive character, there was no real prospect of a successful outcome to the litigation.

Only the fifth justification was accepted by the court, although even in that case it was emphasised that the conclusion had to be supported by an objective evaluation of the situation. However, in the circumstances, given Hurst’s behaviour and character, the conclusion that mediation would not have resolved the complaint could be sustained objectively.

In Halsey v Milton Keynes General NHS Trust (2004), the Court of Appeal emphasised that the criterion was the reasonableness of the belief. The only ground of appeal in Halsey was that the judge at first instance had been wrong to award the defendant, the Milton Keynes General NHS, its costs, since it had refused a number of invitations by the claimant to mediate. As the court emphasised, in deciding whether to deprive a successful party of some or all of their costs on the grounds that they have refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In demonstrating such exceptional circumstances, in the view of the Court of Appeal, the burden is to be placed on the unsuccessful party to the substantive action to show why there should be any departure from that general rule. Lord Justice Dyson said (para 28):

It seems to us that a fair… balance is struck if the burden is placed on the unsuccessful party to show that there was a reasonable prospect that mediation would have been successful. This is not an unduly onerous burden to discharge: he does not have to prove that a mediation would in fact have succeeded. It is significantly easier for the unsuccessful party to prove that there was a reasonable prospect that a mediation would have succeeded than for the successful party to prove the contrary.

In taking such a stance, the Court of Appeal was sensitive to the possibility, as it implicitly suggested was the case in relation to the claimants in the Halsey case, that (para 18):

… there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit. Courts should be particularly astute to this danger. Large organisations, especially public bodies, are vulnerable to pressure from claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least make a nuisance-value offer to buy off the cost of a mediation and the risk of being penalised in costs for refusing a mediation even if ultimately successful…

As regards the power of the courts to order mediation, the Court of Appeal declined to accept such a proposition, finding it to be contrary to both domestic and ECHR law. As Dyson LJ stated in delivering the decision of the Court (para 9):

We heard argument on the question whether the court has power to order parties to submit their disputes to mediation against their will. It is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest terms. It is another to order them to do so. It seems to us that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court. The court in Strasbourg has said in relation to Article 6 of the European Convention on Human Rights that the right of access to a court may be waived, for example by means of an arbitration agreement, but such waiver should be subjected to ‘particularly careful review’ to ensure that the claimant is not subject to constraint… If that is the approach of the ECtHR to an agreement to arbitrate, it seems to us likely that compulsion of ADR would be regarded as an unacceptable constraint on the right of access to the court and, therefore, a violation of Article 6.

It is clear that a party can refuse to accept an offer to participate in mediation, but any such refusal must be reasonable. Unfortunately, what counts as reasonable cannot be defined with certainty, but its centrality is evident in the two cases below.

In Rolf v De Guerin (2011) the claimant succeeded to a degree in her claim but only recovered a small proportion of the amount claimed (£2,500 against a claim of £92,515) and failed on a number of her main allegations. On such grounds the court at first instance decided that the costs should not ‘follow the event’ in this case and awarded costs to the unsuccessful defendant.

On appeal, the Court of Appeal took into account Rolf’s repeatedly stated willingness to settle the dispute through mediation. The defendant had refused mediation until it was too late to be effective and the Court of Appeal denied the validity of his reasons for refusal. As the reasons for refusal were unreasonable, the Court of Appeal held that each party should bear their own individual costs.

Subsequently, however, in Swain Mason v Mills & Reeve (2012), the Court of Appeal reaffirmed the decision in Halsey that under certain circumstances parties could refuse to engage in mediation. On the issue of refusal to mediate, the Court of Appeal took a different view from the trial judge in holding that the defendants had not unreasonably refused to mediate. In reaching its decision the Court of Appeal provided a gloss on Halsey v Milton Keynes General NHS Trust, holding that it was authority for the following:

As Davis LJ put it:

The fundamental question remains as to whether it had been shown by the unsuccessful party (the claimants) that the successful party (the defendant) had acted unreasonably in refusing to agree to a mediation. In my view, that could not be shown here; and I therefore think that the judge was wrong to bring into account, adversely to the defendant, the defendant’s attitude to mediation in deciding what costs overall should be awarded.

The Court of Appeal, taking a broad-brush approach, substituted an order that the defendants recover 60 per cent as opposed to the original court decision to award only 50 per cent of its costs.

PGF II SA v OMFS Company 1 Ltd (2013) is significant in that the Court of Appeal clarified the reasoning in Halsey by holding that the defendant’s refusal even to respond to the claimant’s invitations to mediation amounted to unreasonable conduct. In so doing the court accepted the statement of the law as set out in The Jackson ADR Handbook. As Briggs LJ stated:

In my judgment, the time has now come for this court firmly to endorse the advice given in chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds.

Although the case had been settled with the last-minute acceptance of the defendant’s CPR 36 offer, the trial judge nonetheless penalised the defendant’s refusal to mediate by depriving it of costs. The Court of Appeal confirmed that decision, although as his words show, Briggs LJ was aware that the decision was on the cusp of what is appropriate:

The court’s task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres (emphasis added).

15.4 Arbitration

The first and oldest of these alternative procedures to the courts is arbitration. This is the procedure whereby parties in dispute refer the issue to a third party for resolution, rather than taking the case to the ordinary law courts. Studies have shown a reluctance on the part of commercial undertakings to have recourse to the law to resolve their disputes. At first sight, this appears paradoxical. The development of contract law can, to a great extent, be explained as the law’s response to the need for regulation in relation to business activity, yet business declines to make use of its procedures. To some degree, questions of speed and cost explain this peculiar phenomenon, but it can be explained more fully by reference to the introduction to this chapter. It was stated there that informal procedures tend to be most effective where there is a high degree of mutuality and interdependency, and that is precisely the case in most business relationships. Businesses seek to establish and maintain long-term relationships with other concerns. The problem with the law is that the court case tends to terminally rupture such relationships. It is not suggested that, in the final analysis, where the stakes are sufficiently high, recourse will not be had to law, but such action does not represent the first or indeed the preferred option. In contemporary business practice, it is common, if not standard, practice for commercial contracts to contain express clauses referring any future disputes to arbitration. This practice is well established and its legal effectiveness has long been recognised by the law.

Thus in Cable & Wireless Plc v IBM United Kingdom Ltd (2002) the two parties had entered into a contractual agreement which provided that in the event of any dispute they:

shall attempt in good faith to resolve the dispute or claim through an alternative dispute resolution procedure as recommended… by the Centre for Dispute Resolution (‘CEDR’). However an ADR procedure which is being followed shall not prevent any party… from issuing proceedings.

However, when an issue arose the claimant declined to refer its claim to ADR, submitting that the above term was unenforceable because it lacked certainty due to its apparent contradictory wording, which suggested the possibility of both ADR and the issuing of court proceedings. It was suggested that the clause amounted to no more than an agreement to negotiate, which was not enforceable in English law. However, Colman J held that the issuing of proceedings was not inconsistent with the simultaneous conduct of an ADR procedure or with a mutual intention to have the issue finally decided by the courts only if the ADR procedure failed. He also concluded that the fact that the parties had identified a particular procedure from an experienced dispute resolution service provider indicated that they intended to be bound by the ADR provision. As regards the uncertainty issue, Colman J made a wider reference to the applicability of ADR agreements after Dunnett v Railtrack, holding that the English courts should not go out of their way to find uncertainty, and therefore unenforceability, in the field of ADR references. As he put it, ‘For the courts now to decline to enforce contractual references to ADR on the grounds of intrinsic uncertainty would be to fly in the face of public policy.’

15.4.1 Procedure

Section 1 of the Arbitration Act (AA) 1996 states that it is founded on the following principles:

  • (a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without necessary delay or expense;
  • (b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
  • (c) in matters governed by this part of the Act, the court should not intervene except as provided by this part.

This provision of general principles, which should inform the reading of the later detailed provisions of the Act, is unusual for UK legislation, but may be seen as reflecting the purposes behind the Act, one major purpose of which was the wish to ensure that London did not lose its place as a leading centre for international arbitration. As a consequence of the demand-driven nature of the legislation, it would seem that court interference in the arbitration process has had to be reduced to a minimum and replaced by party autonomy. Under the 1996 Act, the role of the arbitrator has been increased and that of the court has been reduced to the residual level of intervention where the arbitration process either requires legal assistance or else is seen to be failing to provide a just settlement.

The Act, at least to a degree, follows the Model Arbitration Law adopted in 1985 by the United Nations Commission on International Trade Law (UNCITRAL), although it differs from the model code to the extent that it contains mandatory rules as well as provisions the parties can opt into or out of. For example, the power of the court to remove an arbitrator under s 24 cannot be overridden by the parties to the arbitration.

While it is possible for there to be an oral arbitration agreement at common law, s 5 provides that Part I of the 1996 Act only applies to agreements in writing. What this means in practice, however, has been extended by s 5(3) which provides that, where the parties agree to an arbitration procedure which is in writing, that procedure will be operative, even though the agreement between the parties is not itself in writing. An example of such a situation would be where a salvage operation was negotiated between two vessels on the basis of Lloyd’s standard salvage terms. It would be unlikely that the actual agreement would be reduced to written form, but nonetheless, the arbitration element in those terms would be effective.

In analysing the AA 1996, it is useful to consider it in three distinct parts: autonomy of the parties; powers of the arbitrator and the court; and appellate rights:

Autonomy

It is significant that most of the provisions set out in the AA 1996 are not compulsory. As is clearly stated in s 1, it is for the parties to an arbitration agreement to agree what procedures to adopt. The main purpose of the Act is to empower the parties to the dispute and to allow them to choose how it is to be decided. In pursuit of this aim, the mandatory parts of the Act only take effect where the parties involved do not agree otherwise. It is actually possible for the parties to agree that the dispute should not be decided in line with the strict legal rules, but rather in line with commercial fairness, which might be a completely different thing altogether.

In Jivraj v Hashwani (2011) the Supreme Court, in overruling the Court of Appeal, held that arbitrators were not employees and consequently the requirement to select arbitrators from a particular religious group (in this case the Ismaili community) did not breach the Employment Equality (Religion or Belief) Regulations 2003.

Powers of the arbitrator

Section 30 provides that, unless the parties agree otherwise, the arbitrator can rule on questions relating to jurisdiction, that is, in relation to:

  • (a) whether there actually is a valid arbitration agreement;
  • (b) whether the arbitration tribunal is properly constituted;
  • (c) what matters have been submitted to arbitration in accordance with the agreement.

Section 32 allows any of the parties to raise preliminary objections to the substantive jurisdiction of the arbitration tribunal in court, but provides that they may only do so on limited grounds which require either: the agreement of the parties concerned; the permission of the arbitration tribunal; or the agreement of the court. Leave to appeal will only be granted where the court is satisfied that the question involves a point of law of general importance.

Section 28 expressly provides that the parties to the proceedings are jointly and severally liable to pay the arbitrators such reasonable fees and expenses as appropriate. Previously, this was only an implied term.

Section 29 provides that arbitrators are not liable for anything done or omitted in the discharge of their functions unless the act or omission was done in bad faith.

Section 33 provides that the tribunal has a general duty:

  • (a) to act fairly and impartially between the parties, giving each a reasonable opportunity to state their case; and
  • (b) to adopt procedures suitable for the circumstance of the case, avoiding unnecessary delay or expense.

Section 35 provides that, subject to the parties agreeing to the contrary, the tribunal shall have the following powers:

  • (a) to order parties to provide security for costs (previously a power reserved to the courts);
  • (b) to give directions in relation to property subject to the arbitration;
  • (c) to direct that a party or witness be examined on oath, and to administer the oath.

The parties may also empower the arbitrator to make provisional orders (s 39).

Powers of the court

Where one party seeks to start a court action, contrary to a valid arbitration agreement, then the other party may request the court to stay the litigation in favour of the arbitration agreement under ss 9–11 of the AA 1996. Where, however, both parties agree to ignore the arbitration agreement and seek recourse to litigation, then, following the party consensual nature of the Act, the agreement may be ignored.

The courts may order a party to comply with an order of the tribunal and may also order parties and witnesses to attend and to give oral evidence before tribunals (s 43).

The court has power to revoke the appointment of an arbitrator on application of any of the parties where there has been a failure in the appointment procedure under s 18, but it also has powers to revoke authority under s 24. This power comes into play on the application of one of the parties in circumstances where the arbitrator:

  • (a) has not acted impartially or there are justifiable doubts as to their impartiality (see Sierra Fishing Co. v Farran (2015));
  • (b) does not possess the required qualifications;
  • (c) does not have either the physical or mental capacity to deal with the proceedings;
  • (d) has refused or failed to properly conduct the proceedings, or has been dilatory in dealing with the proceedings or in making an award, to the extent that it will cause substantial injustice to the party applying for their removal.

Under s 45, the court may, on application by one of the parties, decide any preliminary question of law arising in the course of the proceedings.
Appeal

The AA 1950 allowed for either party to the proceedings to have questions of law authoritatively determined by the High Court through the procedure of ‘case stated’. The High Court could also set aside the decision of the arbitrator on grounds of fact, law or procedure. Whereas the arbitration process was supposed to provide a quick and relatively cheap method of deciding disputes, the availability of the appeals procedures meant that parties could delay the final decision and in so doing increase the costs. In such circumstances, arbitration became the precursor to a court case rather than replacing it. The AA 1979 abolished the ‘case stated’ procedure and curtailed the right to appeal. The AA 1996 has reduced the grounds for appeal to the court system even further.

Once the decision has been made, there are limited grounds for appeal. The first ground arises under s 67 of the AA 1996 in relation to the substantive jurisdiction of the arbitral panel, although the right to appeal on this ground may be lost if the party attempting to make use of it took part in the arbitration proceedings without objecting to the alleged lack of jurisdiction. The second ground for appeal to the courts is on procedural grounds, under s 68, on the basis that some serious irregularity affected the operation of the tribunal. By serious irregularity is meant:

  • (a) failure to comply with the general duty to act fairly set out in s 33;
  • (b) failure to conduct the tribunal as agreed by the parties;
  • (c) uncertainty or ambiguity as to the effect of the award;
  • (d) failure to comply with the requirement as to the form of the award.

The threshold for raising an action under s 68 is very restrictive and will succeed ‘only if what had occurred was too far removed from what could reasonably be expected from the arbitral process to be justified’ (see ABB Ag v Hochtief Airport GmbH [2006] EWHC 388 (Comm)). Thus the court will not intervene on the ground that it would have done things differently (see Lorand Shipping Limited v Davof Trading (Africa) BV MV ‘Ocean Glory’ [2014] EWHC 3521 (Comm) for an example of a successful claim under s 68.

In Secretary of State for the Home Department v Raytheon Systems Limited [2015] EWCH 311 (TCC) the judge, on appeal, held that not only should the original finding of the arbitration panel be set aside on the basis of serious irregularity, but also that the issue should be reconsidered and decided by a different arbitrator panel on the grounds that ‘there is a real risk, judged objectively, that even a competent and respectable arbitral tribunal, whose acts or omissions have been held to amount to serious irregularity causing substantial injustice may sub-consciously be tempted to achieve the same result as before’.

Parties may also appeal on a point of law arising from the award under s 69. However, the parties can agree beforehand to preclude such a possibility, and where they agree to the arbitral panel making a decision without providing a reasoned justification for it, they will also lose the right to appeal.

15.4.2 Relationship to Ordinary Courts

The attitude of the courts generally to arbitration may be seen in the words of Mrs Justice Gloster in Soeximex SAS v Agrocorp International PTE Ltd [2011] EWHC 2743:

The Commercial Court is very sensitive to the fact that parties have chosen to have their disputes resolved by an industry or trade arbitral tribunal, rather than by the Courts. As a matter of general approach, it tries to uphold arbitration awards and to read them in a sensible and commercial way. It is very mindful that the Court’s role on a s 68 application is not to pick holes in an award, or to indulge in an over-nice analysis of what may be understandably brief reasons given by commercial men in areas with which they are far more familiar than the Court.

However, where, as in the case in question, there are clearly legal issues to be addressed that were not dealt with in the arbitration, the court will allow an appeal and may impose its own, contrary, decision.

In general terms, therefore, the courts have no objection to individuals settling their disputes on a voluntary basis, but at the same time, they are careful to maintain their supervisory role in such procedures. Arbitration agreements are no different from other terms of a contract, and in line with the normal rules of contract law, courts will strike out any attempt to oust their ultimate jurisdiction as being contrary to public policy. Thus, as has been stated previously, arbitration proceedings are open to challenge through judicial review on the grounds that they were not conducted in a judicial manner.

In February 2008 the then Archbishop of Canterbury, Rowan Williams, caused a furore when, in a speech, he suggested that the eventual use of Sharia law to deal with disputes was inevitable in the United Kingdom. His comment was taken out of context, but as some commentators pointed out, it was already possible for Sharia Councils to decide disputes on an informal non-compulsory basis using Sharia principles. Similarly, Jewish people have been able to use their own system of courts, the Beth Din, to decide issues on a voluntary basis. In March 2015, in clear pre-election mode, Home Secretary Theresa May stated that a Conservative government intended to commission an independent figure to complete an investigation into the application of Sharia law in England and Wales on the basis, she claimed, that:

… there is evidence of women being ‘divorced’ under sharia law and left in penury, wives who are forced to return to abusive relationships because sharia councils say a husband has a right to ‘chastise’, and sharia councils giving the testimony of a woman only half the weight of the testimony of a man.

Subsequently, in December 2015 the self-styled Commission on Religion and Belief in British Public Life issued a report entitled ‘Living with Difference’. The report recognised that many submissions to its inquiry viewed religion-based tribunals negatively, or indeed saw them as having no place in British society. Nonetheless, it did not recommend any immediate action against them; rather, it called for more investigation about the impact that the operation of such tribunals had on women users, and about the impact of state policies on the procedures and substantive rules of these tribunals.

15.4.3 Advantages

There are numerous advantages to be gained from using arbitration rather than the court system:

15.5 Administrative Tribunals

Although attention tends to be focused on the operation of the courts as the forum within which legal decisions are taken, it is no longer the case that the bulk of legal and quasi-legal questions are determined within that court structure. There are, as an alternative to the court system, a large number of tribunals that have been set up under various Acts of Parliament to rule on the operation of the particular schemes established under those Acts.

The generally accepted explanation for the establishment and growth of tribunals in Britain since 1945 was the need to provide a specialist forum to deal with cases involving conflicts between an increasingly interventionist welfare state, its functionaries and the rights of private citizens. It is certainly true that, since 1945, the welfare state has intervened more and more in every aspect of people’s lives. The intention may have been to extend various social benefits to a wider constituency, but in so doing, the machinery of the welfare state, and in reality those who operate that machinery, have been granted powers to control access to its benefits, and as a consequence have been given the power to interfere in and control the lives of individual subjects of the state. By its nature, welfare provision tends to be discretionary and dependent upon the particular circumstance of a given case. As a consequence, state functionaries were extended discretionary power over the supply/withdrawal of welfare benefits. As the interventionist state replaced the completely free market as the source of welfare for many people, so access to the provisions made by the state became a matter of fundamental importance, and a focus for potential contention, especially given the discretionary nature of its provision. At the same time as welfare state provisions were being extended, the view was articulated that such provisions and projects should not be under the purview and control of the ordinary courts. It was felt that the judiciary reflected a culture that tended to favour a more market-centred, individualistic approach to the provision of rights and welfare and that their essentially formalistic approach to the resolution of disputes would not fit with the operation of the new projects.

15.5.1 Tribunals and Courts

There is some debate as to whether tribunals are merely part of the machinery of administration of particular projects or whether their function is the distinct one of adjudication. The Franks Committee (Cmnd 218, 1957) favoured the latter view, but others have disagreed and have emphasised the administrative role of such bodies. Parliament initiated various projects and schemes, and included within those projects specialist tribunals to deal with the problems that they inevitably generated. On that basis, it is suggested that tribunals are merely adjuncts to the parent project and that this therefore defines their role as more administrative than adjudicatory. In Baker v HMRC (2013) the First-tier Tribunal expressly stated that it could not grant the relief sought as it was not a court and has no jurisdiction to grant such relief.

If the foregoing has suggested the theoretical possibility of distinguishing courts and tribunals in relation to their administrative or adjudicatory role, in practice it is difficult to implement such a distinction for the reason that the members of tribunals may be, and usually are, acting in a quasi-judicial capacity. Thus, in Pickering v Liverpool Daily Post and Echo Newspapers (1991), it was held that a mental health review tribunal was a court whose proceedings were subject to the law of contempt. Although a newspaper was entitled to publish the fact that a named person had made an application to the tribunal, together with the date of the hearing and its decision, it was not allowed to publish the reasons for the decision or any conditions applied.

If the precise distinction between tribunals and courts is a matter of uncertainty, what is certain is that tribunals are inferior to the normal courts. One of the main purposes of the tribunal system is to prevent the ordinary courts of law from being overburdened by cases, but a tribunal is still subject to judicial review on the basis of breach of natural justice, or where it acts in an ultra vires manner, or indeed where it goes wrong in relation to the application of the law when deciding cases.

The supervisory body, the Administrative Justice and Tribunals Council, which replaced the previous Council on Tribunals, was itself abolished under the Public Bodies Act 2011 (see 3.5.3). The government declared its intention to abolish the AJTC in a strategy document issued in December 2012 entitled ‘Administrative Justice and Tribunals: A Strategic Work Programme 2013–16’. As a result there is now only the Administrative Justice Forum, an independent body sponsored by the MoJ whose function is ‘to gauge how the administrative justice and tribunals system is working, and identify any areas of concern or good practice and to provide early, informal, testing of policy initiatives’. However, in spite of the House of Commons Justice Committee expressing doubts about the consequences of getting rid of the AJTC, the Ministry of Justice proceeded to do so on the basis that it ‘believe[d] that the independence of the tribunals system administered by HMCTS ensures that tribunal members and their administrative support systems are sufficiently removed from decision makers to diminish the case for a standing body to oversee tribunals. We believe that policy development and oversight of the wider administrative justice system should be led from within the MoJ.’

15.5.2 The Leggatt Review of Tribunals

In May 2000, the then Lord Chancellor, Lord Irvine, appointed Sir Andrew Leggatt to review the operation of the tribunal system, and the attendant Consultation Paper stated that:

There are signs… that the complexity of the system (if indeed it amounts to a system at all), its diversity, and the separateness within it of most tribunals, may be creating problems for the user and an overall lack of coherence.

As Sir Andrew found, there were 70 different administrative tribunals in England and Wales, leaving aside regulatory bodies, and between them they dealt with nearly one million cases a year. However, of those 70 tribunals, only 20 heard more than 500 cases a year and many were, in fact, defunct. Three tribunals still account for over 90 per cent of the caseload dealt with in the tribunal system covering the areas of social security and child support, which deals with around half of the total caseload; employment; and immigration and asylum.

Sir Andrew’s task was to rationalise and modernise the tribunal structure, and to that end, he made a number of proposals, including the following:

  • Making the 70 tribunals into one tribunals system
    He suggested that the existing ‘system’ did not really merit that title and that combining the administration of the different tribunals was necessary to generate a collective standing to match that of the court system.
  • Ensuring that the tribunals were independent of their sponsoring departments by having them administered by one Tribunals Service
    He thought that, as happened, where a Department of State may provide the administrative support for a tribunal, pay its fees and expenses, appoint some of its members, provide its IT support and possibly promote legislation prescribing the procedure that the tribunal was to follow, the tribunal neither appeared to be independent, nor was it independent in fact.
  • Providing a coherent appeal system
    He found the current system to be confusing and some tribunals to have too many appeal stages, leading to long delays in reaching finality.
  • Reconsidering the position of lay members
    He considered that there was no justification for any members to sit, whether expert or lay, unless they have a particular function to fulfil, as they do in the employment tribunal.

Subsequently, in March 2003, the Lord Chancellor’s Office, as it then was, announced its intention to follow the Leggatt recommendation in establishing a new unified Tribunal Service. The new organisation formally came into being in April 2005 and was launched operationally in April 2006.

On 1 April 2011 Her Majesty’s Courts Service and the Tribunals Service were amalgamated into one integrated agency, Her Majesty’s Courts and Tribunals Service (HMCTS), providing support for the administration of justice in courts (up to and including the Court of Appeal) and most tribunals, but importantly not Employment Tribunals. The new Service operates as an agency of the Ministry of Justice.

15.5.3 The Tribunals, Court and Enforcement Act (TCEA) 2007

In further pursuance of the Leggatt Review, the stated intention of this legislation (TCEA 2007) was the creation of a new, simplified, statutory framework for tribunals, which was to be achieved not just by the bringing together of existing tribunal jurisdictions but by provision of a new structure of jurisdiction and new appeal rights.

As has been stated, the Administrative Justice and Tribunals Council (AJTC) was abolished by the MoJ in August 2013, and was effectively replaced by the Administrative Justice Advisory Group. The final report of the AJTC contained the following barbed comment:

The MoJ has attached much weight to the Administrative Justice Advisory Group (AJAG) which it has established to ‘play a dynamic role in helping to address issues for users’. The scepticism of the AJTC towards these arrangements has been echoed in Parliament with such descriptions as a ‘poorly planned afterthought’ and a ‘pawn of the Department’. Despite the reservations, this Response acknowledges that AJAG will be the main forum for future identification and discussion of user concerns. We hope that AJAG, especially with an independent chairman, will be able to work robustly.

In April 2014 Jodi Berg was announced as the chair of the newly named Administrative Justice Forum (AJF).

  • Enforcement
    In relation to enforcement, at present, tribunals have no enforcement powers of their own. Consequently, if a monetary award is not paid then the claimant must register the claim in the County Court before seeking enforcement. Under the TCEA 2007, claimants will be able to go directly to the County Court or High Court for enforcement.
Composition of the First-tier Tribunal

The following seven chambers operate within the First-tier Tribunal. The scope of the tribunal is so extensive that only limited comment can be made in relation to the chambers, but detailed information on each is available on the HMCTS website.

The following is a list of the Chambers within the Upper Tribunal already operating:

Figure 15.2 The structure of the Tribunals Service.

Figure 15.2 The structure of the Tribunals Service.

The Employment Tribunals

The Employment Tribunal and the Employment Appeal Tribunal continue largely unchanged as a separate ‘pillar’ of the new system, as do some other specialist tribunals such as Special Immigration Appeals Commission (SIAC) (see 2.5.2). They are subject to the authority of the Senior President for training and welfare purposes and are treated as having the same status as Chambers in the First-tier and Upper Tribunals.

The Employment Tribunals are governed by the Employment Tribunals Act 1996, which sets out their composition, major areas of competence and procedure. They have jurisdiction in relation to a number of statutory provisions relating to employment issues. The majority of issues arise in relation to such matters as disputes over the meaning and operation of particular terms of employment, disputes relating to redundancy payments, disputes involving issues of unfair dismissal and disputes as to the provision of maternity pay.

They also have authority in other areas under different legislation. Thus, they deal with: complaints about racial discrimination in the employment field under the Race Relations Act 1976; complaints about sexual discrimination in employment under the Sex Discrimination Act 1975; complaints about equal pay under the Equal Pay Act 1970, as amended by the Sex Discrimination Act; complaints under the Disability Discrimination Act 1995; complaints about unlawful deductions from wages under the Wages Act 1986; and appeals against the imposition of improvement notices under the Health and Safety at Work Act 1974. There are, in addition, various ancillary matters relating to trade union membership and activities that the Employment Tribunals have to deal with.

The tribunal hearing is relatively informal. As in arbitration hearings, the normal rules of evidence are not applied and parties can represent themselves or be represented by solicitors or barristers. And, as appropriate in an employment context, they may also be represented by trade union officials or representatives, or indeed by any other person they wish to represent them.

Appeal, on a point of law only, is to the Employment Appeal Tribunal.

Although less formal than ordinary courts, the process of taking a case to, or defending a case in, an employment tribunal can be time-consuming and expensive, and employers’ representatives have complained about the increased use of tribunals. As an alternative to the formal hearing, the Employment Tribunals offer a Judicial Mediation scheme. This was introduced as a pilot in 2006, and is now available throughout England and Wales. Judicial Mediation involves bringing the parties together for a Mediation Case Management Discussion before an employment judge who remains neutral and tries to assist the parties in resolving their disputes.

In a further attempt to remedy the alleged shortcomings in the Employment Tribunal process, the Advisory, Conciliation and Arbitration Service (ACAS) initiated a voluntary arbitration process for dealing with unfair dismissal claims as an alternative to using the employment tribunals.

However, even before it was introduced, the scheme came under attack from the Industrial Society. In a pamphlet entitled Courts or Compromise? Routes to Resolving Disputes, it argued that the new alternative to employment tribunals could well become as rigid, formal and almost as expensive as current tribunal and court processes, and claimed that in any event, the impact on the tribunal system was likely to be slight. While it recognised the advantages in such schemes, that they were faster, cheaper, more informal and flexible than tribunals, it also foresaw inherent risks. The pamphlet argued that ADR does not guarantee fairness or consistency in outcomes. In particular, it highlighted dangers where there is no appeal process, in lack of precedent, and where confidentiality is unjustifiable. It also pointed out the risk that compensation awarded through ADR might be less than in a tribunal or court. In conclusion, it warned that people who opt for ADR need to make sure that they understand the implications, for example, where the decision is binding and leaves no route to appeal.

Employment Tribunal charges

As with the furore over general criminal court charges (see p 490), so there was consternation when the government introduced fees for raising claims in the Employment Tribunal under the Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013 (SI 2013/1893). Under the scheme, claimants were required to pay £160 or £250 to lodge a claim, depending on the type of issue involved, and a further charge of either £230 or £950 if the case was pursued to a hearing. People in receipt of benefits or, on a low income or with only a small amount of savings and investments were eligible to have fees waived or reduced. As detailed in a House of Commons briefing paper, Employment tribunal fees (SN07081), following the introduction of fees, the number of single cases declined by 67 per cent between October 2013 and June 2015 and the number of cases brought by two or more people fell by 69 per cent.

The trade union Unison applied for judicial review of the introduction of tribunal fees on two separate occasions. In February 2014 the first case was rejected by the High Court as insufficient time had passed for the court to assess the impact of the fees order. However, it did allow that, although the fees were not inherently unlawful, they might be deemed so, if they proved discriminatory or rendered it excessively difficult to enforce EU law-derived rights. Consequently, Unison raised a second case in October 2014, and this time included the specific issue that the introduction of fees weighed discriminately more on women, citing statistics that indicated that since the introduction of fees, there had been an 86 per cent drop in sex discrimination claims and an 80 per cent drop in equal pay claims. However, once again the High Court dismissed its action, as did the Court of Appeal, on the basis that the action could not succeed merely on the basis of statistical evidence alone. Unison announced its intention to pursue its case at a later time when specific instances could be used to support the action.

In June 2015 the government announced that it would be conducting a review of the effect of the introduction of fees for the Employment Tribunals. The review will consider how effective fees have been in achieving the objectives of:

  • transferring some of the cost from the taxpayer to those who use the employment tribunal service;
  • encouraging the use of alternative dispute resolution, such as ACAS;
  • improving tribunal efficiency and effectiveness; and
  • maintaining access to justice.

The delay in publishing the review and any conclusion to be drawn from it was strongly criticised by the House of Commons Justice Committee in its report ‘Courts and tribunals fees’ (HC 167). The report stated that: ‘We find it unacceptable that the Government has not reported the results of its review one year after it began and six months after the Government said it would be completed’.

In relation to employment tribunals the key findings of the report were that:

  • there has been a significant drop in the number of employment tribunal claims;
  • the government’s assertion that the drop is largely attributable to the success of Acas Early Conciliation is ‘… even on the most favourable construction, superficial’;
  • fees ‘have had a significant adverse impact on access to justice for meritorious claims’.

The Justice Committee recommended that:

  • the ‘overall quantum of fees’ charged for bringing an employment tribunal claim should be substantially reduced;
  • the type A/type B distinction of tribunal claims should be replaced by a single fee, by a three-tier fee structure, or by a fee set as a proportion of the amount claimed;
  • further special consideration should be given to the position of women alleging maternity or pregnancy discrimination, for whom, at the least, the time limit of three months for bringing a claim should be reviewed; and
  • disposable capital and monthly income thresholds for fee remission should be increased.

15.5.4 Composition of Tribunals

Appointment to tribunals is through the Judicial Appointments Commission procedure of application and interview, on the basis of the statutory and non-statutory requirements for the specific post. They are usually made up of three members, only one of whom, the chair, is expected to be legally qualified, although not necessarily a legal practitioner. The other two members are lay representatives. The lack of legal training is not considered a drawback, given the technical and administrative, as opposed to specifically legal, nature of the provisions the members have to consider. Indeed, the fact of there being two lay representatives on tribunals provides them with one of their perceived advantages over courts. The non-legal members may provide specialist knowledge and thus they may enable the tribunal to base its decision on actual practice as opposed to abstract legal theory or mere legal formalism.

Research into the role of lay members in employment tribunals, conducted in 2010–11, by Corby and Latreille, endorsed the role of lay members and considered that they added value to the operation of tribunals. In particular they found support for the

view that unfair dismissal was particularly ‘a jurisdiction where lay members added value to decision making, despite a government proposal to enable judges to sit alone in unfair dismissal cases’. Nonetheless, s 4(3) ETA, which details proceedings which may be heard by an Employment Judge sitting alone was extended in 2012 to include actions in relation to unfair dismissal. This is important as, if a judge sitting alone at the Employment Tribunal decides a case, then any appeal hearing at the EAT will normally be decided by a judge sitting alone as well. This may not be as disadvantageous as it seems at first; the EAT only hears appeals on points of law and in any case further research by Susan Corby has found, perhaps somewhat counter-intuitively, that employee appellants have a significantly better chance of success when a decision is made by a judge sitting alone, rather than a judge with lay members.

The use of multiple panel members in the unified tribunals currently costs the taxpayer around £21m per year in fees alone. In order to reduce such cost the Justice Ministry’s paper ‘Transforming our justice system: summary of reforms and consultation’ ((2016) CM 93321) proposed to amend the First-tier Tribunal and Upper Tribunal (Composition of Tribunal) Order 2008 to give the senior president of tribunals (SPT) greater freedom to adopt a more proportionate and flexible approach to panel composition, by:

  • providing that a tribunal panel in the First-tier Tribunal is to consist of a single member unless otherwise determined by the SPT; and
  • removing the existing requirement to consider the arrangements that were in place before the tribunal transferred into the unified system.

15.5.5 Domestic Tribunals

The foregoing has focused on public administrative tribunals set up under particular legislative provisions to deal with matters of public relevance. The term ‘tribunal’, however, is also used in relation to the internal disciplinary procedures of particular institutions. Whether these institutions are created under legislation or not is immaterial; the point is that domestic tribunals relate mainly to matters of private rather than public concern, although at times the two can overlap. Examples of domestic tribunals are the disciplinary committees of professional institutions such as the Bar, The Law Society or the British Medical Association; trade unions; and universities. The power that each of these tribunals has is very great and it is controlled by the ordinary courts through ensuring that the rules of natural justice are complied with and that the tribunal does not act ultra vires, that is, beyond its powers. Matters relating to trade union membership and discipline are additionally regulated by the Employment Rights Act 1996.

15.5.6 Advantages of Tribunals

Advantages of tribunals over courts relate to such matters as:

15.5.7 Disadvantages of Tribunals

It is important that the supposed advantages of tribunals are not simply taken at face value. They represent significant improvements over the operation of the ordinary court system, but it is at least arguable that some of them are not as advantageous as they appear at first sight, and that others represent potential, if not actual, weaknesses in the tribunal system.

Tribunals are cheap, quick, flexible and informal, but their operation should not be viewed with complacency. These so-called advantages could be seen as representing an attack on general legal standards, and the tribunal system could be portrayed as providing a second-rate system of justice for those who cannot afford to pay to gain access to ‘real law’ in the court system. Vigilance is required on the part of the general community to ensure that such does not become an accurate representation of the tribunal system.

Figure 15.4 Tribunals: an aide-mémoire.

Figure 15.4 Tribunals: an aide-mémoire.

In addition to this general point, there are particular weaknesses in the system of tribunal adjudication. Some of these relate to the following:

15.6 Ombudsman

As with tribunals, so the institution of the Ombudsman reflects the increased activity of the contemporary state. As the state became more engaged in everyday social activity, it increasingly impinged on, and on occasion conflicted with, the individual citizen. Courts and tribunals were available to deal with substantive breaches of particular rules and procedures, but there remained some disquiet as to the possibility of the adverse effect of the implementation of general state policy on individuals. If tribunals may be categorised as an ADR procedure to the ordinary court system in relation to decisions taken in breach of rules, the institution of the Ombudsman represents a procedure for the redress of complaints about the way in which those decisions have been taken. It has to be admitted, however, that the two categories overlap to a considerable degree. The Ombudsman procedure, however, is not just an alternative to the court and tribunal system; it is based upon a distinctly different approach to dealing with disputes. Indeed, the Parliamentary Commissioner Act 1967, which established the position of the first Ombudsman, provides that complainants with rights to pursue their complaints in either of those forums will be precluded from making use of the Ombudsman procedure. (Such a prohibition is subject to the discretion of the Ombudsman, who tends to interpret it in a generous manner in favour of the complainant.)

The concept of the Ombudsman is Scandinavian in origin, and the function of the office-holder is to investigate complaints of maladministration, that is, situations where the performance of a government department has fallen below acceptable standards of administration. The first Ombudsman, appointed under the 1967 legislation, operated, and the present Ombudsman still operates, under the title of the Parliamentary Commissioner for Administration (PCA), and was empowered to consider central government processes only. The PCA also serves as Health Service Ombudsman, in which capacity they investigate complaints that hardship or injustice has been caused by the National Health Service’s failure to provide a service, by a failure in service provided or by mal-administration. Since that date, a number of other Ombudsmen have been appointed to oversee the administration of local government in England and Wales, under the Local Government Act 1974. Scotland and Northern Ireland have their own local government Ombudsmen fulfilling the same task. There are also Health Service Commissioners for England, Wales and Scotland, whose duty it is to investigate the administration and provision of services in the health service, and in October 1994 Sir Peter Woodhead was appointed as the first Prisons Ombudsman. This proliferation of Ombudsmen has led to some confusion as to which one any particular complaint should be taken to. This can be especially problematic where the complaint concerns more than one public body. In order to remedy this potential difficulty, a Cabinet Office review recommended in April 2000 that access be made easier through the establishment of one new Commission, bringing together the Ombudsmen for central government, local government and the health service. This initiative moved forward in August 2005 when the Cabinet Office published a Consultation Paper on the Reform of Public Sector Ombudsmen Services in England. As yet, the single Commission has not been brought into existence. The Ombudsman system has also spread beyond the realm of government administration and there are Ombudsmen overseeing the operation of, among other things, legal services (see below, 16.6.7, for details), banking and insurance. Some schemes, such as the legal services scheme, have been established by statute, but many others have been established by industry as a means of self-regulation. It is a peculiarity of the system that reference is always made to the Ombuds man, irrespective of the gender of the office-holder. The present Parliamentary Ombudsman is in fact Dame Julie Mellor.

The European Parliament appointed an Ombudsman under the powers extended to it by the Treaty Establishing the European Community (EC Treaty) (Art 195, formerly 138(e)). The European Ombudsman has the function of investigating maladministration in all of the Union institutions, including the non-judicial operation of the Court of Justice of the European Union.

Before going on to consider the work of the Parliamentary Commissioner in some detail, mention should also be made of the various regulatory authorities that were established to control the operation of the privatised former state monopolies such as the water, gas, telephone and railway industries. Thus were Ofcom, Ofgem and Ofwat, and so on, set up, with part of their remit being to deal with particular consumer complaints, as well as the general regulation of the various sectors.

15.6.1 Procedure

Although maladministration is not defined in the Parliamentary Commissioner Act 1967, it has been taken to refer to an error in the way a decision was reached rather than an error in the actual decision itself. Indeed, s 12(3) of the Parliamentary Commissioner Act 1967 expressly precludes the PCA from questioning the merits of particular decisions taken without maladministration. Maladministration therefore can be seen to refer to the procedure used to reach a result rather than the result itself. In an illuminating and much-quoted speech introducing the Act, Richard Crossman, the then Leader of the House of Commons, gave an indicative, if non-definitive, list of what might be included within the term maladministration, and included within it bias, neglect, inattention, delay, incompetence, ineptitude, perversity, turpitude and arbitrariness.

In his 1993 Annual Report, the then Parliamentary Ombudsman, Sir William Reid, added the following additional examples to Crossman’s list:

  • rudeness (though that is a matter of degree);
  • unwillingness to treat the complainant as a person with rights;
  • refusal to answer reasonable questions;
  • neglecting to inform a complainant on request of his or her rights or entitlement;
  • knowingly giving advice which is misleading or inadequate;
  • ignoring valid advice or overruling considerations which would produce an uncomfortable result for the overruler;
  • offering no redress or manifestly disproportionate redress;
  • showing bias whether because of colour, sex or any other grounds;
  • omission to notify those who thereby lose a right of appeal;
  • refusal to inform adequately of the right of appeal;
  • faulty procedures;
  • failure by management to monitor compliance with adequate procedures;
  • cavalier disregard of guidance which is intended to be followed in the interest of equitable treatment of those who use a service;
  • partiality; and
  • failure to mitigate the effects of rigid adherence to the letter of the law where that produces manifestly inequitable treatment.

Members of the public do not have the right to complain directly to the PCA, but must channel any such complaint through a Member of Parliament. Complainants do not have to provide precise details of any maladministration. They simply have to indicate the difficulties they have experienced as a result of dealing with an agency of central government. It is the function of the PCA to discover whether the problem arose as a result of maladministration. There is a 12-month time limit for raising complaints, but the PCA has discretion to ignore this.

The powers of the PCA to investigate complaints are similar to those of a High Court judge to require the attendance of witnesses and the production of documents; wilful obstruction of the investigation is treated as contempt of court.

On conclusion of an investigation, the PCA submits reports to the Member of Parliament who raised the complaint, and to the principal of the government office that was subject to the investigation. The Ombudsman has no enforcement powers, but if their recommendations are ignored, and existing practices involving maladministration are not altered, they may submit a further report to both Houses of Parliament in order to highlight the continued bad practice. The assumption is that on the submission of such a report, Members of Parliament will exert pressure on the appropriate Minister of State to ensure that any changes needed in procedure are made.

Annual reports are laid before Parliament and a Parliamentary Select Committee exists to oversee the operation of the PCA. The operation of the PCA is subject to judicial review (R v Parliamentary Commissioner for Administration ex p Balchin (1997)).

15.6.2 Case Studies

The relationship between the PCA and the government is highlighted by the following case studies:

Channel Tunnel Rail link

As a consequence of the four-year delay on the part of the Department of Transport in deciding on a route for the Channel Tunnel Rail Link, the owners of properties along the various possible routes found the value of their properties blighted, or the property simply unsaleable. The situation was not finalised until the Department announced its final selection in 1994. According to the PCA:

The effect of the Department of Transport’s policy was to put the project in limbo, keeping it alive when it could not be funded.

As a consequence, he held that the Department:

had a responsibility to consider the position of such persons suffering exceptional or extreme hardship and to provide redress where appropriate. They undertook no such considerations. That merits my criticism.

The unusual thing about this case, however, was the reaction of the Department of Transport, which rejected the findings of the PCA and refused to provide any compensation. The refusal of the Department of Transport led the PCA to lay a special report before Parliament, consequent upon a situation where an ‘injustice has been found which has not or will not be remedied’ (s 10(3) of the Parliamentary Commissioner Act 1967). Even in the face of the implementation of this extremely rare form of censure, the government maintained its original policy that it was not liable for the consequences of either general or particular blight. The matter was then taken up by the Select Committee on the Parliamentary Commissioner for Administration, which supported the conclusions of the PCA and recommended that:

Such a demonstration of solidarity between the PCA and the Committee had the desired effect, leading to the government’s climbdown and payments of £5,000 to those property owners who had suffered as a consequence of the housing blight.

Trusting the pensions promise: government bodies and the security of final-salary occupational pensions

On 15 March 2006 the Ombudsman published the above-named report on her investigation into the actions of government bodies in relation to the security of final-salary occupational pensions. She had received more than 200 complaints from MPs relating to the issue, together with 500 direct complaints from members of the public. All of the complaints were against the Department for Work and Pensions, the Treasury, the former Occupational Pensions Regulatory Authority and the National Insurance Contributions Office. However, the claims actually related to some 85,000 people from 400 private pension schemes who had lost part or all of their occupational pensions as a result of their company becoming insolvent between 6 April 1997 and 31 March 2004. Additionally, people whose schemes finished between April 2004 and 31 March 2005 were affected.

The extensive report supported claims that government departments wrongly advised workers that their company pensions were safe and protected by law. In this regard the report focused on leaflets issued by the Department for Work and Pensions advising workers as to the security of their works pensions. Particular weight was placed on one leaflet, issued in January 1996, which proclaimed that the Pensions Act 1995 was introduced specifically because ‘the government wanted to remove any worries people had about the safety of their occupational scheme following the “Maxwell affair”’. As a result of such information, many workers who lost out on company pension schemes when their employers went bust felt the government had failed to highlight the risks of occupational pensions.

It was also alleged that on a number of occasions, ministers and officials had ignored relevant evidence when taking policy and other decisions related to the protection of pension rights accrued in such schemes. Thus the government twice reduced the minimum funding requirement (MFR), a formula introduced in 1995 as a result of the Maxwell pensions scandal, designed to make final-salary schemes safer by setting out the level of funding occupational pension schemes were required to have. By reducing the MFR, the government reduced the burden on employers, but in so doing it also decreased the protection offered to members. Although the MFR was never intended to guarantee pensions, the complainants argued that the literature produced by the government agencies implied exactly that. Consequently, many workers thought their pensions were safer than they were.

The investigation uncovered evidence of real suffering, distress and uncertainty about the future among pension scheme members and their families, who had relied on government information when making choices about their future pension provision. Two people had actually committed suicide after learning they would not receive their full pensions.

The report found that official information about the security of final-salary occupational pension schemes provided over many years by the Department for Work and Pensions, the Occupational Pensions Regulatory Authority and other government bodies was ‘inaccurate, incomplete, unclear and inconsistent’ and in her conclusion the Ombudsman stated that:

Government has a unique responsibility in these matters. Government set the pensions policy framework and took upon itself the responsibility of providing information for the public. The maladministration which my investigation has uncovered caused injustice to a large number of people who, as a result, lost the opportunity to make informed choices about their future.

The report made the following five recommendations to the government:

  • full restoration of all lost pensions plus any other benefits such as life cover, ‘by whichever means is most appropriate, including if necessary by payment from public funds’;
  • making ‘consolatory payments’ in recognition of the ‘outrage, distress, inconvenience and uncertainty’ workers have endured;
  • apologising to scheme trustees for the distress they have suffered;
  • considering whether to compensate those who are not fully covered by her recommendations;
  • reviewing what can be done to reduce the time taken to wind up final-salary schemes.

However, as the report itself revealed that ministers had not accepted the findings of the report and had informed the Ombudsman that they were likely to comply only with the last of her recommendations, she was left to conclude that:

Therefore, there is no basis on which I can be satisfied that the injustice I have identified will be remedied.

The estimation of costs of compensation was put between £5 billion and £10 billion to be paid over a period of some 40 years, a cost the government refused to meet. While the then pensions minister, Stephen Timms, expressed his sympathy with the workers who lost their pensions, he stated that ‘nobody ever said occupational schemes were guaranteed by the taxpayer’. He also claimed that the Ombudsman had made ‘an implausible leap’ when she suggested literature written by his department backing occupational schemes led to government liability. In his view:

Responsibility must fall on those companies whose schemes were or are being wound up, and to the trustees who, with the benefit of professional advice, were responsible for protecting members’ interests.

Subsequently, the later pensions minister Peter Hain, towards the end of 2007, announced that the government intended to recompense most of the pensioners who had lost out in works schemes.

Equitable life: a decade of regulatory failure

This investigation originally took place into the role of the Financial Services Authority (FSA) and other authorities in regulating the conduct of the Equitable Life Assurance Society. In the 1950s the society started selling pension policies with a guaranteed annuity rate (GAR) that allowed policyholders to opt for minimum pension payouts and a bonus when their policy matured. Such policies were sustainable during the high inflation rates of the 1970s, but with current low inflation and interest rates Equitable found it hard to fund its commitments. Consequently, in an attempt to maintain payments to the majority of its customers who did not hold guarantees, it tried to withdraw the guaranteed payouts. However, in July 2000 the House of Lords ruled (in the Hyman litigation) that Equitable was required to make good its promises to the 90,000 holders of guaranteed annuity pension policies. As a consequence of this decision, it was apparent that Equitable was not in a position to maintain its payment to its policyholders; in December 2000 it closed its doors to new business and in July 2001 it announced that it was reducing the value of pension policies for with-profits policyholders by about 16 per cent. Later, in September 2001, Equitable published a compromise proposal for policyholders aimed at salvaging the company’s finances and meeting its liabilities. This ensured that the existing GAR policyholders would get a 17.5 per cent increase in the value of their policies, but they would have to sign away their guaranteed pension rights. The other policyholders who were not GAR holders were offered a 2.5 per cent increase on the value of their policies, but they were required to sign away their rights to any legal claims. It has been estimated that some 800,000 policyholders have lost money as a result of the actions of Equitable. In August 2001, the government announced the independent Penrose Inquiry into events at Equitable Life; in October 2001, the then Parliamentary Ombudsman, Michael Buckley, announced that he would be carrying out a statutory investigation into the FSA’s handling of events at Equitable Life beginning in 1999, when it had assumed responsibility for the prudential regulation of the life insurance industry. The investigation by the Ombudsman took 20 months, and when the report was issued by the Ombudsman in July 2003, it was not met with uniform approval. The Ombudsman ‘found no evidence to suggest that the FSA… had failed their regulatory responsibilities during the period under investigation’. As she pointed out:

the responsibility for what individual potential investors were actually told when purchasing new policies or annuities was not a matter for the regulator. Given all the publicity surrounding Equitable’s high-profile court case and their subsequent decision to put up the company for sale, I would have expected potential investors to have sought independent advice before investing in Equitable.

However, the investigation had highlighted a specific issue that she wished to draw to Parliament’s attention. That was the apparent mismatch between public expectations of the role of the prudential regulator and what the regulator could reasonably be expected to deliver. It was never envisaged by those who framed the legislation establishing the regulatory regime that it would provide complete protection for all policyholders. The emphasis was on a ‘light touch’ approach to regulation and the avoidance of over-interference in a company’s affairs. Referring to calls for her to extend her investigation to an earlier period, the Ombudsman stated that:

I have the very deepest sympathy for those who have suffered financial loss as a result of events at Equitable. However, given my very limited remit and the conclusions I have drawn from the investigation, I do not believe that anything would be gained from my further intervention, nor do I believe I could meet the expectations of policyholders in terms of the remedies they are seeking. It would be offering policyholders false hope were I to suggest otherwise. I have therefore decided not to investigate further complaints about the prudential regulation of Equitable.

The placing of blame on the management of Equitable rather than on the regulator was confirmed when Lord Penrose issued his report in March 2004. The report laid the blame for the affair at the door of Equitable’s management in its finding that ‘a culture of manipulation and concealment on the part of some of the company’s previous senior management allowed a bonus policy to develop that led to the society’s financial weakening – a policy left unchecked by its own board’. However, in July 2004, the Ombudsman reported to Parliament that she would, after all, be conducting a further investigation into the prudential regulation of Equitable Life. As she stated:

The concerns surrounding the prudential regulation of Equitable Life remain despite the publication of the Penrose Report and the Government’s response to it. I took the view that I should consider whether a new investigation by my Office was justified as Lord Penrose did not deal with questions of maladministration – or redress.

In her report, the Ombudsman asked the government to bring the Government Actuary’s Department (GAD) into her jurisdiction so that she could assess the GAD’s role in the prudential regulation of Equitable. As she stated:

I consider that there is sufficient initial evidence to suggest that the actions of GAD are key to an assessment of whether maladministration by the prudential regulators caused an injustice to complainants that has not been put right. I believe therefore that GAD’s actions must be brought within my jurisdiction.

It was stated that the investigation would cover the actions of the government departments responsible for the prudential regulation of Equitable Life but not concerns around the management of Equitable Life itself, or complaints about the alleged misselling of its policies, neither of which is within the Ombudsman’s remit.

When her report, Equitable Life: a decade of regulatory failure, came out in July 2008 it set out 10 specific findings of maladministration: one against the former Department of Trade and Industry, four against the Government Actuary’s Department, and five against the Financial Services Authority, in relation to their regulation of Equitable in the period before 1 December 2001. Included in those determinations were that:

In addition to the specific findings of maladministration, the Ombudsman also upheld a general complaint about the period before Equitable closed to new business on 8 December 2000, namely that:

the public bodies responsible for the prudential regulation of insurance companies… and the Government Actuary’s Department failed for considerably longer than a decade properly to exercise their regulatory functions in respect of Equitable Life.

On the basis of those findings, the Ombudsman recommended, first, that, in recognition of the justifiable sense of outrage felt by those who had complained, the public bodies concerned should apologise for their failures. More importantly, however, her second recommendation was that the government should establish and fund a compensation scheme, with the aim of putting those who had suffered in the position they would have been in had they not invested in Equitable Life policies. Effectively this would mean paying compensation to remedy any financial losses which would not have been suffered had those people invested elsewhere than with Equitable.

As approximately one million people saw the value of their retirement savings affected as a result of the Equitable Life affair, the government’s potential payment could amount to £4.5 billion, were it to accept and adopt the Ombudsman’s recommendations. Whether it does so remains to be seen, but it is of interest to note that there have already been suggestions in the press that the government will resist making such payment and would rest its case on the Ombudsman’s earlier conclusions that perhaps those who suffered should have taken more care and should bear more responsibility for their investments rather than looking to the state to bail them out. The Ombudsman’s rejoinder to that approach would surely now be that the losses would not have been suffered had the authorities not been guilty of failure in their supervisory roles such as amounted to maladministration.

In February 2009 the Treasury minister, Yvette Cooper, apologised on behalf of regulators and successive governments for the maladministration found by the Ombudsman. However, she rejected the recommendation that compensation should be provided to all Equitable members and announced that a payment scheme for policyholders would focus on helping those investors who had been ‘disproportionately affected’ by the mal-administration. The retired judge Sir John Chadwick was nominated to determine who was actually to be counted in that category, with of course a consequent further delay in any payment.

In October 2009, in Equitable Members Action Group (EMAG) v HM Treasury, in a partial victory for EMAG, Lord Justice Carnwath and Mr Justice Gross, sitting in the Administrative Court, quashed the Treasury’s decision to reject a number of findings of injustice and maladministration made by the Parliamentary Ombudsman on the basis of the date when state liability should start. Rather than start after 1995, as the Treasury had argued, the High Court held that the commencement date should be pushed back to 1991, thus greatly increasing the number of potential beneficiaries of compensation. The Court gave the Treasury 21 days to respond to the ruling and say what course of action they proposed to take and refused it permission to appeal.

In a subsequent Parliamentary statement the Chief Secretary to the Treasury, Liam Byrne, did not go out of his way to encourage the hopes of those waiting for payments:

[Sir John Chadwick’s] overall task remains the same, namely to advise the Government on those policyholders who have suffered disproportionate impact as a result of those cases of maladministration leading to injustice which the Government now accepts. The Government remains firmly committed to introducing a fair ex gratia payment scheme as soon as possible, taking benefit from Sir John’s advice on the apportionment of responsibility and practicality of delivery, and having taken account of the public finances. Our goal is to introduce a scheme that is administratively quicker and simpler to deliver than that envisaged by the Ombudsman (emphasis added).

One of the first measures announced by the new coalition government in May 2010 was that a scheme would be established to pay the claims in line with the Ombudsman’s recommendations. The Equitable Life (Payments) Bill was introduced in July 2010 and was passed in December of that year. It gives the Treasury statutory authority to incur expenditure in making payments to Equitable Life policyholders. It was initially expected that the total could amount to £5 billion. However, following Chadwick’s conclusion that even though people had lost £4.8 billion in the debacle, compensation payments should only range between £400 and £500 million, the coalition government was seen to withdraw from its original promise to the Equitable Life claimants. Thus, in October 2010 the Chancellor, George Osborne, announced that reparation of £1.5 billion would be made. In December 2010, Royal Assent was given to the Equitable Life (Payments) Act 2010, which gave effect to the reparation proposals.

15.6.3 Evaluation

All in all, the system appears to operate fairly well within its restricted sphere of operation, but there are major areas where it could be improved. The more important of the criticisms levelled at the PCA relate to:

Following a review of the current ombudsman provision conducted by Robert Gordon in October 2014, the Cabinet Office issued a consultancy paper in March 2015. It was entitled A Public Service Ombudsman and sought views about a proposal to establish a single Public Service Ombudsman taking over the functions of:

  • The Parliamentary Ombudsman;
  • The Health Service Ombudsman;
  • The Local Government Ombudsman;
  • The Housing Ombudsman.

As Richard Kirkham and Jane Martin wrote, in support of the proposal, in The Creation of an English Public Services Ombudsman (www.democraticaudit.com):

The basic argument for harmonisation is that the current design of the English ombudsman sector is only explicable as the end product of an uncoordinated set of historical events. The first ombudsman scheme in the UK was introduced in 1967 with a limited jurisdiction and without proper consideration of the option of a public sector wide ombudsman scheme. This was followed, over time, by the introduction of new ombudsman schemes in response to new pressures in different parts of the public sector. Throughout this process little thought was ever given to the overall structure of the administrative justice system, resulting today in a network of multiple overlapping schemes which do not always map onto the delivery of 21st century public services in a comprehensible, efficient or possibly even effective manner.

Chapter Summary: Arbitration, Tribunal Adjudication and Alternative Dispute Resolution

Alternative dispute resolution (ADR) has many features that make it preferable to the ordinary court system in many areas.

Its main advantage is that it is less antagonistic than the ordinary legal system, and is designed to achieve agreement between the parties involved.

Mediation and Conciliation

Mediation: the third party only acts as a go-between. The Family Law Act 1996 proposed a greater role for mediation in relation to divorce. However, following adverse trials, the Lord Chancellor announced in January 2001 that Part II of the Family Law Act would be repealed.

Conciliation: the third party is more active in facilitating a reconciliation or agreement between the parties.

Arbitration

This is the procedure whereby parties in dispute refer the issue to a third party for resolution, rather than take the case to the ordinary law courts. Arbitration procedures can be contained in the original contract or agreed after a dispute arises. The procedure is governed by the Arbitration Act 1996. The Act follows the Model Arbitration Law adopted by the United Nations Commission on International Trade Law (UNCITRAL). Arbitration awards are enforceable in the ordinary courts. They must be carried out in a judicial manner and are subject to judicial review.

Advantages over the ordinary court system are: privacy; informality; speed; lower cost; expertise; and it is less antagonistic.

Administrative Tribunals

These deal with cases involving conflicts between the state, its functionaries and private citizens. Domestic tribunals deal with private internal matters within institutions. Tribunals may be seen as administrative, but they are also adjudicative in that they have to act judicially when deciding particular cases. Tribunals are subject to the supervision of the Council on Tribunals, but are subservient to, and under the control of, the ordinary courts.

Usually, only the chair of a tribunal is legally qualified.

The tribunal structure has been altered by the Tribunals, Courts and Enforcement Act 2007, which introduced a two-tier system of original hearing and appeal.

Examples of tribunals are the: Employment Tribunal; Social Security Appeals Tribunal; Mental Health Review Tribunal; Lands Tribunal; and the Rent Assessment Committee.

Advantages of tribunals over ordinary courts relate to: speed; cost; informality; flexibility; expertise; accessibility; privacy.

Disadvantages relate to: the appeals procedure; lack of publicity; the lack of public funding in most cases.

Ombudsmen

The role of Ombudsmen is to investigate complaints of maladministration in various areas of state activity. Members of the public must channel complaints through a Member of Parliament.

The powers of the Parliamentary Commissioner for Administration to investigate complaints are similar to those of a High Court judge. The Ombudsman has no direct enforcement powers as such.

On conclusion of an investigation, the Ombudsman submits reports to the Member of Parliament who raised the complaint and to the principal of the government office that was subject to the investigation. He or she can also report to Parliament.

Shortcomings in the procedure: the Member of Parliament filter; uncertain, if not narrow, jurisdiction; lack of publicity; and the reactive rather than proactive nature of the role.

Food for Thought

  1. One of the most frequently cited advantages of ADR is that it is cheaper than taking cases through the courts, but to what extent does that indicate that it is merely ‘justice on the cheap’?
  2. Given the much-vaunted advantages of ADR, should it really be made compulsory?
  3. One of the most important previous complaints/concerns about administrative tribunals was their lack of independence from the institutions they were regulating/deciding on. Consider the extent to which the Tribunals Courts and Enforcement Act 2007 and the recently established unified courts and tribunals system has overcome this perception.

Further Reading

Abel, R, ‘The comparative study of dispute institutions in society’ (1973) 8 Law and Society Rev 217

Alle, T, ‘Advancing ADR’ (2009) 153(15) SJ 18

Baldwin, J, The Small Claims Procedure and the Consumer, 1995, London: Office of Fair Trading

Beale, H and Dugdale, T, ‘Contracts between businessmen: planning and the use of contractual remedies’ (1975) 2 British JLS 45

Betancourt, J and Crook, J (eds), ADR, Arbitration and Mediation, 2014, London: Chartered Institute of Arbitrators

Blake, S, Browne, J and Sime, S, A Practical Approach to Alternative Dispute Resolution, 3rd edn, 2014, Oxford: OUP

Blake, S, Browne, J and Sime, S, The Jackson ADR Handbook,(2nd edn) 2016, Oxford: OUP

Brown, H and Marriott, A, ADR Principles and Practice, 3rd edn, 2012, London: Sweet and Maxwell

Corbey, S and Latreille, P, The role of lay members in employment rights cases – survey evidence, 2011, gre.ac.uk

Court-based ADR Initiatives for Non-Family Civil Disputes: the Commercial Court and the Court of Appeal, 2002, London: Lord Chancellor’s Department

Genn, H and Genn, Y, The Effectiveness of Representation at Tribunals, 1989, London: LCD

Hawkins, K, Law as a Last Resort, 2002, Oxford: OUP

JUSTICE, Industrial Tribunals, 1987, London: Sweet & Maxwell

Justice Mackay (Lord), The Administration of Justice, 1994, London: Sweet & Maxwell

Michaelson, J, ‘An A – Z of ADR’ (2003) 153 NLJ 101, 181 and 232

Payne, R, ‘To counsel, not confront: the law on ADR’ (1999) Counsel 30

Pedley, FH, ‘The small claims process’ (1994) 144 NLJ 1217

Qureshi, K, ‘Absolute power’ (2009) 159 NLJ 1393

Reid, V, ‘ADR: an alternative to justice?’ (2009) 39 Fam Law 981

Useful Websites

www.cedr.co.uk
The official website for the Centre for Effective Dispute Resolution.

www.ciarb.org
The website for the Chartered Institute of Arbitrators.

www.adrnow.org.uk
A useful website on ADR, run by the Advice Services Alliance.

www.justice.gov.uk/about/hmcts
The website for Her Majesty’s Courts and Tribunals Service.

www.ombudsman.org.uk
Website of the Parliamentary and Health Service Ombudsman.

www.civilmediation.justice.gov.uk
Online directory of civil mediation providers.

Companion Website ifig0001

Now visit the companion website to:

www.routledge.com/cw/slapper