The recent Court of Appeal decision in Frost v Wake Smith and Tofields Solicitors is a good starting point for reviewing the duties of a solicitor arising out of a mediation and the potential negligence actions and claims for wasted costs which could result from a breach of those duties.
Frost v Wake Smith and Tofields Solicitors
This was a claim made by a client against his solicitor arising out of a mediation which took place in 2003. The mediation concerned a long-running, wide-ranging and acrimonious dispute between two brothers, David and Ron Frost, who had been in business together for about 20 years.
Through the almost miraculous efforts of the mediator, an agreement was reached at the mediation. The brothers went out to dinner to celebrate, leaving David’s solicitor to draw up the settlement agreement. After dinner they returned and signed the agreement. Ron subsequently raised various objections to the agreement and the brothers ended up mediating on a second occasion. The dispute was resolved – well, except for the tax consequences of the agreement which the Court of Appeal noted were still unresolved - after an order was made for specific performance of the second settlement agreement in 2005.
Duty to achieve finality
David Frost alleged that his solicitor had been under an obligation to achieve finality at the first mediation and claimed damages representing the difference in value to him of the first and second agreements. The Court of Appeal upheld the decision below that such an obligation would have been impossible to perform. At the first mediation, matters had not developed to a point at which the parties had reached, or could reach, a final agreement and it was not in the solicitor’s power to fill in the gaps.
Duty to advise about enforceability
This allegation was not pleaded or pursued at trial but the Court of Appeal commented that a solicitor in such a situation would be under a duty to warn their client that the outcome of a mediation is not a final and binding agreement from which the other party could not resile. However, the court commented that the damages which would flow from the breach of this duty would at best lead only to the recovery of any expenditure wasted in attempting to explore the enforceability of the agreement.
Duty to advise about the consequences of refusing to mediate
Stepping outside the facts of the Frost case and going back to the beginning of the process, a party which refuses to mediate without good reason for doing so is likely to be penalised in costs. If their solicitor fails to advise them of this risk, a claim against the solicitor could follow. See Swain Mason v Mills & Reeve for an example of a case where, unusually, the defendant was entitled to refuse to mediate because of the strength of its defence.
Duty to advise properly on the merits
A solicitor could be sued for his failure to advise his client properly about the merits of the claim both in the lead up to a mediation and at the mediation itself. Under-settlement may be a particular risk for a claimant where they are ill-advised about the strength and quantum of their claim – see Hickman v Blake Lapthorn for an example where both counsel and solicitor were found liable. Preparation before a mediation involves foreseeing any legal points which may arise and, where appropriate, arranging for colleagues or counsel to be available via phone or email should a need for specialist advice (eg, about tax) arise during the mediation.
Advising about offers
Confusion about the status of offers of settlement can arise during a mediation, particularly in the final fractious stages. Brown v Rice is a good example of the costs which can be wasted arguing about whether an offer was made at the mediation and accepted (on that occasion after the conclusion of the mediation hearing) so as to give rise to a binding settlement agreement. In fact, the mediation agreement provided that any agreement reached between the parties in the mediation could not be complete until reduced to writing and signed by or on behalf of each of the parties, so no final agreement could have been concluded in the circumstances. Solicitors for all parties need to check such matters and to manage their clients’ expectations appropriately.
Settlement agreement formalities
Frost v Wake Smith and Tofields Solicitors raised the duty to advise about the nature of any agreement reached at a mediation. There are many details that require attention in order to ensure that a final agreement can be reached. These include checking that those representing all parties are authorised to settle the dispute and to sign a settlement agreement. If the authority of those who will sign is limited and they will need to speak to someone on the day, solicitors for all parties need make sure the necessary arrangements have been made.
Terms of settlement agreement
Solicitors should attend a mediation with a draft settlement agreement, both on paper and in electronic format on a laptop. There will be many points that need checking before the mediation such as potential claims by and against third parties, payment terms, costs etc. Where proceedings are underway, do you require a consent order or a Tomlin order, and is the action being withdrawn, dismissed, discontinued, stayed or is judgment being given? Where the settlement involves parties in more than one EU member state and is being reached as a result of a mediation, enforcement will be much easier if a clause is added giving consent for a mediation settlement enforcement order to be enforced as if it were a court judgment (see the EU Mediation Directive and CPR 78.24).
Although David Frost’s solicitor could not have achieved a final enforceable settlement for his client at the first mediation, there will be cases where an enforceable settlement could have been reached but was not through the oversight of the parties’ solicitors. The end of a long hard day of negotiation is not the optimum time to be drafting a complex settlement agreement so a successful outcome requires careful preparation and clear advice to the client about what can be achieved.