Mediation and the 1954 Act: Is the Commission’s Report another missed opportunity?

The Law Commission has produced a consultative report on what changes might be made to the 1954 Act in order to make it fit for purpose in the mid-21st century. The report covers a large number of areas where the Act might be improved. This article concentrates on just one such area; what the Commission calls Non-Determinative ADR.

A large number of opposed and unopposed lease renewals already take advantage of the mediation process. Even if settlement is not reached on the day, the parties have a better understanding of each other’s position, and strengths and weaknesses of their respective cases, resulting most likely in a resolution in the weeks after mediation, and before trial and before significant costs are incurred.

The Commission starts by ruling out Mandated Non-Determinative ADR. Its view is that it would not be desirable for the Act to mandate the use of Non-Determinative ADR against the will of the parties. It is not clear why it has come to that conclusion, especially given the decision in Churchill where the Court held that it can make an order for the parties to engage in non-Court-based dispute resolution, including mediation, and cited the CJC’s report on Compulsory ADR, which states that any form of ADR which is not disproportionately onerous and does not foreclose the parties’ effective access to the Court will be compatible with the parties’ Article 6 rights. It is therefore already well established that a Court Order may include the use of ADR provided that it does not impair the very essence of the Claimants right to proceed to a judicial hearing and must be proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at a reasonable cost.

However, the Commission does suggest that the Act could give both the landlord and the tenant the right to elect to refer the dispute to Non-Determinative ADR. It suggests that if either party elected to do so, the other party could not object to Non-Determinate ADR. Those suggestions are a step in the right direction. Given its opposition to Mandated ADR, it is about as far as the Commission could go.

The Commission then suggests that any new scheme could prescribe the form of Non-Determinative ADR to be used. Unfortunately, it then assumes that the scheme would prescribe Early Neutral Evaluation, because it appears to think that ENE is the safe ADR option.

A recent article by a leading international construction law firm says that adjudication, mediation and expert determination tend to dominate when it comes to ADR options on construction disputes. It describes ENE as little used, despite the CPR enabling the Court to order an ENE to help the parties settle. The article says that ENE can work well when a case pivots on a legal issue which a respected judge or barrister is asked to consider, and the resulting evaluation forces the parties to reflect carefully before committing to a more expensive DR process. There are, of course, some lease renewal disputes which pivot on a legal issue, but the vast majority do not.

It is surprising, and disappointing, that the Commission should seem to prefer a little used ADR process, namely ENE, rather than mediation, a widely used ADR process across multiple sectors, when mediation is ideally suited to the vast majority of lease renewal disputes, whether opposed or un-opposed, most of which are relatively low value and where the mediator facilitates a discussion between the parties and can be creative in the way in which a resolution is found, rather than strict interpretation of legal principles, which is not what most parties to a lease renewal dispute want. They are usually looking for a solution that enables them to carry on with their business, rather than risk an outcome, and costs, which may not suit them.

Mediators know that a lot of 1954 Act mediations are about wider issues than just the actual proceedings, and the process works well in helping the parties resolve their disputes at an early stage and in a completely de-risked manner. Compare that with ENE, which is not a popular means of ADR, and which would be completely inappropriate if the dispute relates just to rent. Lease renewal disputes are rarely “single-issue”. ENE does not work well in “multiple-issue” disputes and can be just as expensive as going to trial. The Commission seems to very out of touch, on this issue, with where the market is and where it would prefer to be.

How many Section 25 and 26 Notices are served in a year in England and Wales? Probably thousands, although it largely depends on the state of the market. Consider the costs incurred by both parties, with their surveyor and their lawyer, especially on opposed renewals but also on un-opposed renewals, whether it is a small high street retail unit, or a shed near a motorway junction or a city office block. The cost to the economy is huge, without even taking into account the uncertainty generated by the process. And the legal profession would probably prefer to have their clients able to get on with their normal day to day business, rather than be troubled with the balancing of arguments, and evidence, that prevails in lease renewal disputes. Sight can frequently be lost of what this process is meant to be about, namely the renewal of a business lease.

It is worth noting that the Government, in the Renters Rights Act, has already committed itself to ensuring that landlords, and tenants, have appropriate access to ADR, and that it is exploring options for landlord’s-initiated mediation. It appears that the Government’s thinking on mediation is already way ahead of the Commission.

Many will argue that the Commission’s consultative report is a missed opportunity. The Commission could have been more encouraging of mediation, but instead has chosen a path which is unlikely to make a significant difference. Lawyers who already understand the merits of mediation will continue to encourage their clients to de-risk the situation, but what is needed is early mandated intervention to make it the norm, and not the exception.

It must be common ground that this is a not to be missed opportunity to improve the lease renewal process generally, and hopefully the Commission can be persuaded that there are better ways to resolve these types of dispute than its current proposals.