The judge as deal-broker – Should you try a Chancery FDR?

Court based ADR hearings, where a judge attempts to assist parties to reach terms of settlement, are on the rise. This is a concept that has been around for some time but which appears to have been embraced with greater enthusiasm since the pandemic as a solution to the backlog many courts are struggling with in the hope that, with some encouragement, parties might be able to resolve their disputes without the need for a trial.

There are two principal types of judge-led ADR processes that are useful for you to consider. The first is early neutral evaluation (“ENE”) properly so called.  The second is the Chancery FDR (“Ch FDR”). Both will be conducted on a without prejudice basis with the judge who conducts the hearing playing no further role in the proceedings beyond giving directions at the end of the hearing, if required.

Classic ENE involves the court offering an opinion on the outcome, with or without hearing oral submissions. It is perhaps best suited to cases where there is no substantial dispute of fact but rather a question of law or construction. There is a view that ENE is perhaps not the most fruitful process. It simply leads to a non-binding opinion, with no additional input from the judge, and which the ‘losing’ party is not obliged to pay any heed to.

A Ch FDR has much more to commend it. An FDR is a judge led negotiation exercise in which the judge plays the role of both facilitator and evaluator. The judge will ordinarily offer an opinion, or indication, of the likely outcome of the dispute, or an element of it, having heard argument from the parties on their respective positions and will also endeavour to help to guide the parties towards a solution. Following ENE or a Ch FDR, the judge who conducted the hearing can play no further role in the proceedings, beyond giving directions at the conclusion of the hearing if settlement is not reached.

The procedure has developed out of the financial remedy jurisdiction, where it is all but compulsory and phenomenally successful (something like 8 out of 10 cases will settle at FDR). There is no one type of case that is amenable to a Ch FDR but it is particularly well suited to cases that concern the untangling of a relationship (whether personal or commercial) or where there will be a continuing relationship or where there is an estate or asset to be realised and distributed.

The Chancery Guide suggests that they court will not direct either ENE or a Ch FDR unless the parties are in agreement. However, following the decision of the Court of Appeal in Lomax v Lomax [2019] EWCA Civ 1467 (a 1975 Act case in which the first instance judge had held that ENE could not be imposed on the parties where one party did not consent despite the fact that the case “screamed out” for it), it is now recognised that the Court has the power to direct a hearing of this description even in the face of opposition from one of the parties pursuant to CPR 3.1 (2) (m):

“Except where these rules provide otherwise, the court may – (m) take any other step or make any other order [in addition to those listed above] for the purpose of managing the case and furthering the overriding objective, including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case.”

We should expect judge-led conciliation hearings to become more commonplace. A number of circuits now list what are described as Pre-Trial Settlement Hearings or Settlement Conferences, which are in effect FDR style hearings, as a matter of course.

The procedure is not without its limitations. It can be a bit of a blunt instrument (a mediator may reality check but an indication from a judge usually be much more forthright); in many cases this will not be a bad thing and being required to justify your position in front of a judge certainly focuses the mind. The quality of the indication may vary; however, experience shows that an indication from a master or a judge in the ChD or the specialist judges in the regional Business and Property Courts will be very useful indeed. You are likely to be in a list with a number of other cases and there will be a limit on the amount of time a judge can give you. It will be for the parties to do the necessary shuttle diplomacy.

It can be a useful alternative to mediation where:

• One party is not represented, which may present a hurdle to mediation, whereas a judge can to some extent even the field in terms of equality of arms;
• Negotiations have hit an impasse, whereas a judge might be able to bring some creative thinking to the case to suggest a solution;
• Mediation has been tried and failed;
• One party will not agree to mediation, whereas (theoretically at least) ENE or a Ch FDR can be ordered in the face of opposition to such a process;
• You consider that the other side is not grappling with the merits of their case (and are confident about yours) such that some robust judicial input is required;
• Where one or other of the parties is sensitive to the costs of mediation. Assuming that you are evaluating the merits of mediation vs a Ch FDR post-issue, a Ch FDR is generally going to be cheaper as you do not have to pay for the judge or the court facilities.

Tips for getting the most out of a Ch FDR:

1. You should prepare on the basis that it will be an all-day affair and should encourage your opponent to do the same so that clients and counsel, if instructed, will be available all day.
2. You must ensure that everyone who is required to sign off on any deal is going to be present.
3. Much as you would in advance of a mediation, give careful thought to your position in terms of offers in advance of the FDR. Self-evidently, you must have considered what your position is, which ideally should have been set out in correspondence in advance of the FDR, and will then be advanced in any position statement or skeleton argument lodged for the purposes of the hearing. Usually, those documents will be prepared by counsel. Bear in mind that you are preparing on the basis that you are going to have to justify your position in front of the judge. It tends not to help your cause if you are putting forward an untenable position, so there can be something of an art to pitching a proposal in the territory of something that will not be embarrassing to attempt to argue and risk losing the sympathy of the judge, but also leaving yourself a degree of room for further concessions.
4. Be ready with your costs to the conclusion of the FDR and your estimated costs to trial.
5. Come with a draft settlement agreement / order prepared and having thought through implementation issues or tax consequences (you may need to obtain some expert input on the latter). You may find yourself under time pressure on the day. It is always much better to conclude the day with an order that has been approved by the judge, rather than with loose heads of agreement that invite attempts to resile or renegotiate, risk a point being overlooked, or lead to a general loss in momentum.
6. Come with an open mind and ensure that clients understand the purpose of the day and the limitations of what the judge can do. Bear in mind, in particular, that, whilst the judge may feel able to offer a preliminary view based upon what appears more probable having considered the material put before him or her, they will not hear any evidence and may not feel able to offer a great deal of comment on hotly disputed factual issues.
7. On the day, you should expect to commence negotiations before going in front of the judge. Depending on the list, the judge may be willing to allow you more time out of court if progress is being made. There can also be a bit of an art sometimes as to when, if the judge is prepared to allow some flexibility, you go in front of the judge for an indication. If negotiations are at a delicate stage, an indication from the judge can sometimes throw a bit of a spanner in the works if one side ends up feeling clobbered. It is usually best to seek an indication at a juncture when you have reached an impasse.
8. You will want to regroup and reflect carefully on the comments that the judge has made, and also to what extent they amount to a fair evaluation of your prospects and those of the other side. However, you should expect to continue negotiations after receiving an indication.
9. In these days of remote hearings, lines of communication between solicitors, counsel and lay parties are critical. This is especially so where the whole purpose of the day is to attempt to settle. Make sure that you have a means of having conferences pre-hearing, post-hearing and at junctures when an offer has been exchanged as well as a conduit for conveying instructions during the hearing. Opposing sides also need to be in contact with one another throughout the day.
10. Consider in advance what further directions are going to be required from the Court in order to progress the case in the event that settlement is achieved. Bear in mind that the judge who conducts the FDR should play no further role in the case beyond giving directions. Consequently, the FDR is not an occasion to attempt to make a contentious application, for example to seek an interim payment or to strike out part of a case. The FDR judge ought to decline to hear such an application.
11. Take care to ensure that all position statements are marked as being without prejudice and that bundles, which will contain without prejudice correspondence, and position statements are retrieved from the court so that there is no risk of any later judge being inadvertently tainted by WP material.

Charlotte John
July 2021

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