Posted: 07/12/2015
Litigation, the Pre-Action Practice Direction (PD) tells us, should be “a last resort”. That same PD states sternly that parties should consider the possibility of reaching a settlement at all times, including after proceedings have started. It then lists several forms of alternative dispute resolution (ADR) which parties might consider. Amongst them (para 10(c)), is “early neutral evaluation, a third party giving an informed opinion on the dispute”.
Early neutral evaluation (ENE) is used more commonly in the US and Australia, but has a growing fan base in this jurisdiction too. It has been included in the Technology and Construction Court Guide (section 7.5) and the Admiralty and Commercial Courts Guide (para G2) for several years, and recent developments suggest that ENE may be about to step out of the ADR shadows.
ENE does pretty much what it says on the tin: the parties appoint an independent, impartial third party to evaluate the merits (and weaknesses) of the case. The evaluator is usually a legal (or other) expert such as a QC or judge. If conducted through the courts, the evaluating judge will take no further part in proceedings unless the parties agree otherwise.
ENE is voluntary, not binding, and is usually conducted on a confidential, privileged and without prejudice basis. In order for it to remain proportionate, the number and extent of supporting documents will be limited (rather than requiring the equivalent of preparation for a full trial). The parties will be asked to submit a case summary which sets out their best case on the merits, and which may also include settlement proposals.
ENE differs from mediation in that the evaluator expresses an opinion as to the likely outcome of the case.
The main benefit of ENE is that it gives the parties a clear idea of how their case (or a specific legal, factual or evidential issue) might be perceived by a judge. In essence, it is a one day reality check, which can help identify weaknesses in the proposed cases, and gaps in evidence. It may also help to clarify and narrow the issues in dispute, and can be a particularly useful alternative to a trial of a preliminary issue.
Strategically, it can be a useful way of highlighting litigation risk to otherwise intransigent parties, and demonstrating why they should explore the possibility of settlement.
Of course, the very unpredictability of litigation will allow the losing party at ENE to argue that the evaluator is simply wrong, because they have not had the benefit of a full hearing with oral evidence from witnesses and experts. It is at this point that the need for proportionality will be brought into sharp relief. ENE can be expensive, because the evaluator needs access to enough evidence to make a reasoned and persuasive evaluation. Parties to ENE may benefit from that dreaded word: budgeting.
An evaluation will obviously also impact on any settlement negotiations: the successful party may become more entrenched in their position; the losing party may find it harder to negotiate in a meaningful way.
Parties will also need to keep an eye on any relevant limitation periods: time keeps running through the (potentially lengthy) ENE process for limitation purposes.
ENE has attracted a greater share of the judicial spotlight recently. HHJ Waksman endorsed it at the CLAN annual conference in May this year, and in Seals v Williams [2015] EWHC 1829 (Ch) HHJ Norris praised the legal representatives in a probate case for proposing ENE when mediation had stalled. He further commented that ENEs are being adopted in the Birmingham and Manchester District Registries, noting that “the move is warmly to be welcomed” (para 10).
Norris J determined that the court’s wide jurisdiction under CPR 3.1(m) gave it the power to order ENE. He also held that the expression of provisional views with a view to assisting the parties was “an inherent part of the judicial function” (paras 5 and 6). This view has now been codified in CPR 3.1(m), which (since 1 October 2015) empowers the court to “take any other step or make any other order 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”. The parties’ consent is presumably no longer required, which changes the dynamic considerably.
ENE should therefore be firmly on every litigator’s radar. It may not always be the best option, and there are plenty of alternatives (leading counsel’s opinion, mediation and adjudication). It may however prove to be “particularly useful where the parties have very differing views of the prospects of success and perhaps an inadequate understanding of the risks of litigation itself” (Seals, para 3).
This article was published in Commercial Litigation Journal in November 2015.
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