Guide to Early Neutral Evaluation

Last updated: 20 June 2019

Estimated reading time: 11 minutes

Early Neutral Evaluation, or ‘ENE’, is a flexible way to resolve commercial disputes without the parties engaging in full-scale litigation or arbitration. Like other alternative dispute methods, one of the main reasons to use ENE is to save time and money. In this guide we’ll look at the key aspects of ENE, including:

What is early neutral evaluation?

ENE is a way to encourage settlement discussions and resolve business disputes without going to court. Parties in dispute appoint an independent evaluator to assess each side’s strengths and weaknesses. This neutral, expert viewpoint then forms a starting point for negotiations to settle the dispute. Unlike other forms of alternative dispute resolution such as arbitration or adjudication, ENE doesn’t result in a final decision. The evaluator does not decide legal issues or advocate a way of resolving matters. Instead, by indicating what each party realistically might be able to rely on if full-blown litigation took place, the evaluator provides an incentive to find agreement.

The outcome of the ENE process is usually non-binding on the parties. It is also carried out on a ‘without prejudice’ basis meaning anything that’s disclosed during the ENE can’t later be used as evidence in court without agreement. Nevertheless it has become a popular and useful way for businesses in dispute with one another to get a practical view of the merits of their respective positions without spending large amounts on litigation.

We discuss appointing an evaluator below. For now though bear in mind that the parties can privately appoint an evaluator. He or she may be an experienced Q.C. or other professional with appropriate knowledge of the subject matter at issue. Alternatively, since 2015 it’s been possible for those in dispute to pursue ENE through the Technology and Construction Court (‘TCC’) and the Commercial Court. This involves asking a judge to act as the evaluator. It’s worth pointing out that if, after a judge-led ENE the matter still proceeds to trial, the same judge cannot normally oversee those proceedings.

When to use early neutral evaluation

ENE is an alternative dispute resolution (‘ADR’) method that’s often employed at the early stages of a dispute. It might also be used to decide standalone issues that are particularly difficult to find agreement on but that are preventing the resolution of a larger, ongoing dispute. Like other forms of ADR, one of the chief attractions of ENE is to cut down on costs and avoid the time and expense of a trial. It’s particularly appropriate then, in cases where the parties’ positions are so far apart that litigating immediately would inevitably lead to a waste of resources, as numerous preliminary issues are addressed.

ENE is also deployed when one side is being unrealistic about its chances of success at trial. A neutral evaluator can highlight weaknesses in a case that would be fully exposed if the matter were litigated.

ENE is most commonly used in the commercial arena but it’s also used in private disputes. In fact one of the crucial cases in the development of ENE by the courts involved a family dispute over inheritance. That case – Seals v Williams (2015) – highlighted that ENE allowed the judge to evaluate the respective parties’ cases in a direct way. It may provide an authoritative, albeit provisional, view of the essential legal issues of the case, especially when the parties have very differing views of the prospects of success and an inadequate understanding of the risks of litigation.

How to choose an evaluator

Parties involved in a contractual dispute or other commercial disagreement who wish to use the ENE process must first agree on the evaluator. The parties are free to choose the evaluator but it’s a crucial decision. Choosing an evaluator without the right mix of technical expertise and practical judgment could undermine any view he or she arrives at and render the whole process fruitless. The appointment of an evaluator can be done in one of two ways:

  • Private appointment
    Several organisations, including the Chartered Institute of Arbitrators and the Academy of Experts maintain panels of expert arbitrators. Parties can approach these organisations directly to source an appropriate evaluator. Individual barristers and solicitors may also offer evaluation services and again they can be contacted directly.
  • Through the court
    The TCC, Commercial Court and Chancery all provide ENE services. Parties wishing to go through the court can apply formally under the Civil Procedure Rules.

Steps in the early neutral evaluation process

We’ve emphasised that the ENE procedure is flexible and consensual. If it is not developed with the agreement of both parties the chances of a successful evaluation will be reduced. While there are no hard and fast rules about how to run an ENE, once the parties have agreed on and appointed an impartial evaluator the following steps are likely to be present in each case:

  • Drawing up an ENE agreement
    The parties and the appointed evaluator should set out in writing their respective roles and responsibilities in the process. The agreement should be as detailed as possible to provide clarity but as a minimum should contain clauses related to:

    • The confidential and without prejudice nature of the process
    • The impartiality of the evaluator
    • The scope of documents each side will be required to disclose
    • The evaluator’s remit and instructions relating to what elements of the dispute are to be considered
    • Whether the evaluator is required to explain the reasoning behind the evaluation
    • The binding nature of the evaluation
    • Responsibility for fees
    • The timetable for running the ENE
    • Procedure for the ENE
  • Proceedings start
    ENEs run according to the wishes of the parties. It’s up to them to decide whether the evaluator should hold a hearing or whether the evaluation should be carried out solely by reference to documentation submitted by the parties.
  • Case summaries
    Each party will almost certainly provide a case summary, putting forward their best case to the evaluator and, where appropriate, suggesting ways of resolving the dispute.
  • Decision
    The evaluator’s decision is not a like a binding court ruling. It’s essentially a review of the case and an assessment of each side’s merits. It may indicate the likely outcome of any trial and encourage further discussion between the parties in dispute. It will be framed in accordance with the ENE agreement – the evaluator will restrict his or her comments to the areas specified by the parties at the beginning of the process.

Drafting and using an early neutral evaluation clause in your contract

We would always advise clients to consider an ADR clause in any commercial contract, including provision for ENE where appropriate. It’s important to obtain specialist advice when you are drafting your contract so that any ADR provisions are enforceable. Because ADR is inherently voluntary it’s arguable whether an ENE clause is binding. But you stand a greater chance of demonstrating agreement to ADR by:

  • being careful in the type of language you use when referring to ENE in the contract
  • clarifying the ENE timetable
  • referring to specific procedural rules if possible

Advantages and disadvantages of early neutral evaluation

Advantages of ENE Disadvantages of ENE
Wide application to many types of dispute, including construction and general commercial cases. Not always appropriate when there are significant issues of fact in dispute. Evaluator does not have the same opportunity to hear from witnesses as in other forms of dispute resolution.
It’s flexible and can be a short process. Depending on the ENE agreement drawn up by the parties, the process can potentially become lengthy. This could prove expensive as ultimately the evaluator’s decision is not binding.
It focuses minds on the key issues at stake. The side favoured by the arbitrator in his or her decision may become emboldened to seek a more favourable outcome.
Evaluator will give a realistic assessment of prospects of success of each side. When parties understand their legal position they may be more prepared to come to the table and negotiate. A losing side may not accept the evaluator’s decision and decide to proceed with litigation.
The process will expose weaknesses in a case enabling a party to negotiate more realistically. If a judge decided the ENE he or she will not be able to hear any related litigation. One side could use this rule tactically to ensure a judge it dislikes does not hear the case.
Wide choice of evaluators ranging from private experts to judges

 

Early neutral evaluation in the UK courts

As we discussed above, ENE is available through private mediation organisations and individual lawyers. Since 2015 it has also been available in certain courts. Indeed certain courts positively encourage ENE as a way to resolve disputes in certain circumstances. ENE is available in the TCC, the Commercial Court and in the Chancery Division of the High Court.

Here’s a brief outline of the approach each court takes when dealing with a case by way of ENE:

  • The TCC – Parties involved in construction and technology disputes can agree to the appointment of a judge from the court to carry out an ENE. The approach of the court is generally accommodating to the parties: the judge will deal with an entire dispute or a portion of a more wide ranging dispute depending on the wishes of the parties. The parties can also decide between themselves the extent to which – if at all – the ENE will bind them and whether any of the information seen by the ENE judge can be used in any later trial (if the ENE fails).
  • The Commercial Court – The time to raise the possibility of ENE in the Commercial Court is at the case management conference (the ‘CMC’). If it is approved the nominated judge will issue directions on how the ENE is to be conducted. When the evaluation is made it will be supported by a brief explanation, often communicated orally to the parties.
  • The Chancery Division – ENE in the Chancery Division usually involves an exchange of position papers, exchange of documents and an oral hearing. A Chancery judge will issue a non-binding, confidential opinion to the parties. It’s open to the parties to agree that the judge’s opinion becomes binding.

After the evaluation

Unless the parties have agreed to be bound by the evaluator’s decision it is simply a stepping-stone to further negotiation and discussion. Even if the ENE was carried out through the courts and the decision reached by a judge it is only an assessment of each side’s strength and a prediction of what could happen if the case went to trial. Usually the sides will meet following the decision to establish whether there is a possibility of a breakthrough in the dispute in light of the evaluator’s findings. If one party does not agree to settle on the evaluator’s terms the other may consider making a so-called Part 36 offer. Because of the negative cost consequences for the party refusing to accept a Part 36 offer if the case is pursued and lost, it can pressurise that party into settling.

Early neutral evaluation vs. mediation

Mediation and ENE have, like other forms of ADR, a lot in common. They are geared towards giving control of the management of the dispute to the parties involved. Both processes are private and non-binding. And they each represent a way to avoid court, reduce legal costs and find a quick solution to a commercial problem.

As we have shown, ENE results in an expert assessment of the case at an early stage to enable the parties to reach an agreement where possible. In reality, mediation often follows an ENE. Whereas the evaluator in an ENE reaches a decision – or a considered view – on the issues presented to him or her, the mediator does not impose views on the parties. Instead it is the job of the mediator to facilitate agreement between the two sides.

What does it cost?

The goal of ENE is to find a cost-effective solution to a dispute. If run efficiently the ENE process should be considerably cheaper than court action and many other forms of ADR.

If ENE is carried out through the courts, court fees will normally be split between the parties. In terms of legal fees for the process both sides usually shoulder their own. Sometimes the costs of the ENE will be borne by the side that ultimately loses the related, wider case (where the ENE related only to part of a larger dispute). When an independent evaluator is appointed, there will be an additional cost – the fees of the organisation that provided the evaluator as well as the evaluator’s professional fees will have to be met. Evaluators charging hundreds of pounds per hour are not unheard of.

How long does it take?

The length of time it takes to finalise an ENE will clearly depend on the facts of the particular case. It is designed to be a quick process that isolates strengths and weaknesses in each side’s case so that an early settlement can be facilitated. That said the preparatory work can take up a considerable amount of time and there is a risk that time spent on an ENE will not yield results because there is simply an inability to reach agreement. And there is always the chance that a party that obtains a favourable evaluation will be more inclined to stand their ground more firmly in any negotiation, making agreement harder to find. It’s always important before embarking on ENE or any form of ADR to get specialist legal advice.

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