Mediation update
As Martin Ewen notes, the principles laid down about when it is reasonable to decline an offer to mediate were established 10 years ago in the case of Halsey v Milton Keynes General NHS Trust.1 This was the first case in which the Court of Appeal addressed the extent to which it was appropriate for the court to use its powers to encourage parties to settle their disputes other than by trial.
The principles set down by the court in Halsey can be summarised as follows:
(i) The court should not compel parties to mediate even if it were within its power to do so;
(ii) Nonetheless the court may need to encourage the parties to embark upon alternative dispute resolution in appropriate cases, and that encouragement may be robust;
(iii) The court’s power to have regard to the parties’ conduct when deciding whether to depart from the general rule that the unsuccessful party should pay the successful party’s costs includes powers to deprive the successful party of some or all of its costs on the grounds of its unreasonable refusal to agree to alternative dispute resolution; and
(iv) For that purpose the burden is on the unsuccessful party to show that the successful party’s refusal is unreasonable. There is no presumption in favour of alternative dispute resolution.
Supplementing those principles, the Court of Appeal adopted a list of factors likely to be relevant to the question as to whether a party had unreasonably refused alternative dispute resolution (such as mediation):
(i) the nature of the dispute;
(ii) the merits of the case;
(iii) the extent to which settlement methods have been attempted;
(iv) whether costs of the ADR would be disproportionately high;
(v) whether any delay in setting up and attending the ADR would have been prejudicial; and
(vi) whether the ADR had a reasonable prospect of success.
The Halsey guidelines were extended in the case of PGF II SA v OMFS Company 1 Ltd.2 Here, the Court of Appeal had to consider, for the first time, the position of a party who, when invited to take part in a mediation, simply declined to respond to the invitation in any way. The Court of Appeal held, on the facts, that the defendant’s silence in the face of two requests to mediate was unreasonable conduct sufficient to warrant a costs sanction. The Court of Appeal described this as a “modest” extension of the Halsey principles.
Recent developments
There have been two recent cases concerning a successful party’s unreasonable refusal to engage in mediation.
R (on the application of Paul Crawford) v The University of Newcastle-upon-Tyne3
Here, the claimant’s claim was dismissed and matters turned to the subject of costs. The defendant argued that it was the successful party and was entitled to its costs whereas the claimant argued, in essence, that the defendant unreasonably failed to agree to mediation and so the court should make no order as to costs.
The court held that the defendant had not unreasonably failed to agree to mediation. The claimant proposed mediation at a time when the parties were engaged in dealing with the claimant’s complaint before the Office of the Independent Adjudicator, which the defendant was fully participating in. Further, although the defendant had effectively remained silent after initially indicating it agreed in principle to mediation, the court was not persuaded that, in the circumstances and in light of the defendant’s participation in the complaints procedure, the defendant’s silence was unreasonable or sufficient to deprive the defendant of all its costs.
Phillip Garritt-Critchley v Andrew Ronnan and Solarpower PV Ltd4
In this case, the claimant applied for its costs to be paid on an indemnity basis rather than a standard basis. In essence, the court had to decide whether the claimant was entitled to his costs on an indemnity basis due to the defendants’ unreasonable failure to mediate. When asked in correspondence why they were not willing to mediate, the defendants’ solicitors said that:
“Both we and our clients are well aware of the penalties the court might seek to impose if we are unreasonably found to refuse mediation, but we are confident that in a matter in which our clients are extremely confident of their position and do not consider there is any real prospect that your client will succeed, the rejection is entirely reasonable.”
The defendants’ position was repeated in further correspondence.
The court was unimpressed with the stance taken by the defendants and granted an indemnity costs order on the basis of the unreasonable failure of the defendants to engage in mediation. The court made a number of key findings, including the following:
(i) This was an action of a typical kind where the allegation was whether a binding agreement had been made or not. It was a very fact-intensive and evidence-intensive exercise where the court would have to judge the credibility of the witnesses and look at the importance of contemporaneous documents. Accordingly, the defendants could in no way be certain that their position would be accepted by the court and this was, therefore, a case which was suitable for mediation.
(ii) This was not an all or nothing case on quantum where the parties would have to agree that if liability was established the obvious amount of damages was £X.
(iii) This was a case where there was ample room for manoeuvre within the range of possible quantum scenarios, thereby making it ideal for mediation.
(iv) The defendants rejected mediation on the basis of there being no middle ground on liability. This was a binary issue and it was often the case that there was no middleground on liability. The Judge decided that “to consider that mediation is not worth it because the sides are opposed on a binary issue, I’m afraid seems to me to be misconceived.”
(v) The defendants’ statement that they were confident that no agreement will ever be reached was rejected by the Judge, who stated: “Given the nature of this dispute, it does not seem to me to be realistic for someone… to say that all the odds are so stacked in his favour that there is really no conceivable point in talking about settlement. Indeed if that had been his view then it is surprising that no application for summary judgment was ever made, which it was not.”
(vi) The defendants’ position that they had “extreme confidence” was not a reasonable position to take and nor was it a satisfactory reason to reject mediation.
(vii) The defendants maintained that there was considerable dislike and mistrust between the parties and that this was highly relevant to the decision not to mediate. TheJudge commented that “it is precisely where there may be distrust or emotion between the parties, which it might be thought is pushing them down the road to an expensive trial, where the skills of a mediator come in most useful.”
(viii) This was not a case where there had been other settlement attempts made so that the party resisting mediation could say, “Well we’ve had very lengthy and detailed round table discussions, they have not gone anywhere and it’s not sensible to spend any more money on the case.”
(ix) Parties don’t know that they are “too far apart” until they sit down and explore settlement.
Technology and Construction Court Guide, third revision The third revision came into effect on 3 March 2014. The TCC Guide reinforces the importance of Halsey and places an obligation on legal representatives to ensure that their clients are fully aware of the benefits of ADR. The TCC Guide also makes express reference to arguments on costs associated with a party’s unreasonable refusal to mediate. Parties and those advising them have been warned. Section 7 of the TCC Guide concerns ADR. Key extracts include: “7.1.1 The court will provide encouragement to the parties to use alternative dispute resolution and will, whenever appropriate, facilitate the use of such a procedure… In most cases, ADR takes the form of inter-party negotiations or a mediation conducted by a neutral mediator… The parties are advised to refer to the ADR Handbook. 7.1.3 Legal representatives in all TCC cases should ensure that their clients are fully aware of the benefits of ADR and that the use of ADR has been carefully considered prior to the first CMC. 7.2.1 ADR may be appropriate before the proceedings have begun or at any subsequent stage. However the later ADR takes place, the more the costs which will have been incurred, often unnecessarily. The timing of ADR needs careful consideration. 7.4.1 Generally. At the end of the trial, there may be costs arguments on the basis that one or more parties unreasonably refused to take part in ADR. The court will determine such issues having regard to all the circumstances of the particular case. In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 1 WLR, the Court of Appeal identified six factors that may be relevant to any such consideration: (a) the nature of the dispute; …See also PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288, [2014] BLR 1, particularly in relation to silence in the face of a request to mediate.” The principles set down by the Court of Appeal in Halsey are still applicable today. A party to a dispute who is invited to engage in mediation (or any other form of ADR) should give very careful consideration as to whether to accept or reject such an offer. Whilst a party is not compelled to agree to mediation, if it is decided that a refusal to do so is unreasonable, costs sanctions will be applied by the courts. The burden is squarely on the party seeking to justify its refusal to mediate to demonstrate that its stance was reasonable in all the circumstances. The developing caselaw5 and the updated TCC Guide make maintaining such a position ever more difficult.
(b) the merits of the case;
(c) the extent to which settlement methods have been attempted;
(d) whether costs of the ADR would be disproportionately high;
(e) whether any delay in setting up and attending the ADR would have been prejudicial; and
(f) whether the ADR had a reasonable prospect of success.Conclusion