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Mediation update: indemnity costs for unreasonable refusal to mediate and no dispute too intractable

Recent weeks have brought two further decisions concerning an unreasonable refusal to mediate. The message from the courts on when to deal with a request to mediate is now clear: parties are expected to respond promptly. The message on how parties should respond is more opaque.

The courts, with Halsey v Milton Keynes no doubt in mind, have not gone as far as to say parties cannot ever refuse to mediate. However, unless a statute permits a party to say no (as I discussed previously in the context of the ADR Regulations 2015), the likelihood of a court now finding that a party has validly and reasonably refused to mediate does seem remote.

Losing party to pay indemnity costs

In Reid v Buckinghamshire Healthcare NHS Trust, Master O’Hare was asked to decide the claimant’s entitlement to the costs of a detailed assessment. The claimant sought remedies pursuant to CPR 36.17 on the basis that the defendant, the unsuccessful party, had failed to beat two Part 36 offers made. The claimant sought further remedies on the basis that the defendant had refused to mediate.

As to the failure to beat the Part 36 offers, the court awarded an uplift of 10% of the assessed costs, that being a sum of £13,000-odd. This, Master O’Hare said, was “the standard order which ought to be made when a paying party fails to beat the receiving party’s offer to settle” and there was no reason for the court to depart from that standard order.

As to the refusal to mediate, Master O’Hare agreed that the defendant had unreasonably refused to mediate on the basis that:

“…it took them six weeks to reply to the [claimant’s] offer and they then replied in the negative.”

As a result, the defendant was ordered to pay the claimant’s costs on an indemnity basis, but only from the date when the defendant was likely to have received the claimant’s offer (that being three days after the date of the offer letter).

In respect of the defendant’s failure to mediate, Master O’Hare said this sanction was the only sanction available to him. He did not consider that he had the power to award a percentage penalty (as he had in relation to the failure to beat the Part 36 offer) or alter the rate of interest payable.

Master O’Hare noted that Halsey v Milton Keynes, and the cases that followed it, largely concerned penalties imposed on parties who in other respects were the winners, rather than the losers, of the litigation. As to this, he gave a note of caution about the sanctions to be imposed on parties who unreasonably refuse to mediate:

“If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct.”

Master O’Hare concluded by saying he disapproved of the defendant’s conduct, but only from the date they were likely to have received the claimant’s offer to mediate.

No case too intractable for mediation

In N J Rickard Ltd v Holloway, a tenant appealed against a district judge’s decision that he was liable to pay the costs of the respondent landlord’s claim for rent arrears. At trial, the landlord and tenant had each won issues.

The Court of Appeal held, on balance, that the correct order was no order as to costs. One factor was that the tenant had received no response to his many requests for mediation. It was said “no dispute was too intractable for mediation” and that, applying the rule in PGF II SA v OMFS Company 1 Ltd, silence towards an invitation to engage in alternative dispute resolution was in itself unreasonable.

Nothing new

Similar messages to those given in these two cases have been given before. How parties are expected to address requests to mediate was discussed by Briggs LJ in PGF, while in Garritt-Critchley v Ronnan, an order for indemnity costs of the whole of the action against a losing defendant who had unreasonably refused to mediate was sought.

In Garritt Critchley, the claimant first stated its willingness to enter into ADR (such as mediation), at the appropriate time in the letter before claim and thereafter “kept referring to the sense of having a mediation”.

The court rejected all the defendant’s reasons for refusing to mediate (which included the parties being too far apart and there being no natural middle ground) as being misconceived and not in accordance with the authorities. It ordered him to pay indemnity costs of the whole of the action. Submissions made on quantum of costs (on the basis that the trial costs seemed high) were then made, as to which the court said:

“I don’t consider it is the right for me to start making carve-outs if I take the view overall that indemnity costs are appropriate, especially as I take the view that one of the significant defects of this failure to engage in mediation was that this trial took place at all.”

However, the court did make observations for the purpose of any detailed assessment.

Such a decision is therefore nothing new. Garritt Critchley is also arguably in line with Reid v Buckinghamshire as the claimant wrote to the defendant offering ADR in the letter before claim.

Conclusion

Although, these two authorities don’t bring a new message, they do serve to the underline the strength of the message now coming from the courts about how they expect parties involved in disputes to address the question of mediation. You have been warned!

Keating Chambers Elizabeth Repper

3 thoughts on “Mediation update: indemnity costs for unreasonable refusal to mediate and no dispute too intractable

  1. Mediation is ADR, of course, but so are Adjudication and Arbitration – even if Adjudication is a statutory requirement in construction.

    Common sense suggests that Arbitrators should follow the Court and penalise failure to mediate, but should Arbitrators impose penalties that properly are levied by the State?. Failure to mediate may trouble the Court but an Arbitrator is the servant of the Parties.

    Perhaps this needs developing in a note.

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