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Mediation update: the question of when and costs sanction for not getting on with it

In PGF II SA v OMFS Company 1 Ltd, in addressing the question of unreasonably refusing to participate in ADR, Briggs LJ made the link between parties engaging with the ADR process and, in doing so, addressing the question of when ADR should take place.

Two recent dilapidations cases demonstrate that parties must now consider much more closely the question, when should we mediate?

Mediating, but not soon enough

In Car Giant Ltd and another v London Borough of Hammersmith, the claimant successfully claimed damages for dilapidations following the expiry of the defendant’s lease. The judge, Stephen Furst QC, then considered costs.

As the claimant had failed to beat the defendant’s Part 36 offer, it was accepted that the claimant should pay the defendant’s costs from the date of the expiry of the relevant period. However, the defendant argued that, pursuant to CPR 44.3, those costs ought to be paid on an indemnity basis because (among other things) the claimant had unreasonably delayed in agreeing to mediate or take part in some form of ADR.

The judge recognised that an unreasonable refusal to engage in mediation might justify an order for indemnity costs (citing Garritt-Critchley v Ronnan and Reid v Buckinghamshire Healthcare NHS Trust). However, this wasn’t a case where the parties hadn’t mediated. A mediation had taken place shortly before trial.

The judge found that:

“… a court should be slow to conclude that a delay [from 15th May 2015 until October 2016] is unreasonable or that, if it is, it would justify an order for indemnity costs.”

This was because:

“In such situations mediation has taken place and by definition has been unsuccessful. Whilst, in some cases, early mediation is more likely to succeed, it cannot be said to be true in all cases and it cannot be said in this case that had mediation taken place in about May 2015 it would have been or was likely to be successful. In other words any delay in mediating cannot be shown to have caused any increased costs.”

The judge went on to say:

“The courts should be slow to criticise a party’s behaviour where decisions such as when to mediate are matters of tactical importance where different views may legitimately be held. In this case [the claimant] took the view that mediation was more likely to succeed when the experts’ views had been fully set out. That is a perfectly possible point of view.”

The judge also recognised that a delay in responding to letters could justify an order for indemnity costs, although held in this case it was “not such or so great” to justify such an order.

Overall, the judge ordered that the defendant’s costs after the expiry of the relevant period were to be assessed on the standard basis.

Getting on with it

In Thakkar v Patel, the claimants claimed damages for dilapidations. The defendants disputed almost the entirety of the claim and counterclaimed for rent paid when the property was unfit for occupation.

At trial, both parties achieved “a measure of success” and, after adding interest, the defendants owed the claimants £32,083.18.

On the question of costs the trial judge was referred to a defendants’ Part 36 offer made on 21 July 2011 to settle for £30,000 plus costs (on the basis that the defendants dropped their counterclaim) which, by letter dated 12 August 2011, the defendants withdrew. He also considered the parties’ conduct in relation to mediation, concluding the claimants were “more proactive” and that there were real prospects of settlement if mediation had taken place.

After weighing up all the circumstances, the trial judge ordered the defendants to pay 75% of the claimants’ costs of the claim and the claimants to pay the defendants’ costs of the counterclaim.

The defendants appealed the costs order. They argued that their offer of £30,000 ought to have been accepted and the claimants should have been ordered to pay the defendants’ costs in relation to the claim from 12 August 2011 onwards.

Jackson LJ (with whom the other judge, Briggs LJ, agreed) recognised that the costs order was a “tough” one, but dismissed the appeal as the order was within the proper ambit of the trial judge’s discretion.

As to the defendants’ Part 36 offer, Jackson LJ said the trial judge, at least implicitly, had held that the claimants acted reasonably in not accepting it during the 21 day period before it was withdrawn.

As to the mediation issue, Jackson LJ found:

  • The claimants took proactive steps to set up a mediation, but the defendants:

    “… whilst not refusing outright to mediate, dragged their feet and delayed for so long that the claimants lost confidence in the process and closed it down.”

  • It was plainly correct, as the trial judge said, that this case was suitable for mediation and, if one had taken place, there was a real chance settlement would have been achieved because (among other things) the dispute was a commercial one purely about money, the costs of the litigation were vastly greater than the sum in issue and:

    “Any mediator would have had both parties in the room with him. He would have let them have their say. He would then have pointed out (a) the small gap between their respective positions, and (b) the huge future costs of the litigation. In those circumstances I would be astonished if a skilled mediator failed to bring the parties to a sensible settlement.”

Jackson LJ referred to the Court of Appeal’s message in PGF, namely to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed.

Having noted that the total costs of both sides were approximately £300,000 and that “the vast majority of the litigation costs would have been saved if there had been a settlement in August 2012”, Jackson LJ concluded by saying the Court of Appeal was sending out another message in this case, namely:

“… where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction. In the present case, the costs sanction was severe, but not so severe that this court should intervene.”

Conclusion

Both cases underline what Briggs LJ said in PGF, namely that parties need to engage with the ADR process, including discussing when ADR takes place. While Car Giant demonstrates that the simple fact of attending a mediation will not necessarily eliminate the risk of a costs sanction, Thakkar introduces a new sanction for not getting on with it.

Keating Chambers Elizabeth Repper

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