20 August 2012

A reasonable refusal to mediate


Christopher Coffin
Partner | UK

The Court of Appeal has overturned a trial judge’s decision that a successful party’s refusal to mediate was unreasonable.

The decision confirms that mediation, or any other form of ADR, is not compulsory and will not be appropriate in all cases. A refusal to mediate can in some circumstances be justified.

Background

The solicitor defendants were successful in defending a claim for professional negligence but were awarded 50% of their costs. This was on the basis that the claimant had been successful on some issues and the defendants had acted unreasonably in refusing to participate in mediation or any other appropriate form of alternative dispute resolution (‘ADR’).

The claimant had proposed mediation at various points throughout the litigation and the judge had on two separate occasions also encouraged the parties to consider mediation. However, the defendants had refused, taking the stance that the claim was entirely without merit. They had made a drop hands offer shortly before proceedings were issued and in response to a later Part 36 offer had agreed to withdraw from the proceedings if their costs could be negotiated but they were unwilling to move beyond that.

The trial judge, in reaching his decision, considered the Court of Appeal decision in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 in which the Court of Appeal identified factors that could be relevant to deciding whether a party had acted unreasonably in refusing ADR. These included:

  • the nature of the dispute;
  • the merits of the case;
  • the extent to which other settlement matters had been attempted;
  • whether the costs of ADR would have been unreasonably high;
  • whether delay would have been prejudicial; and
  • whether the ADR would have had a reasonable prospect of success.

On the question of whether ADR would have had a reasonable prospect of success, the trial judge concluded that mediation was more likely than not to have failed but the prospect of a successful outcome was not so unrealistic as to justify ‘the defendant’s intransigent refusal at every stage even to contemplate the possibility of mediation’

Court of Appeal

The Court of Appeal acknowledged the generous margin of discretion available to the trial judge on the question of costs and refused to interfere with the judgment save in respect of the judge’s finding that the defendant’s refusal to mediate should be held against it in terms of costs.

The Court of Appeal took the view that there was never any real prospect of settlement as the parties were, in reality, 100 miles apart. The claimant had offered £750,000 plus costs but the defendants’ best offer was a drop hands. The Court of Appeal in Halsey had been concerned to point out the risk of the claimants using the pressure of costs sanctions to extract a settlement, even where the claim was without merit. It was emphasised in Halsey that where a party reasonably believes that he has a watertight case that may well be a sufficient justification for refusing to mediate. That had obvious resonance with the present case where the defendants’ view on the strength of their case and the weakness of the claimant’s case remained unchanged throughout and was in the end vindicated.

In the event, the Court of Appeal exercised its discretion on costs afresh and increased the amount payable by the claimant to the defendants from 50% to 60% of their costs of the proceedings.

Comment

The case shows that in some circumstances, including where a party reasonably believes its case is watertight, it may well be reasonable to refuse to mediate. However, any decision not to mediate or embark on some form of ADR should not be taken lightly given the court’s general approach to ADR and its power to impose costs sanctions including indemnity costs and higher rates of interest on damages where the refusal to mediate is unreasonable. This would include those cases where a party genuinely but unreasonably believes that it has a watertight case.

Case: Swain Mason v Mills & Reeve (a firm) [2012] EWCA Civ 498.

Christopher Coffin Partner | British Virgin Islands, London

Category: Article