Failure to mediate early criticised by judge

In the recent case of The Huntsworth Wine Company Ltd v London City Bond Ltd [2022] EWHC 98 (comm) (19 January 2022) the judge criticise a party for failing to mediate early on.

In this action, Huntsworth brought a claim for losses sustained as a result of the theft of wine belonging to Huntsworth that was stored at a bonded warehouse owned and operated by London City Bond at Linton in Cambridgeshire.

The judge gave judgment for Huntsworth on the claim in the sum of £1,000 together with interest of £67.88 and judgment for LCB on the counterclaim in the sum of £3,662.34 together with interest of £243.07. Thus the net sum due from Huntsworth to LCB pursuant to the judgment was only £2,837.53.

Both parties had incurred costs of approximately £200,000. There was then an argument about whether there should be an issue based costs order and whether a part 36 offer had been effective, but we are more interested in the decision about mediation.

It was argued that Huntsworth was the loser in the matter, having recovered only a small proportion of what it claimed,
It is perhaps worth quoting what the judge said:

THE CONDUCT OF THE PARTIES 

63.               On the issue of conduct, LCB makes very criticism of Huntsworth for failing to engage with the issues in the case. It is important in this respect that a litigant is not punished twice over, once for pursuing a weak claim and again for failing to engage with the weaknesses in the claim. However in certain respects it seems to me that there is force in the criticisms that are made of Huntsworth:

63.1           Those acting for Huntsworth have been guilty of ill judged criticism. An example, perhaps the worst, is the comment in Mr Pennal’s email of 25 June 2019, “We received your letter dated 19 June, and then suffered the dreary misfortune of reading it. As you know, it continued in the style of your previous correspondence – a peculiar cocktail of ‘Macawberism’ and filibuster. It was completely unconstructive, said nothing of substance, and provided no information whatsoever.” Regardless of whether there is any merit underlying the comment that LCB’s approach was unconstructive, this passage in the email amounts to little more than rude disparagement of the author of the email to which it is replies. Parties to litigation cannot expect the opposing party to bear the costswhere matters are dealt with in this fashion.

63.2           The claim by Huntsworth in misstatement/misrepresentation was not advanced at the outset, but only by way of amendment to the claim, At paragraph 26 of his trial witness statement, Mr Meyer of Huntsworth stated of an email dated 25 February 2019 (shortly after the theft), “That email, which I sent very shortly after the break-in and my resulting visit to LCB Linton, reflects unequivocally what my expectations were (and are): I was (and am) truly ‘shocked’ that a supposedly secure bonded warehouse should have no overnight security. It was (and is) truly ‘sobering’ that the ‘reality’ at Linton, as opposed to what I had been led to believe, was that ‘the CCTV was not monitored but merely recorded’.” It has never been adequately explained why the pleading of misrepresentation was only by way of amendment if, as Mr Meyer states, it was known from almost immediately after the theft.

63.3           The consequential losses claim was never adequately fleshed out, leading to it being struck out by His Honour Judge Bird;

63.4           Huntsworth advanced a weak but prolix case in fraudulent misrepresentation/deceit by way of re-amendment of the Particulars of Claim after the claim had been transferred to the Shorter Trials Scheme. Paragraph 2.2 of PD57AB dealing with the Shorter and Flexible Trials Scheme states, “The Shorter Trials Scheme will not normally be suitable for (a) cases including an allegation of fraud or dishonesty.” I agree with LCB that there must be some doubt as to whether this claim would have been transferred to the Shorter Trials Scheme had this claim been made from the outset.

64.               Huntsworth is critical of LCB in two particular respects:

64.1           For declining to engage in mediation at an early stage in the litigation;

64.2           In pursuing issues to trial that were unsuccessful.

65.               The correspondence shows that Huntsworth was eager to mediate. Examples include its solicitor’s emails of 22 July 2019, 29 July 2019, 15 August 2019, 3 October 2019 and 12 August 2020 and letters of 14 August 2019 and 2 July 2020.

66.               The correspondence from LCB tends to support the argument of Huntsworth that LCB put barriers in the way of mediation. Examples can be seen in the following letters from LCB’s solicitors:

66.1           7 October 2019:

“…

2. Our client’s position on mediation is as we have communicated throughout. Our client is willing to mediate, but on condition that there is equality of knowledge.

3. We have repeatedly asked you for a full explanation of the position on insurance. You have persistently refused to provide it. This information is important and your clients are clearly extremely keen to conceal it.

4. We also need a full account of the arrangements in respect of the goods in which third parties have an interest. Initially you and your client said nothing about that. You then stated that some of the goods were owed by third parties. Your Particulars of Claim no longer refer to ownership but instead to unspecified contractual/common law duties and refused our request for details. It appears from your correspondence that these third party interests account for about 2/3 of the quantity of the goods. It is therefore important to the equality of knowledge that your clients provide a full and frank explanation of the third party interests, the contractual, common law or proprietary rights of those third parties and what communications have passed between your clients and them.

5. Your initial disclosure should have referred to all these matters (since they clearly include adverse documents) but all such reference was conspicuously absent. We have already asked you to give disclosure in relation to these matters and you have refused on the basis of a wholly inadequate pretext.

6. Accordingly we repeat (again) our demand for this information, disclosure and copies of documents/ communications. Please provide them. When we are satisfied that you have given full and frank information and disclosure we can then discuss arrangements for a mediation.<span< b=””></span<> style=’font-size:11.0pt’>”

66.2           25 June 2020:

“Mediation in this case has been previously canvassed. We have throughout made it clear that our client is prepared to mediate provided that you first give full disclosure of the information and documents relating to the lack of insurance over the goods (and as it now appears, a claim against your client’s insurance broker) so that we can participate on an equally informed basis. You have so far consistently refused to provide this. The small amount of information which has been grudgingly released since the proceedings were issued is not a substitute for proper disclosure.”

66.3           2 July 2020:

“Once you provide full disclosure of the insurance documentation we will mediate. The sooner you do this the sooner a mediation can happen.”

66.4           10 August 2020:

“We have made it clear throughout that ADR needs to be on the basis of a full and proper disclosure of information and documentation about the absence of insurance taking place first. You have known from the start that it is a key issue in the case.”

66.5           11 December 2020:

“As to mediation, we have made our position clear on many occasions. We want to see all the documents relating to the insurance position, including those relating to the claims made by your client against the insurer and the broker. Please provide all these so that a mediation can be held on an informed basis. Despite our repeated requests you have never explained why your client has so far refused to provide them. The disclosure you have given is woeful and clearly incomplete notwithstanding the statement of truth from your client.”

67.               Eventually, by solicitors’ letter dated 10 February 2021, LCB agreed to mediation.The mediation took place on 23 April 2021 but was unsuccessful. LCB points out that this was 4 weeks after service of the re-Amended Particulars of Claim.

68.               LCB seeks to justify its refusal to agree to mediation earlier on the basis that it was entitled to engage in mediation on an equal footing and that, absent disclosure of information relating to Huntworth’s insurance position, it was reasonable not to engage in mediation. LCB draws attention to the fact that paragraph 12 in the list of issues was “If … it was a term of the contract that the Claimant must obtain insurance, then why was insurance not obtained and what was the consequence of not obtaining it?” This appears to reflect paragraph 67.3B of the Re-Amended Defence and Counterclaim, where it is pleaded, “Since the service of the Defence the Claimant has disclosed (despite requests for such information by the Defendant prior to issue of these proceedings) that it has a claim against its insurance broker (“the Broker”, believed to be Holgate) in respect of the absence of insurance over the Stolen Goods but is choosing not to pursue it at present. The Broker is “a person for whom the Defendant is not responsible” within the meaning of UKWA Condition 3.8 and consequently the Defendant is not liable for any loss suffered by the Claimant to the extent that it was caused or contributed to by the Broker. The Defendant’s case is that the Claimant’s loss was caused or contributed to by the absence of insurance which was (according to the Claimant) the fault of the Broker; or it was caused or contributed to by the Claimant as pleaded at 67.3 above, or was caused or contributed to by both the Claimant and the Broker.” However, this point is plainly unarguable. The loss of the wine was not caused by it not being insured; it was caused by it being stolen. It is correct that the insurance position was at least potentially relevant to arguments about limitation/exclusion of liability including the reasonableness of such clauses. However I fail to see that disclosure of the insurance documentation was necessary for LCB to have the necessary information to engage in mediation. In those circumstances, it was not reasonable for LCB to decline to engage in mediation at an earlier point.

69.               It is undoubtedly the case that a party who declines to engage in mediation is at significant risk of being penalised by the ultimate costs order (see for example Hurst v Leeming [2002] EWHC 1051). It will not necessarily be protected from that consequence merely because it has made a valid Part 36 offer (see PGF II SA v UMFS Co 1 Ltd [2014] 1 WLR 1386). Further, the nature of this dispute clearly made it suitable for mediation.

70.               However any criticism of LCB is substantially undermined by the fact that Huntsworth amended its claim in a significant manner only shortly before the mediation to plead misstatement/ misrepresentation. At trial, these causes of action formed a significant part of Huntworth’s case. If LCB had engaged in mediation at an earlier time, this would have predated the introduction of this claim. An earlier mediationwould almost certainly have been frustrated by the failure of Huntsworth to bring all of its case into the litigation by adequately pleading it. It is of course the case, as Huntsworth point out at paragraph 22 of their responsive submissions, that late service of the Amended Particulars of Claim was not given as a reason for failing to mediate.But it is hardly likely that a party who does not know that it its opponent will in the future apply to amend its statement of case would anticipate that possibility as a reason for not engaging in mediation.

71.               Whilst LCB can be criticised for not consenting to mediation, it would be perverse to reward Huntsworth for this where it did not bring forward into the litigation the issues that it sought to rely on in that mediation until very shortly before the mediation. In those circumstances, I do not consider that it would be unjust for LCB to recover its costs in the indemnity basis or otherwise to have the benefit of the provisions of CPR36.17.

So in this case the Defendant agreed to mediate upon condition it had information from the other party to put it on an equal footing. That is frequently an argument that is put forward to justify refusing to mediate. In this case that argument succeeded because the Claimant relied at trial upon matters which had not been put forward earlier when mediation would have taken place. That undermined their argument that the refusal to mediate had been unreasonable. It is interesting that when mediation did take place it failed in any event.

The decision is understandable and reinforces the position that if sufficient information is available then parties risk being penalised if they refuse to mediate. If the parties had been able to mediate early and they had resolved the dispute they could have avoided a large part of the £400,000 costs incurred.

If you are involved in any dispute and want to mediate please get in touch so we can organise this for you.