In a recent case in Abu Dhabi, the Court emphasised the importance of mediation in commercial disputes.
in this commercial case AC Network Holding Ltd & Ors v Polymath Ekar SPV1 & Ors [2023] ADGMCFI 0008 (07 April 2023) the judge said that declining to mediate was unreasonable in this case and so should be factored in to the costs award. He said as follows:
30. On 7 April 2022 the Defendants wrote to the Claimants suggesting that the parties attempt to mediate the dispute, but that “the Claimants once again failed to engage or even acknowledge this letter”.
31. The Defendants say that this clearly was a case where emotion played a part, and it was their desire to attempt to resolve it with the assistance of an independent third party and in a manner which would allow the parties to remain on good terms, hence the suggestion of a mediation, and with this in mind the Defendants say that they had approached three potential mediators to clear conflicts.
32. They submit that the Claimants’ failure to engage in mediation was unreasonable, and that there was no good reason why the parties should not have attempted to resolve the dispute in this manner, but instead this approach was ignored.
33. The Defendants refer to case law where unreasonable failure to engage in mediation attracts judicial sanction, herein citing Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 1288, PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288 and Garritt-Critchley v Ronnan [2014] EWHC 1774 (Ch). Thus, it is argued, if the Defendants are to be awarded costs qua successful party, then consequent upon such unreasonable failure to mediate, the level of recoverable costs should be uplifted and costs recovered on an indemnity basis from 28 July 2022.
34. In response, and on the facts, the Claimants submit that in the present case the parties were all experienced businessmen well known to each other and represented by experienced commercial solicitors, that they had engaged in without prejudice negotiations throughout the period, and that in the circumstances it was not unreasonable to decline to agree specifically to a mediation.
35. The Claimants add that it was not unreasonable to decline that particular proposal given that it was made in April 2022, before exchange of expert reports and proper disclosure had been made, and that following the exchange of such reports, there was a flurry of WPSATC offers and counter-offers, but by then the trial was fast approaching. So that if, which is disputed, the Claimants acted unreasonably, it is contended that an appropriate sanction would be to deprive the Claimants of “a small part” of their costs.
36. As to legal principle, the Claimants cite reliance by the Defendants on Halsey, op cit, and observe that in this area the guiding principles (the ‘Halsey principles’) are set out in the judgment of Dyson LJ (at paras 13 and16):
“In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown…that the successful party acted unreasonably in refusing to agree to ADR.”
“The question whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. We accept the submission of the Law Society that factors which may be relevant to the question whether a party has unreasonably refused ADR will include (but are not limited to) the following: (a) the nature of the dispute; (b) the merits of the case; (c) the extent to which other settlement methods have been attempted; (d) whether the 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”.
37. In PGF II SA op cit., a case in which the Claimant had made a Part 36 offer, subsequently accepted, but had failed to respond to the Defendant’s invitation to mediate, Briggs LJ summarised the Halsey principles, and held that “silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable”, and concluded that where this had occurred, the Court had a discretion to depart from the usual rule as to costs, although this would produce no automatic results in the form of a costs penalty and was an aspect which needed addressing as part of the wider balancing exercise: “It is plain…that the proper response in any particular case may range between the disallowing of the whole, or only a modest part of, the otherwise successful party’s costs.”
38. Briggs LJ went on to consider whether the Court might go further, and order the otherwise successful party to pay all or part of the unsuccessful party’s costs (an aspect not considered in Halsey), and concluded that whilst in principle the Court must have that power, this was a “draconian” sanction which “should be reserved for only the most serious and flagrant failures to engage with ADR”, for example where the Court had encouraged the parties to do so but had been ignored.
39. On the issue of failing to mediate when requested (or even, it seems, to consider mediation, given non-acknowledgment of the request), the Court has reflected on the circumstances, and has borne in mind the Claimants’ contention that it was plain that without prejudice discussions were continuing, and that such mediation would have been “premature”.
40. In practice mediation does not wait until discovery is entirely complete, and the Claimants’ contention that expert reports still had not been exchanged runs somewhat hollow given that the Defendants had gone to the trouble of sending the Claimants the preliminary report of FTI Consulting (considered below).
41. Accordingly, the Court has come to the view that to decline mediation was unreasonable in all the circumstances, and thus that the Court has a discretion to reflect this unreasonable conduct in terms of disallowing part of the Claimant’s costs.
42. As to the Claimants’ collateral argument that even should it be concluded that the Claimants were at fault, “the Defendants may be even more at fault in failing to make an appropriate (or indeed any) Part 18 offer”, and thus the causative effect of the misconduct was the less, essentially this is a plea in mitigation: if the Defendants chose not to make a Part 18 offer (as was the position in this case), they obviously suffer the consequences of not protecting themselves against the risk of the Claimants winning but recovering a sum far smaller than was being claimed, but this is nothing to the immediate point of whether unreasonably declining to mediate should appropriately be reflected in any costs award.”
The Court therefore reduced the Claimant’s costs by 30% from May 2022 to trial, which would not be an inconsiderable amount in a dispute such as this.
This case is evidence that the mediation word is spreading and the UK decisions on refusal to mediate are being prayed in aid in other countries.
Needless to say, we would be more than willing to mediate any disputes in Abu Dhabi or elsewhere. Wherever you are in the world, mediation is the best way to resolve disputes.