What happens when parties renege on an agreement reached in mediation?
In this case Denny v Babaee & Ors [2023] EWHC 1490 (TCC) (19 June 2023)the Court considered the position:
“I turn to the second potential ground for an indemnity costs order. The parties engaged in mediation in November 2022. They entered into a settlement agreement dated 29 November 2022 signed by the Claimant and the First Defendant. It was not possible to reach a binding agreement for the sale of the land because of the provisions of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989, but the settlement agreement provided in essence for the house to be subject to independent valuation followed by the purchase by either the First or the Third Defendant (or their nominee) at the valuation price. In addition the Third Defendant was to pay the Claimant the sum of £200,000 by way of damages. The Claimant contends that, notwithstanding the obtaining of a joint valuation in accordance with the agreement on 6 December 2022, which valued the house at £1.3 million, the Defendants did not fulfil their side of the bargain by purchasing the house.
The Claimant evidences the making of the agreement by production of the deed It does not produce the valuation or give evidence by way of witness statement to verify that it was obtained, though in fact Mr Babaee accepted this a valuation had been obtained.
His explanation for not completing the purchase was that he had wanted to obtain his own valuation in order to raise funds to buy the house. The difficulty with this explanation for his conduct was that the agreement is clear on its terms. The Defendants had contracted to buy the house at the figure in the independent joint valuation without reservation. If he had wished to reserve the right to obtain his own valuation, he should not have agreed to these terms. Had he not agreed to these terms, time and cost would not have been wasted on the assumption that he would comply with them.
In my judgment, this is ample grounds to conclude that, at least in respect of costs incurred after the Defendants reneged on the agreement, an order for indemnity costs should be made. This would penalise the Defendants for agreeing terms then not carrying them out, conduct which I well outside of the norm and sufficient to justify the censure of the court. There is no evidence of the additional costs incurred because of the Defendants’ change of stance on this issue but the purpose of the order is to mark disapproval of conduct that its likely to incur unnecessary costs rather than compensating the party who has actually incurred those costs.”
It follows that if someone agrees to pay and purchase a property as part of a settlement agreement they cannot renege on that agreement by arguing that they needed additional information to comply with their agreement. It is really important in a mediation before making an offer, to ensure it can be fulfilled or an indemnity costs order may follow.
https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/TCC/2023/1490.html&query=(Mediation)
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