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Refusal to mediate may not result in a penalty

The High Court recently held that a defendant law firm should be penalised in costs for ignoring multiple requests to mediate. However, the Court did take into account other aspects of both parties’ conduct. This was rather a disappointing decision from a mediator’s perspective.

In the case of Richards & Anor v Speechly Bircham Llp & Anor (Consequential Matters) the court considered what costs orders to make following a professional negligence claim.

The claimants asked the Court to award costs on an indemnity basis meaning they would receive all of their legal costs for pursuing and winning the case.

Three offers to mediate were made before the claim form was issued. 

In support of the application for indemnity costs, Mr Leiper QC pointed to four offers by the Claimants to mediate contained in WPSATC correspondence between 21 December 2018 and 17 December 2020. All but the last was made before the Claim Form was issued on 22 September 2020. The Defendants’ response to the first offer (made by letter dated 21 December 2018) was to say they did not consider that a mediation would be productive or cost effective at that stage. Their letter dated 3 January 2019 said they would keep the merits of some form of ADR under review once full disclosure had been given. The second offer of mediation (or some other form of ADR which might be useful in narrowing the issues between the parties, perhaps by focusing upon causation and loss) was made on 24 May 2019. The Defendants responded on 7 June 2019 to say that there was no point in engaging in mediation or ADR as the claim was doomed to fail. The third offer, made by letter dated 11 September 2020 and by reference to draft Particulars of Claim, was met with the same response that there was no point in a mediation because the claim was entirely without merit. The fourth offer, made by a letter dated 13 December 2020 in the light of the Defence and in advance of a CCMC, again elicited the response that there was little point in having a mediation over an unmeritorious claim. That response dated 17 December 2020 also referred to the expense of a mediation and indicated that the Defendants would be prepared to have a short without prejudice call between solicitors to explain why a Part 36 offer of £500,000 made by them the previous month would not be increased.

Mr Leiper QC described this as a high-handed approach by the Defendants which was no doubt intended to overawe the Claimants and dissuade them from pursuing their claim.

The firm initially said a mediation would not be productive or cost-effective, then suggested there was no point engaging in mediation as the claim was ‘doomed to fail’.

The final refusal came with a reference to the potential expense of a mediation (£105,000) but did add an offer to discuss a Part 36 offer of £500,000 to settle.

The defendant firm argued that its approach to mediation was reasonable and that a refusal to mediate was only one aspect of a party’s conduct. It was pointed out that both parties had failed to beat their own Part 36 offers, with the claimants at one point offering to settle for £4.25m.

The judge held that the firm’s approach to mediation was ‘unreasonable’, saying there had been ‘general passivity on the ADR process’ over a period of almost three years.

However the Judge held that the failure to engage constructively with mediation did not justify an order for costs on an indemnity basis.

The judge said: ‘In circumstances where neither side made a cost-effective Part 36 offer, the defendants’ unreasonable conduct in relation to mediation is in my judgement sufficiently marked by an order that they pay the claimants’ costs down to and including trial on the standard basis.

‘That is an appropriate “sanction” for them not engaging in a process of ADR which might have curtailed those costs in a significantly lower sum at an earlier stage of the proceedings.’

The judge referred to an earlier case where the conduct was much more unreasonable “It is important to note that in Garritt-Critchley the court was deciding the application for indemnity costs in circumstances where, after a 4 day trial but before the judge gave his judgment on the claim, the defendants belatedly accepted the claimants’ Part 36 offer to accept the sum of £10,000 plus their costs to date. That offer had been preceded by an earlier one under which the claimants had sought payment of £170,000, together with their costs, and also one by which the defendant offered to accept three-quarters of their costs upon the claimant discontinuing the claim. In support of his conclusion that the defendants’ “failure to engage in mediation or any other serious ADR was unreasonable”, the judge said their reasons for not doing so did not “stack up“. In particular, the binary nature of the issue on liability, being one of fact, was one where both parties needed to engage in an analysis of the risk of their case not being accepted. The wide range of possible quantum scenarios was also an aspect which rendered the case suitable for mediation, as did a mediator’s ability to defuse the emotion in the case and any feelings of distrust between the parties.

The Claimant also relied upon the encouragement that Courts are meant to place on mediation: He

“relied upon the reference in Costs & Funding Following the Civil Justice Reforms (8th ed, as contained in the 2022 White Book supplement) to the “constant pressure from the judiciary and court users for greater use of ADR.” He said the defendant firm was particularly well-placed to appreciate this encouragement rather than disregard it.

These submissions feel on largely deaf ears as the Court did not make an unusual order in relation to costs.

Interestingly the judge did not consider that refusal to mediate was akin to making a part 36 offer and did not think that a party could point to the outcome at trial to argue a party could have settled a mediation:

  1. “Although I have concluded that the Defendants’ failure to engage the Claimants’ proposals for a mediation was unreasonable, that is only one aspect of the conduct to be considered in the exercise of the discretion under CPR 44.2. Further, “the conduct of all the parties“, together with any measure of qualified success that a party may have achieved, is just one factor amongst all the circumstances that are to be considered alongside the general rule favouring the overall successful party when it comes to exercising it. A “failure” to engage in (or at) a mediation clearly does not carry the clearly defined costs consequences of an unaccepted but effective Part 36 offer; not least because of the difficulty of identifying with confidence, even in hindsight on what should be a summary determination rather than a further mini-trial, where any “blame” really lay within the pursuit and conduct of what is a privileged process. The uncertainty of outcome at any proposed mediation also means that the party who is suggesting unreasonableness on the part of the other cannot point to the result at trial and demonstrate that costs have been wasted through the mediation not having taken place.
  2. In my judgment, the Defendants’ failure in this case to engage constructively with the mediation proposals does not justify an order for costs against them on the indemnity basis. To make such an order would involve elevating that factor over others which weigh in their favour. Those others include them successfully resisting a significant part of a claim put at around £4.3m (see the Judgment at [90]-[91]) and doing significantly better than either of the Claimants’ Part 36 offers proposed (thereby avoiding the consequences of CPR 36.17(1)(b)). That is a very different outcome from the one in Garritt-Critchley.

This is unfortunate as it implies that a costs order or penalty will only be made where one party has been extremely unreasonable and there is no automatic sanction.

We have to say that mediation need not cost £100,000 but that estimate must include the solicitors’ costs as well as the mediator’s fee.

Essentially this case highlights the need to introduce more certainty in respect of the consequences of refusing to mediate and the fact that the case of Halsey needs revisiting.