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Whenever a dispute arises and it looks like court proceedings might be on the horizon, the best advice that a legal adviser can give to a party or potential party is, almost always, to explore all alternative dispute resolution (ADR) options before going to court and to respond promptly and constructively to any ADR or settlement approaches made by the other side. That has been because the courts have made clear that any failure to do so may lead to costs penalties:

Parties who “turn down out of hand the chance of alternative dispute resolution … may have to face uncomfortable costs consequences” even where that party goes on to win the case” (Dunnett v Railtrack, Court of Appeal, 2002)

“All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR” (Halsey v Milton Keynes NHS Trust, Court of Appeal, 2004)

Costs sanctions should be imposed “where there are real obstacles to mediation which might reasonably be overcome but are not addressed because that party does not raise them at the time.”; and “…silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds.” (PGF II SA v OMFS Company, Court of Appeal, 2013)

The Court of Appeal said in Thakker v Patel that the courts require the parties’ constructive engagement, which involves both parties cooperating and being proactive in the arrangement of the mediation (or other form of ADR), saying “It behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction”.

However, in Gore v Naheed and Ahmed, the Court of Appeal unanimously allowed a claimant (who was ultimately successful and so vindicated in his approach) his costs despite his refusal of, or failure to engage with, the defendant’s offer to mediate.

The dispute was between neighbouring landowners and involved complex issues of land law and rights of way. In the leading judgment, Patten LJ stated that he had “some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated.” That comment was particularly surprising because it seems to be in stark contrast to the case law to date and in particular the PGF II case.

Patten LJ went on to explain that a failure to engage in ADR, even if unreasonable, does not automatically result in a costs sanction, rather it is a factor for a judge to take into account when exercising his or her costs discretion. The Court of Appeal acknowledged that the judge at first instance had taken into account that the claimant’s solicitor had considered that mediation would have no realistic prospect of success and would only increase costs; also the judge thought that the complex legal questions in the particular case made it unsuitable for mediation.

The Legal authorities, even including the PGF II case, provides that a failure to engage in ADR, even if unreasonable, is simply a factor for a judge to take into account when exercising their costs discretion, and Gore v Naheed is no exception in that regard – the Court just considered that it wasn’t unreasonable to refuse mediation in that case on those facts. There is still a clear trend of judicial encouragement and endorsement of ADR mediation.

FuThe key lesson that clients and their legal representatives can take from Gore v Naheed and prior ADR authority is that every case must be considered carefully on its own facts. ADR is by no means compulsory, but a failure to properly consider or engage with ADR attempts will always carry a significant costs risk.

In our experience, legal complexity is very much not a bar to Mediation. If anything it makes costs increase and therefore mediation more attractive. The main thing is to record and be prepared to justify a decision not to mediate.

Being able to evidence your thinking and to explain your decision should reduce the risk of a court imposing a cost sanction for unreasonable conduct later down the line.

In this regard, we operate the Manchester Mediation Pilot and the Court is ordering parties in appropriate cases to consider using the pilot and to justify themselves if they don’t.