CostsSanctions for failure to mediate

September 1, 20180

For lawyers, one of the notable features of the judgment in the Charlie Gard case was the ringing endorsement of mediation in such sensitive family cases. What have other courts said recently to encourage mediation in commercial and costs cases?

I recognise, of course, that negotiating issues such as the life or death of a child seems impossible and often will be. However, it is my clear view that mediation should be attempted in all cases such as this one even if all that it does is achieve a greater understanding by the parties of each other’s positions. Few users of the court system will be in a greater state of turmoil and grief than parents in the position that these parents have been in and anything which helps them to understand the process and the viewpoint of the other side, even if they profoundly disagree with it, would in my judgment be of benefit

These were the wise words of Francis J, emphasising the ability of mediation to aid mutual understanding. In commercial cases, the courts have resorted to the carrot and stick of costs sanctions.

In Dunnett v Railtrack [2002] 1 WLR 2434, the Claimant pursued a claim against the Defendant for negligently failing to keep a gate locked, allowing 3 of her horses to escape onto the railway line, where they were killed by a train. Her claim failed, as did her appeal to the Court of Appeal. However the Court of Appeal refused to award the Defendant’s its costs, instead making no order as to costs, because the Defendant had turned down an offer to mediate. Brooke LJ said:

Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve. This court has knowledge of cases where intense feelings have arisen, for instance in relation to clinical negligence claims. But when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a A result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the court to provide.

It is to be hoped that any publicity given to this part of the judgment of the court will draw the attention of lawyers to their duties to further the overriding objective in the way that is set out in CPR Pt 1 and to the possibility that, if they turn down out of hand the chance of alternative dispute resolution when suggested by the court, as happened on this occasion, they may have to face uncomfortable costs consequences.

In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 a claimant was unsuccessful in a clinical negligence case. The NHS Trust refused to go to mediation, expressing the view that there had been no negligence. The judge declined to make no order as to costs on the basis that H was not disposed to compromise on any terms that could possibly be reasonable to the NHS Trust and the NHS Trust had taken the legitimate view that there was no negligence. In the other unsuccessful case, concerning personal injury, the trial judge decided that costs should follow the event. His reasoning was that mediation had been raised late in the day and would have been likely to achieve very little.

In agreeing with the trial judges that the claimants had not shown a sufficient case to depart from the usual rule that the unsuccessful party pay the costs, the Court of appeal laid down the following principles:

  • the court’s role was to encourage not to compel ADR. It was likely that compulsion of ADR would be regarded by the European Court of Human Rights as an unacceptable constraint on the right of access to court and therefore a violation of article 6 of the ECHR;
  • there was no basis for the court to discriminate against successful public bodies when deciding whether a refusal to agree to ADR should result in a costs penalty;
  • nevertheless, the Court may need to encourage parties to embark upon ADR in appropriate cases, and that encouragement may need to be robust;
  • the burden was on the unsuccessful party to show why there should be a departure from the general rule on costs in the form of an order to deprive a successful party of some or all of his costs on the grounds that he had refused to agree to ADR. The fundamental principle was that such a departure was not justified unless it had been shown

In deciding whether a party had acted unreasonably the court should bear in mind the advantages of ADR over the court process and have regard to all the circumstances of the particular case. Factors that could be relevant included:

  • the nature of the dispute;
  •  the merits of the case;
  •  the extent to which other settlement methods had been attempted;
  •  whether the costs of ADR would be disproportionately high;
  •  whether any delay in setting up and attending the ADR would have been prejudicial;
  •  whether the ADR had a reasonable prospect of success;
  •  whether the court had encouraged ADR.

In PGF II SA v OMFS Company [2014] 1 WLR 1386 the Claimant accepted the Defendant’s Part 36 offer after the expiry of the relevant period, which would ordinarily require it to pay the Defendant’s costs from that date. However, the Defendant had failed to respond to an offer to mediate, and so the Court of Appeal upheld the judge’s decision to deprive the Defendant of its costs from the end of the relevant period (although not to order the Defendant to pay the Claimant’s costs from that date). Briggs LJ noted that the burden of proof to show that ADR stood a reasonable prospect of success was on the claimant here, although the burden was not an onerous one. He stated that:

the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that 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.

This extension of the Halsey principle was justified on the basis that:

  • an investigation of alleged reasons for refusal advanced for the first time, possibly months or even years later, at the costs hearing, where none were given at the time of the invitation, poses forensic difficulties for the court and the inviting party including, in particular, the question whether the belatedly advanced reasons are genuine at all;
  • a failure to provide reasons for a refusal is destructive of the real objective of the encouragement to parties to consider and discuss ADR, in short to engage with the ADR process. There are many types of reasonable objection to a particular ADR proposal which, once raised, may be capable of being addressed.

In Thakkar v Patel [2017] EWCA Civ 117 Jackson LJ, with Briggs LJ agreeing, went further, stating:

The message which this court sent out in PGF II was that to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed. The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, 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.

Two recent cases have been significant in extending the influence of ADR into the costs disputes arena: having mediated the substantive litigation, the parties may then need to consider mediation to resolve the detailed assessment proceedings too.

Reid v Buckinghamshire Healthcare NHS Trust [2015] EWHC B21 was the first case in the Senior Courts Costs Office where a refusal to engage in mediation in respect of the detailed assessment proceedings resulted in sanctions. Master O’Hare ordered the paying party to pay costs on the indemnity basis from the date it failed to respond to an offer to mediate.

Importantly, this expresses a default position, not just a decision on the facts:

“If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct. I do disapprove of this defendant’s conduct but only as from the date they are likely to have received the July offer to mediate.”

In Bristow v The Princess Alexandra Hospital, unreported 4.11.2015, Master Simons accepted that there was a principle that

the parties should be encouraged to enter into mediation and if one party fails to enter into mediation and that failure is unreasonable then there should be a sanction.”

The Claimants were entitled to 80% of the costs of the assessment because the bills had been reduced by 43%. The Defendants took 3 months to reject an offer of mediation and gave no good reason for doing so. The Master expressed difficulty in finding a suitable sanction, since no particular loss had been caused: the beneficiary of the sanction would be the Claimant’s solicitors who would receive interest at 8% anyway and had earned profit costs in the assessment proceedings. However, there was a point of principle involved and the Claimant would receive the 80% costs on the indemnity basis.

However, a small number of cases have demonstrated that a failure to engage in ADR will not always be considered unreasonable.

In Car Giant v Hammersmith LBC [2017] EWHC 464 (TCC) the Defendant argued that it should be entitled to indemnity costs because the Claimant had delayed for 18 months in agreeing to mediate or take part in ADR. Stephen Furst QC held that no sanction was required:

  • an unsuccessful mediation had taken place later; there was no basis for saying that mediation would have been likely to be successful;
  • the courts should be slow to criticise a party’s behaviour where decisions such as when to mediate are tactical matters on which different views may legitimately be held; the Claimant’s view that mediation would be likely to succeed when the expert’s views had been fully set out was perfectly tenable

Gore v Naheed and Ahmed [2017] EWCA Civ 369 concerned a boundary dispute, not normally beloved of the Court of Appeal. The successful Claimant had refused an offer to mediate, but was still awarded his costs by the trial judge. The Court of Appeal upheld that order.

Somewhat undermining Briggs LJ’s stance in PGF, Patten LJ:

  • commented 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”; photo of sun behind clouds
  • noted that Briggs LJ had not said that a failure to engage in ADR, even if unreasonable, would automatically result in a costs sanction, rather it was a factor for a judge to take into account in the exercise of discretion;
  • declined to interfere in the exercise of the judge’s discretion, which had taken into account that the claimant’s solicitor had considered that mediation would have no realistic prospect of success but would only increase costs, and that the complex questions of law made it unsuitable for mediation.

So in summary, the courts, including the SCCO, have shown an increasing willingness to penalise a party for failing to respond to an offer of mediation, or even for failing to be sufficiently proactive in relation to ADR.

In some cases a party will not be penalised, but it is unwise to fail to respond at all to an offer to mediate: at the end of the case it will need to satisfy the court that mediation would not have been successful, or that it was reasonable to consider that mediation should await a more appropriate stage in the litigation, and it will usually better to set out those concerns at the time.

As a mediator myself, I of course welcome the courts’ approval and endorsement of mediation and ADR. However, I do have some reservations about whether the Court of Appeal has gone slightly too far. The essence of mediation is that it is a consensual process to which all parties have committed, and that is undermined if one of the parties is only there to tick a box to avoid being criticised later. Many of us will have had the dispiriting experience of a party attending mediation with no intention or authority at all of settling, and there seems to be nothing that a court can do to investigate such behaviour. In many cases, Part 36 provides ample machinery to promote settlement and to enable a party to protect itself on costs.

I would certainly emphasise that from my experience mediation does not have to be the expensive process that many fear. Increasingly, I find that half day mediations are being used to get to grips with the issues quickly and to see whether there is any genuine scope for a deal. Plenary sessions where each side simply rehearses its case are becoming less common, and I would encourage all parties to think about whether they really need position papers (when the issues are clear from the statements of case) and extensive bundles (when the mediator can easily be shown any particularly relevant documents during the course of the mediation).

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