What are the Costs of Failing to Mediate?

Parties are advised that if they do not attempt mediation or other forms of ADR then there may be cost consequences, but what are those consequences in practice? Conversely, if one party has been trying to mediate throughout proceedings but has been met with refusals by the other side, is there anything they can do to make those efforts worthwhile?

 Case Law

The case of Halsey v Milton Keynes General NHS Trust; Steel v Joy and another [2004] EWCA Civ 576 involved two personal injury appeals heard together. At trial the successful party in each case had been awarded costs in the usual way. The unsuccessful parties had then appealed the costs orders on the grounds that the successful parties had refused their requests to mediate.

The question for the court when considering whether to deprive the successful party of some or all of their costs is has the successful party acted unreasonably in refusing to agree to mediation/ADR? The burden is on the unsuccessful party to show the refusal was unreasonable. When answering the question the court shall have regard to all the circumstances of the case, however Halsey did provide a non-exhaustive list of factors that will guide the court, being:

  1. the nature of the dispute;
  2. the merits of the case;
  3. whether other methods of settlement have been attempted;
  4. whether the costs are disproportionately high;
  5. whether the delay would impact upon the trial;
  6. the prospects of success.

The case of PGF II SA v OMFS Co I Ltd [2013] EWCA Civ 1288 illustrates the process in practice. This was effectively a claim by a landlord against a tenant for breaches of repair obligations and other matters relating to air conditioning units within the demised premises. The claim was issued in October 2010 and the Claimant raised the possibility of mediation with the Defendant more than once, on each occasion the Defendant did not reply.

On the 11/4/11 the Defendant made a Part 36 offer in full and final settlement of the claim. On the 10/1/12, the day before the trial, skeleton arguments were exchanged in the usual way, within which the Defendant submitted that the air conditioning units did not fall within the definition of the demised premises as set out within the lease. This was the first time that argument had been raised and the Defendant therefore indicated that it would be seeking to amend its Defence at trial the following day. Noting the argument raised the Claimant decided to accept the earlier Part 36 offer at that stage, leaving only the issue of costs to be determined. The argument therefore was whether the Claimant would be liable for the Defendant’s costs after expiry of the Part 36 offer, being 3/5/11 to 9/1/12, as the Claimant usually would be.

The Claimant argued that as the Defendant had essentially refused to mediate by not responding to the Claimant’s requests to do so, that it should pay the Claimant’s costs. An argument with which the court agreed, applying Halsey. The court found it was unreasonable for the Defendant not to respond and therefore not to agree to mediate. The court recognised that the burden had been on the Claimant to show the refusal was unreasonable, but stated that the burden was not an unduly onerous one, the Claimant did not need to show that the mediation would have been successful, merely that it had reasonable prospects of success. It was also highlighted that courts should be wary of arguments raised in retrospect as to why mediation was not appropriate.

Guidance

An offer to mediate should always be responded to, as a failure to respond is likely to be deemed a refusal. Ideally that response will be in the form of an agreement to mediate to avoid the potential costs consequences of not doing so, however if it is a refusal, it should always be communicated to the other side and always include the reasons for that refusal.

Parties may wish to consider offering mediation in all cases as notwithstanding the potential of settling the claim, if the other side refuse or fail to respond, it may provide the party making the offer with an argument when the issue of costs arises, as in PGF. Moreover if the offer is not made, it leaves the path clear for the other party to make it and thus the party who did not make the offer may be faced with the possibility of having to argue that it was reasonable to refuse to mediate, as well the potential consequence of losing that argument.