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Refusing to Mediate May Bring Cost Penalties

Tuesday, 2 September 2014

Disputing parties should seriously consider mediation and other forms or dispute resolution where it is proposed as an alternative to court proceedings. Failure to do so may bring cost penalties.

Despite the fact that it appears to undermine the adversarial approach traditionally favoured in common law countries, mediation has become an increasingly popular mechanism of Alternative Dispute Resolution (ADR) in England and Wales.

It offers a less confrontational alternative to a court action and has proven to be very successful. It is estimated that 70% of cases taken before a mediator settle at the mediation stage or soon after.

Encouraging Mediation

While the right to a fair trial in article 6 of the European Convention on Human Rights ensures that no party can be forced to engage in mediation, the courts have recently adopted the policy of encouraging the use of ADR by awarding indemnity costs against parties who refuse to engage in alternative dispute resolution.

The seminal case in this area is that of Halsey v Milton Keynes NHS Trust [2004], where the court confirmed its power to award costs in these circumstances where appropriate. While on the facts the party refusing to mediate managed to escape sanction, Dyson LJ in the Court of Appeal set out a non-exhaustive list of factors to consider when assessing whether a refusal to mediate was unreasonable.

These include whether the cost of mediation was disproportionately high, whether the refusing party had made other attempts of settlement or whether the nature of the particular case was unsuitable for mediation.

Indemnity Cost for a Failure to Mediate

Indemnity costs were awarded in the recent case of Phillip Garritt-Critchley v Andrew Ronnan and Solarpower PV Limited [2014], involving a dispute over a share allocation agreement. It was the opinion of the court that the defendants’ consistent refusal to submit to mediation was unreasonable.

The defendants put forward three justifications for their refusal. Firstly, they argued that the parties were too far apart on the issue, meaning that any chance of a mutually beneficial solution was impossible. Secondly, they cited how there was considerable dislike and mistrust between the parties preventing any meaningful form of conciliation or compromise. Finally they stressed that as they were extremely confident in the merits of their case they didn’t feel the need to mediate.

All three arguments were rejected by the court. It was held that the nature of the case was particularly suitable to mediation, as was recognised at an early stage by the claimants.

Mediation is Not Always Appropriate

Despite the current trend in favour of ADR, there may be instances where a refusal to mediate may be valid. Such cases include situations where parties may wish to resolve a particular point of law or to set a binding precedent. In such cases the party setting out reasonable grounds for refusal should make these out clearly in written form to the proposer of ADR.

Nevertheless, as a general rule, a blanket policy of refusing to enter into ADR is unlikely to be looked upon favourably by the courts and may even result in the imposition of indemnity costs. Therefore it is prudent for all sides in a dispute to be willing to engage in a preliminary form of ADR, at the very least.

For specialist advice regarding mediation or other forms of Alternative Dispute Resolution contact Peter Gourri today by email or telephone 0207 611 4848.

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