Mediate or be damned

24 October 2013. Published by Alexandra Anderson, Partner

In a landmark decision released yesterday, the Court of Appeal has upheld the decision to deprive a Defendant of part of its costs, for failing to respond to repeated requests to mediate, even though it made a Part 36 offer which the Claimant failed to accept until just before trial.

This case shows a determination on the part of Judges to force parties to enter into ADR. Click here to read the judgment.

The facts of the case are as follows.  The Claimant brought proceedings against the Defendant for alleged breaches of its repairing covenants in a lease of a commercial building, claiming approximately £1.9 million. The Claimant made two Part 36 Offers, which the Defendant did not accept. The Claimant then sent the Defendant an invitation to mediate. The Defendant did not respond, even though the invitation was repeated a few months later. Instead, it made a Part 36 Offer of £700,000, which the Claimant accepted, but after expiry of the 'relevant period' and shortly before trial.  The Defendant argued that it should be entitled (under the usual Part 36 rules) to recover its own costs incurred after expiry of the 'relevant period'.  The judge concluded that the Defendant had acted unreasonably in refusing to respond to the Claimant's repeated invitation to mediate and he therefore ruled that it was not entitled to its costs for that period. The judge also decided that the Claimant ought to bear its own costs incurred during the 'relevant period', rather than have them paid by the Defendant. Both parties appealed.

The Defendant, having an eye to the previous decision in the case of Halsey v Milton Keynes General NHS Trust, argued that: (a) it had not acted unreasonably in failing to respond to the Claimant's approach; (b) its mere silence could not be construed as a rejection of the Claimant's approach; and (c) it had been reasonable not to mediate because mediation at that stage stood no reasonable prospect of success in this case. The Court of Appeal was not impressed by these arguments.  It found that the time had come firmly to endorse the advice given in the Alternative Dispute Resolution (ADR) Handbook that, as a general rule, silence in the face of an invitation to participate in ADR was itself unreasonable, regardless of whether a refusal to engage in ADR might have been justified. In the court's view, a failure to provide reasons for a refusal was totally counter to the objective of encouraging parties to consider and discuss ADR, and to attempt to narrow their differences. It concluded that the Defendant's silence in the face of two requests to mediate was itself unreasonable conduct sufficient to warrant a costs sanction. The court also made the point that it would be ridiculous to regard silence in the face of repeated requests for mediation as anything other than a refusal. In the court's view, the dispute was eminently suited to mediation, which had a reasonable prospect of success, and the Defendant's failure to engage in the process should attract the penalty imposed by the court at first instance.

This case clearly demonstrates the importance of engaging in mediation, which extends to the communications relating to the process.  Applying the Court of Appeal's decision in this case, any party who fails to do so will almost certainly lose any usual or discretionary entitlement to costs, even if they succeed in the claim itself.

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