A costly rejection: refusal to mediate once again leads to costs sanctions

In the article "The cost of not talking" we discussed the Court of Appeal's decision in the case of PGF II SA v OMFS Company 1 Limited (2013), highlighting that a failure to respond to a proposal to mediate was akin to a rejection of that proposal, with the result that a non-responsive party could face significant costs sanctions from the Court.

The recent case of Garritt-Critchley and others v Ronnan and another [2014] EWHC 1774 (Ch), has once again that whilst there may be occasions where a refusal to engage in ADR can be justified, refusing a proposal to mediate is a high risk strategy which can, as in this case, have costly consequences.

The dispute concerned an issue of shares, the key issue being whether a binding agreement has had been entered into or not. The Claimants indicated in its letter before claim that it would be prepared to resolve the dispute by ADR. The Defendants stated that they did not wish to engage in mediation at that stage. Such an approach is not uncommon nor unreasonable; at this early stage the parties are often still in 'investigatory' mode and are not in a position to assess the strength and merits of both their case and that of their opponents. Premature mediation is of no benefit to anyone and often results in substantial costs with no resolution

However, as the matter progressed, the Defendants made clear that they did not wish to engage in any settlement activity and did not want the court to arrange a mediation in the event of a stay, the Defendants' reasoning being that the Defendants considered that the parties were too far apart at that stage and therefore there was no prospect of mediation bringing about a conclusion to the dispute.

The Defendants were aware of the consequences that might follow if the Court found that it had unreasonably refused to mediate. However, the Defendants claimed that the rejection of mediation was reasonable as it was confident of its position and did not consider that the Claimants' claim had any real prospect of succeeding.

The Claimants persisted with its proposals for mediation, and the Defendants continued to reject those proposals. The Claimants made settlement offers in correspondence but the Defendants refused to negotiate and the matter proceeded to trial.

Following a four day trial but before judgment was given, the Defendants decided to accept an offer of settlement previously made by the Claimants, such being that the Defendants pay the Claimants £10,000 plus costs. The Claimant sought an order that its costs be paid by the Defendant on the indemnity basis - under the indemnity basis, when the costs are assessed, there is a presumption that the costs are proportionate in favour of the receiving party (in this instance, the Claimant), this ordinarily leading to the recovery of a much higher level of costs

When considering what costs order to make, HHJ Waksman QC considered the efforts made by the parties to resolve the matter. This was, in HHJ Waksman QC's view, a classic case for mediation. The case was fundamentally a question of fact and whilst the parties may have had their own assessment of the strength of their case, neither could be sure that their position would be accepted by the Court.

HHJ Waksman QC did not agree that the Defendants confidence in its case or the fact that the parties were a significant distance apart provided any justification for the Defendants' refusal to mediate. The Defendants' refusal to mediate was considered to be wholly unreasonable and HHJ Waksman QC made an indemnity costs order against the Defendants. The refusal to mediate proved to be a costly error of judgment for the Defendants.

Given the steady stream of consistent judgments handed down previously within which the Court has repeatedly stressed the need for parties to engage in ADR and penalised parties who have failed or refused to do so, the decision in Garritt-Critchley is not surprising. The message coming out of this and previous cases is loud and clear: very few cases are unsuitable for mediation and it is a brave, some would say foolish, party that rejects mediation.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.