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The cost consequences of failing to take part in mediation have been highlighted in the recent High Court case of Garritt-Critchley, in which His Honour Judge Waksman QC (sitting in the Chancery Division, Manchester District Registry) awarded indemnity costs to the Claimants as a result of the Defendants’ consistent refusal to mediate; an approach which the Court deemed unreasonable.
The decision highlights the caution which should be adopted by parties in litigation when responding to requests to mediate, and the risks of refusing the same.
A dispute arose between the parties from the Defendants’ failure to allot shares in a company in accordance with an alleged agreement. The issue for the Court to decide upon was whether or not there was a binding agreement between the parties.
The Claimants’ letter of claim (which stated their claim at £208,000) indicated that the Claimants would be prepared to engage in ADR, such as mediation. The Defendants’ response said that they did not wish to engage in mediation at that stage.
Subsequently, in the Allocation Questionnaire, the Defendants once again made it plain that they were not prepared to engage in any settlement activity, stating that “the parties are too far apart at this stage”.
Their solicitors said that they and their clients were aware of the potential penalties if they were found to have unreasonably refused mediation but were “extremely confident” of their clients’ position and did not consider the Claimants’ claim to have a reasonable prospect of success.
As a result the Defendants considered their rejection of ADR to be reasonable.
This was in contrast to the Claimants’ Allocation Questionnaire, in which they confirmed that they remained willing to negotiate and sought a one month stay of the proceedings to allow the parties to explore settlement.
Throughout the litigation the Claimants’ willingness to mediate was reiterated on numerous occasions and on each occasion such offers were rejected on the basis that the Defendants remained extremely confident that they would defeat the claim.
At the CMC on 28 May 2013, the District Judge gave directions to trial and recorded that the Court considered that the overriding objective would be served by the parties seeking to resolve the claim by mediation.
The parties were directed to file witness statements in a sealed envelope in advance of the trial explaining any refusal to mediate.
In November 2013 (approximately two months before trial) the Claimants put forward a Part 36 offer in the sum of £10,000. The offer was not accepted within the permitted period.
On 14 December 2013 the Defendants put forward a counter offer that the Claimants discontinue their claim and pay 75% of the Defendants’ costs.
This was not accepted, but the Claimants reiterated that they remained willing to progress matters if the Defendants’ position changed and they agreed to negotiate constructively. No further progress was made prior to the trial.
Following a four day trial in January 2014, Judgment was reserved to be delivered orally on 3 February 2014.
In the period between the conclusion of trial and delivery of Judgment, the Defendants sought the Claimants’ permission to accept the Part 36 offer that had been made in November 2013.
The Claimants granted permission and the Defendants accepted the offer, which in turn meant that the Claimants should be paid their costs on the standard basis up to the date of acceptance.
The parties addressed the Court on costs at a hearing on 4 February 2014, at which the Claimants sought an indemnity costs award on the basis of the Defendants’ failure to engage in mediation.
HHJ Waksman QC accepted that cases such as Garritt-Critchley did not generally provide any natural middle ground on liability between the parties because they centred on whether a concluded agreement had been reached or not.
He said, however, that an argument that mediation was therefore not worthwhile was misconceived. The sort of case whose nature might rule out mediation would be where a party wished to resolve a particular point of law or considered that a binding precedent would be useful.
In contrast, he said that Garritt-Critchley was, by its very nature, eminently suitable for ADR, as the Claimants had recognised in their letter before action. The case lent itself to the usual risk analysis, in which each party should have engaged, as to the likelihood of their position being favoured by the Court.
He said that it was a classic matter for mediation as a result of the wide range of possible scenarios that could have arisen in relation to quantum and, as such, it was not reasonable for the Defendants to say that the odds were so stacked in their favour that there was no conceivable point in discussing settlement.
He went on to say that the Defendants’ contention that there was too much dislike and mistrust between the parties for mediation to be worthwhile was flawed given that it is in situations where there is considerable distrust and heightened emotion that a mediator’s skills are most useful.
The Judge commented that had the Defendants been so confident of their position, they ought to have made an application for Summary Judgment.
As established in Halsey -v- Milton Keynes General NHS Trust  EWCA CIV 576, “extreme confidence” could not be considered a reasonable basis on which to refuse mediation.
Finally, the Judge considered and rejected the Defendants’ analysis that the parties were too far apart for settlement to be reached. He concluded that parties do not know whether they are too far apart unless they explore settlement in a form such as mediation.
Accordingly, on the basis of the Defendants’ consistent failure to engage in mediation, the Judge ordered that the Defendants pay the Claimants’ costs on the indemnity basis to the date upon which the Claimants’ Part 36 offer was accepted.
The decision emphasises how strongly mediation is advocated by the Judiciary and that parties and solicitors need to very carefully consider the potential consequences of a refusal to engage in ADR.
The key points to note are:
This article was written by Caroline Greenwell.
For more information please contact Caroline on +44 (0)20 7203 6341 or email@example.com.