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Dangerous to refuse mediation

The High Court has held in Garritt-Critchley and others v Ronnan and another [2014] EWHC 1774 (Ch) that a Claimant ought to be paid its costs on the indemnity basis rather than a standard basis because of the Defendant’s unreasonable failure to engage in mediation.

This case arose out of a disagreement relating to the issue of shares. From the outset the Claimant expressed a willingness to engage in ADR. The Defendant did not engage with the offer. As proceedings continued the Defendant made it plain that they were not prepared to engage in any settlement activity and, in the event of a stay, did not want the court to arrange a mediation. In its allocation questionnaire the reason given by the Defendant was that the parties were too far apart.

In subsequent correspondence the Defendant said it considered its rejection of mediation to be reasonable because it was extremely confident of its position and did not consider that there was any realistic prospect that the Claimant would succeed. The Claimant continued to push for mediation and the Defendant kept refusing.

When giving directions to trial the court noted that the overriding objective would be served by the parties mediating. The parties were then ordered to serve witness statements in sealed envelopes explaining why mediation had been refused. The Claimant continued to offer to mediate and also produced a Part 36 offer to settle for £10,000 plus costs. The Defendant also made a Part 36 offer stating that the Claimant should discontinue their claim and pay three-quarters of the Defendant’s costs. After trial but before judgement the Defendant accepted the Claimant’s Part 36 offer.

Upon hearing the Claimant’s application for indemnity costs the High Court accepted that the Defendant’s refusal had been unreasonable. The Defendant had not approached mediation in the correct way at all.

The Court said that this was a fact sensitive case applying well-known contractual principles. The court would have to judge the credibility of witnesses, look at contemporaneous documents and look at the commercial sense of each side’s case. It was a classic case where both parties needed to engage in a risk analysis as to whether their side of the coin would be accepted or not.

There was also an obvious sliding scale of a compensatory award if the Claimant succeeded. This was not an all or nothing case on quantum where the parties would have to agree that if liability was established the obvious amount of damages would be X. Expert opinion on quantum was required and the range was really very considerable.

This was a classic matter for mediation because there was ample room for manoeuvre within a wide range of possible quantum scenarios. The Defendant’s assertion that this claim did not provide any natural middle ground because it centred on whether a concluded agreement was reached was misconceived. This was usually the case on liability.

The Court referred to the lead authority of Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 which indicates that the nature of a case might rule out mediation if the party wishes to resolve a point of law, considers a binding precedent would be useful, or in cases where injunctive or other relief is essential to protect the parties. In that case the court said “In our view most cases are not by their very nature unsuitable for ADR.”

The Court held that this case was eminently suitable for ADR. Given the nature of this dispute it was not realistic for the Defendant to say there was no point in talking about settlement because no agreement would ever be reached at mediation. Here there was evidence going both ways. “Extreme confidence” was not a reasonable position to take.

The fact there was considerable dislike and mistrust between the parties had no foundation in the decision not to mediate either. A skilled mediator would defuse emotion, feelings of distrust and other matters paving the way to a commercial settlement. This was often the case in litigation.

The Court said that parties would not know whether they were too far apart unless they sat down and explored settlement. If they were irreconcilably too far apart the mediator would say as much within the first hour of mediation. That rarely happened.

The Defendant’s argument that the cost of mediation was disproportionate to the Claimant’s offer of £10,000 was misconceived. The costs of mediation were to be compared with the costs of a trial. Indeed, where the claim is in lower figures, the Court said, there is even more of a reason to mediate than otherwise. The Court pointed out that at the end of the day the Defendant accepted the Claimant’s offer meaning that they paid £10,000 plus all of the Claimant’s costs, at least on a standard basis.

This case is a useful reminder that the fact that a party believes that it has a watertight case is no justification for refusing mediation. Most cases will be considered suitable for mediation by the courts. Before refusing to engage in mediation parties should carefully consider their reasons for doing so. There will not be many scenarios where a refusal will be reasonable.