Losers lose more when ADR is ignored

A number of recent decisions have left us with no doubt that the courts are serious when it comes to encouraging mediation.   Most of the judgments on this issue to date have concerned penalties imposed on the successful party. But what about the party who refuses mediation who then loses at trial? From what date might costs sanctions run?   And what happens if a party changes its mind and decides to mediate at a later date?

Although the court cannot compel a party who does not want to participate in mediation it can certainly encourage it. This is often achieved by ordering costs penalties for an unreasonable refusal to mediate.   Most of the judgments on this issue to date concern costs penalties which have been imposed on the successful party. However, the courts have now confirmed that costs sanctions also apply where the party refusing to mediate is the losing party.

In Reid v Buckinghamshire Healthcare NHS Trust [2015] EWHC B21 (Costs) the defendant took six weeks to respond to, and then reject, an offer to mediate a costs dispute. The court found this to be an unreasonable refusal to mediate and held that a costs penalty should be imposed. The court awarded the claimant its costs on the indemnity basis from the date the defendant was invited to mediate.   The court noted that the usual penalty for a losing party who was unwilling to mediate was an order to pay the winner’s costs on the indemnity basis. This is important as it means that they will have to pay their opponent’s costs even if they are not proportionate to what was at stake.

More recently in another case concerning a costs dispute (Bristow v The Princess Alexander Hospital NHS Trust [2015] EWHC B22 (Costs)) the defendant rejected an offer to mediate. The defendant said it did not mediate because the parties were so far apart. The claimants were unreasonable in their offers, and the offers that were put forward by the defendant were much closer to the actual settlement sum than the offers made by the claimant.   However, the court was not satisfied that the defendant had been reasonable in declining to mediate. It took three months for them to reject and they gave no good reason other than the fact that the case had already been set down for a costs hearing.   It held that the correct sanction was that the claimant should receive their costs on an indemnity basis. The case is very much like Reid. However, in this case, highlighting the court’s wide discretion, indemnity costs were imposed throughout on the whole of the proceedings rather than from the date of the offer to mediate.

N J Rickard Ltd v Holloway (unreported) also highlights the need to respond promptly to requests for mediation. In this case a defendant received no response to his many requests for mediation. The court commented that no dispute was too intractable for mediation and silence towards an invitation to engage in alternative dispute resolution was in itself unreasonable.   In this case working out which party was the winner was more complex – The defendant had won more issues than the claimant but the latter had succeeded financially. The court concluded that a fair and balanced approach was to make no order as to costs.

Finally, in Murray and another v Bernard [2015] EWHC (Ch) the claimant initially refused to mediate but changed their minds at a later date.   The defendant then said he was not ready so no mediation took place. The court did not

These cases show that requests to mediate should not be ignored for any reason. It will be interesting to see what circumstances the courts do now go on to consider amount to a reasonable refusal to mediate.  Certainly, rejections must be drafted with extreme care and then should be kept under review. What might be a reasonable reason to reject an offer to mediate might no longer amount to a valid reason as the case progresses.