In a recent article we considered mediation and the court’s ability to impose sanctions against a party it considered had unreasonably refused to mediate. In the recent case ofSwain Mason v Mills & Reeve  the Court of Appeal has considered the question again and in this case overruled the trial judge’s decision to penalise the successful party for refusing to mediate.
The case was a complicated professional negligence claim against solicitors brought by the daughters of a businessman, Mr Swain, who died shortly after completion of a management buyout of his company leaving a very substantial inheritance tax liability for his estate. His daughters argued, in short, that the defendant was negligent in not giving advice as to the tax consequences of Mr Swain’s death and if it had done so he would not have proceeded with the transaction then but would have awaited the outcome of an operation. For more details of what went wrong in this case see our article.
The decision at first instance
Before the judge at first instance the claim failed but the judge decided that it was appropriate to order that the claimants should pay only 50% of the defendant’s legal costs. Part of the reason for his decision was that there were a number of issues on which the defendant had not been successful. In addition the defendant had refused to mediate.
The claimants had proposed to mediate or enter into another appropriate form of ADR. At two interim hearings the judge had also encouraged the parties to consider mediation. The defendant refused to participate in mediation and the furthest it had gone in attempting to settle the case was to offer a “drop hands” settlement shortly before proceedings, and then shortly before the first trial had offered to negotiate over its own costs if the proceedings were withdrawn.
The judge considered the question of mediation and the factors set out in the case of Halsey v Milton Keynes General NHS Trust  when considering whether a party had unreasonably refused to mediate, namely:
- The nature of the dispute
- The merits of the case
- The extent to which other settlement methods had been attempted
- Whether the costs of ADR would have been unreasonably high
- Whether delay would have been prejudicial
- Whether ADR would have had a reasonable prospect of success
It was not really disputed that factors (a), (c), (d) and (e) were consistent with mediation being appropriate in this case. However, the judge also considered the risk to the defendant of being exposed to “collateral reputational damage” which he described as a relevant factor in this case. He also found that there was a real possibility that if there had been a mediation the parties would have gained a“better understanding of the weaknesses in their own case” and it was “not unrealistic” to suppose mediation might have produced a settlement. Whilst he found that it was more likely than not that mediation would have been unsuccessful, he did consider that the prospect of a successful mediation was not so unrealistic as to justify “the defendant’s intransigent refusal at every stage even to contemplate the possibility of mediation”.
The judge was of the view that the defendant’s attitude should be taken into account when assessing the costs order to be made.
The Court of Appeal refused to interfere with the judge’s discretion in assessing costs on an issue by issue basis. However, it was prepared to overturn his decision to penalise the defendant in costs for declining to mediate.
Davis LJ had three objections to the judge’s approach:-
- The judge had found the defendant had been “vindicated” in its assessment of the strength of the claimant’s case on breach of duty.
- The judge had not explained what “weaknesses” in the respective cases would have been revealed in a mediation.
- The avoidance of “collateral reputational damage” should not be considered a relevant factor counting against the defendant. Davis LJ thought it unfortunate, speaking generally, if claimants in these sorts of cases could be encouraged to think that such a consideration could enhance their bargaining power.
Davis LJ also felt that it was difficult to see how mediation could have had reasonable prospects of success when the parties’ respective positions were “a hundred miles apart”. He did not think it right to style the defendant’s behaviour as “intransigent” bearing in mind that nothing changed in the case to require a re-evaluation on the question of liability. He further commented that “a reasonable refusal to mediate does not become unreasonable simply by being steadfastly, and for cause, maintained.”
Reflecting on the Halsey case, Davis LJ reiterated the relevance of a party reasonably believing it has a strong case, otherwise there is scope for a claimant to use the threat of costs sanctions to extract a settlement even in an unmeritorious claim. Where a party reasonably believes that it has a watertight case that may be sufficient justification for refusing to mediate. In his view the defendant had not acted unreasonably and it was appropriate for the Court of Appeal to exercise the costs discretion afresh. The defendant was therefore awarded 60% of the costs of the proceedings.
Parties always need to consider the Halsey factors when approaching mediation to ensure that a refusal to mediate can be justified on one or more of those grounds. However, there has been a trend in recent cases for the court to penalise parties who have refused to mediate. This case is therefore important for reiterating that a party which reasonably believes it has a watertight case should not be bulldozed into mediation simply to avoid the possibility of costs sanctions.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.