The case got all the way to trial and after four days of evidence the judge was due to give his judgment. However, before he did so the defendant accepted a Part 36 offer which had been made by the claimant some time previously. The claimants sought an order that the defendant pay its costs on an indemnity basis rather than on the standard basis. This is a more favourable method of assessing costs and will usually result in a higher recovery. The basis of the application was that the defendant had unreasonably failed to engage in mediation.
The claimant had first suggested mediation in the letter of claim in which their solicitors indicated “our clients are willing to enter into an appropriate form of ADR, such as mediation at the appropriate time”. The defendants did not accept the offer at that stage.
In the allocation questionnaire filed by the defendants they indicated they were not prepared to engage in any settlement activity and did not want the court to arrange a mediation. The reason given was that the “parties are too far apart at this stage”.
The claimants asked why the defendants were not willing to mediate and the response given was:
“…we are confident that in a matter in which our clients are extremely confident of their position and do not consider there is any realistic prospect that your client will succeed, the rejection is entirely reasonable.”
As the case progressed, the claimants referred on a number of further occasions to the sense of mediating and the defendants continued to refuse to do so because of their confidence in the success of the defence.
In deciding whether to award indemnity costs the judge took into account a number of factors.
Firstly, this was a fairly typical case in which the dispute centred on whether a binding agreement had been made or not. The court would therefore have to judge the credibility of the witnesses and look at the importance or otherwise of contemporaneous documents. It was a classic case in which the parties needed to analyse the risk of whether their arguments would be accepted.
Second, this was not an all or nothing case on quantum where if liability was established there was only one figure which could be awarded. There was a range of possibilities which was very considerable and which would have been decided based on expert evidence. The judge therefore stated that this was a classic matter where mediation should be considered because of the range of quantum scenarios.
The defendants tried to argue that there was no middle ground because the question to be decided was a binary issue namely, whether a concluded agreement was reached. The judge commented that:
“To consider that a mediation is not worth it because the sides are opposed on a binary issue, I’m afraid seems to me to be misconceived.”
The judge also decided it was unrealistic for the defendants to think that the odds were so stacked in their favour that there was no point in talking about settlement. He expressed his surprise that if that was the case the defendant had not made an application for summary judgment. The judge cited and endorsed Mr Justice Lightman in the case of Hurst v Leeming in which he stated:
“The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is the frame of mind of so many litigants.”
The defendants also tried to rely on the dislike and mistrust between the parties as a reason for refusing to mediate. The judge dismissed this suggestion and indicated that it is precisely in this circumstance where the skills of a mediator come in most usefully.
The judge also noted that there had been no other settlement attempts by the defendants so they could not say they had had for example a round table meeting which had not been successful and so there was no point in spending any more money on settlement discussions.
The defendants sought to argue that the parties were too far apart for mediation to have been effective. Again the judge dismissed this argument and said that the parties do not know whether they are too far apart until they actually sit down and explore settlement.
Another ground for the refusal by the defendants was that the costs of the mediation were disproportionate to the amount of the claim. The judge felt this argument was misconceived as the comparison to be made was between the costs of a mediation and the costs of a trial. The costs of a mediation in this case would have been far less than the costs of a trial.
The judge concluded that there was a continuing failure by the defendants to engage in the process and the reasons they had given for refusing to mediate did not stack up and did not accord with the legal authorities. He therefore held that the defendants’ failure to engage in mediation or any other serious ADR was unreasonable and accordingly he ordered that the defendants should pay the claimants’ costs on an indemnity basis.
The case serves as a useful reminder of the grounds on which the court is likely to find that a refusal to mediate is unreasonable and the sanctions that the court can impose.