Court of Appeal defends successful party's refusal to mediate

In a rare move, the Court of Appeal has stepped into the shoes of the trial judge and exercised the court’s discretion on costs, holding that a successful party was not unreasonable to refuse mediation and should not be penalised in costs on that basis: Swain Mason v Mills & Reeve (a firm) [2012] EWCA Civ 498. 

The decision illustrates that a refusal to mediate may, in some circumstances, be justified. It is however a high-risk strategy, as an unreasonable refusal to mediate can carry significant costs penalties. Parties should not take such a decision lightly.

Background

The defendant solicitors successfully defended a professional negligence claim against them. However, the trial judge (Arnold J) awarded the defendant only 50% of their costs, in light of:

• the fact that there were issues on which the defendant had been unsuccessful (despite being overall the successful party); and
• the parties’ conduct, in particular their approach to alternative dispute resolution (ADR).

With regard to ADR, the claimants had suggested mediation twice and the judge had encouraged the parties to consider mediation. At all stages the defendant declined to participate, maintaining that the claim was entirely without merit. 

The judge referred to the Court of Appeal decision in Halsey v Milton Keynes General NHS Trust  [2004] EWCA Civ 576 where, in deciding whether a party had acted unreasonably in refusing ADR, the Court of Appeal identified relevant factors, including:

• 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.

In the present case, the judge found that “the defendant’s attitude in simply refusing even to contemplate the possibility of mediation on the grounds that the claim was utterly hopeless was an unreasonable position to take”.

Court of Appeal decision

The Court of Appeal (Davis and Richards LJJ and Lord Neuberger MR) disagreed that the defendant had been unreasonable in refusing to mediate, finding that where a party reasonably believed it had a watertight case, that might well be a sufficient justification for a refusal to mediate, and that remained the case even if on some issues the defence did not succeed. The Court of Appeal noted that it was a relatively rare case where a party was successful on all issues.

The Court of Appeal also had concerns at the judge’s assessment that the possibility of a mediated settlement was “not unrealistic”. In the Court of Appeal’s view, “at all stages the parties in reality were a hundred miles apart”. The claimants had sought £750,000 and costs by a Part 36 offer served shortly before the first trial. The defendant’s best offer had never been more than a “drop hands” approach. As such, it was difficult to see how a mediation could have had reasonable prospects of success.

Exceptionally, the Court of Appeal exercised the court’s discretion on costs afresh. The trial judge had not indicated the relative strength of the various considerations he had taken into account in arriving at the 50% figure, but neither party had suggested remitting the matter to him for further consideration. Using a “broad brush”, and taking into account the apparent importance of the mediation point as well as the judge’s conclusions on the other issues (which the Court of Appeal should respect) the court ordered that the defendant should be paid 60% of its costs of the proceedings.

Comment

This case demonstrates that a refusal to mediate, even in light of judicial encouragement to engage, may in some circumstances be reasonable. It will of course depend on the strength of the case and the approach the respective parties take to ADR. In this case, the defendant’s stance was vindicated by the trial judge’s finding on the merits, but that will not always lead to the conclusion that a party was justified in refusing mediation.

Any decision not to mediate should be carefully considered and justified, in light of the previous case law following Halsey (see here for example) and the government’s stated aim to increase the use of ADR within UK civil litigation (see here).