English High Court defends successful party's refusal to mediate and declines to impose costs sanctions

In ADS Aerospace Limited v EMS Global Tracking Limited [2012] EWHC 2904 (TCC), Mr Justice Akenhead sitting in the Technology and Construction Court held that a successful party was not unreasonable to refuse mediation and should not be penalised in costs on that basis. The judge's approach was similar to the Court of Appeal in Swain Mason v Mills & Reeve (a firm) [2012] EWCA Civ 498  (see post), and demonstrates that, applying the non-exhaustive Halsey factors, a refusal to mediate may, in some circumstances, be justified. Mr Justice Akenhead cited the lack of prospects of settling the matter at mediation and the proximity to trial as influencing factors.

Background

The claimant's claim, which was for over $16m for breach and repudiation of  an exclusive distribution agreement, was dismissed. On the issue of costs the claimant argued that there should be a reduction in the defendant's costs of at least 50% to reflect its unwillingness to mediate. The defendant maintained that it acted reasonably in all the circumstances.

Attempts to settle

The parties acted throughout via their respective solicitors and explored settlement in the four months leading to trial. In March 2012, the defendant telephoned the claimant to initiate settlement discussions and later offered £50,000 inclusive of costs, interest and VAT. Receiving no response, the defendant phoned the claimant twice to discuss settlement. The claimant wrote to the defendant referring to their £50,000 offer as a "nuisance payment" but nevertheless suggested mediation. The defendant replied stating that given the previous attempts at settlement, it did not think that mediation was likely to be a worthwhile or successful investment of time and costs, given the claimant seemed unlikely to accept much less than $16m. The defendant did say it would nonetheless "in good faith consider any reasonable offer your clients make" and would welcome a without prejudice discussion. The claimant replied stating that there were "reasonable prospects of settling the matter if your client is able to recognise its liability." It added that a skilled mediator could help and therefore mediation was preferable to without prejudice discussions. The defendant replied saying formal mediation was not necessary given there were less than three weeks to trial. The claimant then offered to settle for £4.246m and repeated its offer of mediation. The defendant later made a written offer open for 7 days of £100,000 inclusive of costs, interest and VAT. Neither of these offers were accepted or acknowledged. The trial took place in July 2012.

Decision

The court observed that imposing costs sanctions on a successful party for unreasonably refusing to mediate represents a departure from the usual costs rules, and the onus is on the unsuccessful party to show that the successful party acted unreasonably in refusing to mediate. The court referred to the Court of Appeal's 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

Mr Justice Akenhead recited the Court of Appeal's observation that the fact that a party unreasonably believes that his case is watertight is no justification for refusing mediation. But the fact that a party reasonably believes that he has a watertight case may well be sufficient justification for a refusal to mediate.

On the facts, Mr Justice Akenhead was not satisfied that the defendant acted unreasonably, for the following reasons:

• There had been no willingness on the part of the claimant to engage even in a without prejudice discussion until it suggested mediation, notwithstanding at least four attempts on the part of the defendant to initiate the same in the preceding three months
• It was clear from its offer to settle that the claimant, for good or bad reasons, had a strong view that it was entitled to substantial compensation and that it was unlikely, even through the good offices of a mediator, that it would settle for a substantially lower sum
• There was little or no good reason why the claimant should not have engaged in without prejudice negotiations with the defendant in March-June 2012 at least on a "nothing ventured, nothing gained" basis. At the very least this would have bottomed out where the parties were likely to have stood
• The lateness within the trial programme of the claimant's mediation suggestion was a material factor, coming less than 20 working days before the trial

 Comment

This judgment demonstrates that a court is likely to rule that where trial is imminent and there remains significant disparity in the parties' respective positions, without prejudice discussions are preferable to mediation, being quicker, cheaper and less intrusive. In this case the judge was in no doubt that without prejudice discussions would probably have achieved the same result as mediation or at least got to the same stage. On the facts, the claimant's offers to mediate were likely interpreted as empty gestures given their reluctance to engage in realistic settlement discussions.

The defendant’s stance was of course vindicated by the court's finding on the merits, but that will not always lead to the conclusion that a party was justified in refusing mediation (see here for example). Refusals to mediate should be very carefully considered and documented, indicating clear justifications for refusal at that point in time - as the defendant did in this case.