English Court of Appeal reviews test for unreasonable refusal to mediate and provides guidance on approach to negotiation

In a judgment handed down in October 2012 but only recently made available, the English Court of Appeal has set out guidance on the factors to be taken into account when assessing a successful party's refusal to mediate and general approach to settlement: Newman v Framewood Manor Management Co Ltd [2012] EWCA Civ 1727.

Background

In a separate judgment ([2012] EWCA Civ 959) the Court of Appeal held that a defendant landlord of a flat complex was liable for damages for loss of amenity for the blocking up of an internal door to a communal swimming pool, the replacement of a jacuzzi with a sauna and the failure to maintain gym equipment. Costs were ordered and the successful tenant appealed the order following her successful appeal on the merits, which substantially reversed the first instance judgment.

Decision of Court of Appeal on costs

The appellant was the clear winner and the Court proceeded from the starting point that she should recover her costs under CPR 44 unless there was some good reason to make a different order based on proportionality and conduct.

Proportionality

The landlord respondent argued that the appellant tenant was awarded far lass than originally claimed, and also that her costs were wholly disproportionate to her recovery.  The Court of Appeal ruled that this was an issue to be addressed on the assessment of costs and therefore the Court would not qualify the appellant's right to recover her costs on the grounds of disproportionality.

Conduct

The respondent argued that the appellant's conduct in the proceedings should preclude full recovery. One issue raised was that following the commencement of proceedings the appellant did not negotiate and did not engage in proposals for compromise (including mediation) in a reasonable way.

As regards mediation, the Court ruled that the correspondence undermined the respondent's position. Both parties had proposed dates for mediation; it was not the case that the respondent had done all the running and the appellant failed to make herself available on the dates proposed. As such, the appellant had not unreasonably refused to enter into mediation.

As regards negotiation, the respondent argued that the appellant did not take a reasonable approach in both making and responding to offers by the respondent to settle the proceedings because she imposed unreasonable preconditions. The Court ruled that this missed the point: the issue was not what offers (reasonable or unreasonable) the appellant put forward but rather what offers the respondent made which it said were reasonable and which the appellant unreasonably failed to accept. The Court found that the appellant's rejection of the respondent's offers (which did not offer compensation and included a "drop hands" on costs) did not disclose such unreasonable conduct so as to deprive the appellant of her costs as the successful party.

The Court  accordingly rejected all the respondent's challenges on the grounds of proportionality and conduct.

Comment

This judgment is a helpful statement by the Court of Appeal of the issues a court should address when assessing reasonableness in attempts to mediate and negotiate. A successful party, provided it has meaningfully engaged in discussions regarding mediation, should not be punished if  it ultimately cannot attend a mediation proposed by the other side. As regards negotiation, it would appear that a successful party may make onerous offers of settlement and reject offers by the other side which are less favourable than the ultimate court award. This accords with common sense and should empower parties to engage in frank negotiation. Much will depend on the ultimate judgment, as this will anchor the preceding negotiations and determine their reasonableness.