The High Court disallows a substantial proportion of a successful defendant’s costs on the basis of an unreasonable refusal to mediate

In Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd & Anor [2020] EWHC 1050 (Comm) (30 April 2020) (Wales), the High Court (the Court) disallowed a substantial part of a successful defendant’s costs as a result of its failure to engage in mediation. This is the latest decision in a number of recent High Court cases where the Court has shown willing to impose cost sanctions on the basis of a party’s refusal to participate in ADR (as discussed in a previous post here). The Wales ruling highlights that such a refusal may also have serious consequences for parties who prevail on the merits of a case.

Background

The Wales decision concerned an order for costs in relation to an earlier judgment in which the Court had dismissed the Claimant’s claims against the two Defendants.

The relevant procedural history was as follows:

• The Claimant had indicated itself willing to engage in ADR in its July 2015 and June 2016 letters of claim, and had proposed a three-party mediation in a 2 November 2016 letter to the Defendants. The First Defendant replied on 11 November 2016 that it would not participate in the mediation. The Second Defendant initially indicated it was willing to engage in mediation, but changed its position after the refusal by the First Defendant as it questioned the utility of any mediation without the First Defendant taking part.
• The Claimant eventually issued proceedings in July 2018. At the case management conference on 8 November 2018, the Court made an order that the parties should consider settlement by ADR at all stages of the litigation. On 28 November 2018, the First Defendant’s solicitors filed a witness statement explaining that the First Defendant would not engage in mediation because it considered a mediation premature pending the conclusion of pleadings.
• Pleadings concluded on 18 January 2019. The First Defendant sent the Claimant a without prejudice save as to cost letter on 14 February 2019. This letter contained a subject to contract settlement offer to the effect that the Claimant would withdraw the case and each party would bear its own costs. The Claimant did not respond to this letter.
• In late May 2019, the Claimant proposed a mediation that was to take place in the week of 17 June 2019. The First Defendant refused to mediate on the basis that there was insufficient time to prepare for a mediation and that there were significant factual issues between the parties that had not yet been addressed by witness statements. The Second Defendant again indicated that it was willing to mediate but questioned the utility of a mediation without the First Defendant’s participation.
• The matter proceeded to a hearing on 1-3 July 2019, with closing submissions taking place on 27 August 2019. The Court dismissed the Claimant’s claims in full in an 8 January 2020 judgment.

In its costs submissions, the Claimant argued that he should not be ordered to pay the First Defendant’s costs – despite being unsuccessful on the merits of the case – as a result of the First Defendant’s unreasonable refusal to engage in mediation. The Claimant also submitted that the Second Defendant should be deprived of some of its costs for failing to participate in a mediation (and for other reasons outside of the scope of this post).

Decision

The Court started by noting that the Claimant had clearly been unsuccessful in his claims and that CPR 44.2 prescribed that he should therefore be ordered to pay the costs of the Defendants unless there was a good reason to the contrary. It found, however, that such a good reason existed with respect to the First Defendant’s costs in light of its conduct in the case.

The Court observed that the First Defendant had repeatedly – and at different stages of the proceedings – refused to participate in mediation and that its explanations for the failure to engage in ADR were unsatisfactory. The Court also noted that the First Defendant’s conduct prior to the issue of proceedings had deprived the parties of the opportunity to fully canvas their cases and engage with the underlying issues. The Court then considered the Halsey criteria that guide whether a refusal to engage in ADR might be considered unreasonable (discussed in detail in this previous post) and observed that the factors did not consistently point in the same direction. On the one hand, there was nothing in the dispute that made it unsuitable for mediation, the cost of ADR would not have been disproportionately high, and any delay in setting up the mediation would not have been prejudicial. On the other hand, however, the First Defendant did attempt other settlement methods by making the without prejudice offer. On balance, the Court decided that the refusal to mediate by the First Defendant had been unreasonable.

Accordingly, the Court contended that the First Defendant should be deprived of a substantial proportion of its cost, at least for the period until it made a settlement offer in February 2019. It therefore disallowed 50% of the First Defendant’s costs for the period between the initial refusal to mediate on 11 November 2016 and the without prejudice offer by the First Defendant on 14 February 2019. However, because the Claimant had not responded to this without prejudice offer, the Claimant was liable for the whole of the First Defendant’s costs between 14 February 2019 and 17 June 2019. As the First Defendant again refused to engage in mediation in the week commencing 17 June 2019, 20% of its costs were disallowed from that date onwards. This percentage was different from the initial 50% reduction to reflect that the Defendants had a stronger defence by that point in time and that the First Defendant had offered to settle the proceedings in February 2019.

With respect to the Second Defendant, the Court ruled that it had reasonably taken the view that the prospect of achieving a successful mediation would be unlikely without the participation of the First defendant. The Court therefore did not reduce the recoverable costs by the Second Defendant on this basis, though it did do so on other grounds.