Costs implications for refusing mediation

Costs implications for refusing mediation
Par Ray Rushe,  Solicitor – Avocat à la cour

Mediation in the UK is a voluntary process requiring the agreement of both parties before it can take place. Mediation is also a facilitative process whereby the mediator assists the parties in finding a satisfactory solution to their dispute. Mediation is popular because it is cheaper and quicker than litigation, and has a relatively high approximately 70% success rate either during or just after the mediation. Only about 10% of cases actually go to trial anyway, whether or not mediation is entered into.

Successful mediation avoids litigation thereby making a saving on judicial resources and costs and time savings for the parties themselves. For these reasons mediation is actively encouraged by the court even though a party cannot be forced into the process. In certain cases the High Court has deviated from the principle that ‘costs follow the cause’ by imposing costs sanctions on the winning party when the court considers that it has unreasonably refused mediation. Similarly when the losing party has refused mediation, the costs payable have been raised because of, in the court’s view, the losing party unreasonable refusal to mediate.

In Dunnett v Railtrack (2002) All ER 850, the winning party, Railtrack was refused costs because it had dismissed the suggestion of arbitration or mediation on the grounds that Dunnett’s case was too weak. The court considered that despite Railtrack’s success in court, it would be inappropriate to compel Dunnett to pay Railtrack’s costs because of such refusal to mediate.

In Halsey v Milton Keynes NHS Trust (2004) EWCA Civ 567, Dyson LJ poses the question “When should the court impose a costs sanction against a successful litigant on the grounds that he has refused to take part in alternative dispute resolution?”. Although in this case the party refusing mediation avoided costs penalties, the court confirmed its power to impose penalties in such situations and set out the circumstances in which it might do so. The court identified six factors justifying refusal to mediate when determining the question of costs:

  • The nature of the dispute, the court intimated that “most cases are not, by their very nature, unsuitable for mediation”;
  • The merits of the case, so that a party which reasonably believes it has a strong case, might make refusal of mediation reasonable. Borderline cases make refusal to mediate more risky;
  • Other settlement methods have been attempted, though even here the court stated that “mediation often succeeds where other settlement attempts have failed”.
  • The cost of mediation would be disproportionately high; this may be the case where the claim is small and the offer of mediation is made late in the day. However the cost consideration would justify mediation early on in a dispute;
  • Where it delays a trial date,
  • Whether mediation has a reasonable prospect of success. The burden of establishing this would lie with the unsuccessful party who proposed the mediation and not the successful party who refused mediation. The losing party would have to show that there was a reasonable prospect that the mediation would have succeeded.

Today there is considerable pressure on the parties to litigation to agree to mediate and refusal carries a certain risk, nevertheless the court has in many cases held that a party reasonably refused to mediate. However, in PGF II SA v OMFS Company 1 Limited (2013) EWCA Civ 1288 the court endorsed Halsey confirming that a refusal to mediate was in most circumstances unreasonable conduct but then went on to extend the principle to situations where a party invited to take part in mediation failed to respond in any way. The court was of the opinion that silence itself was an unreasonable refusal to mediate even though the refusal itself may have been otherwise justified. It was for the recipient of the offer to mediate to explain why it did not wish to participate because in some cases mediation would obviously be inappropriate. The court went on to specify why engaging with the offer might bring other dividends; it would be better to give reasons for refusal at the time of the offer rather than when costs were being considered and memories faded – normally at the end of a case; furthermore engaging with the offer might aid the parties to narrow the issues of the dispute which may bring about a settlement.

Clearly parties receiving an invitation to mediate should bear in mind the Halsey and PGF II cases and engage with the offer even if they refuse mediation. The main reason why cost sanctions are imposed on parties refusing mediation is to encourage future litigants to consider mediation as a viable means of settling a dispute rather than relying on formal proceedings. Following Halsey and PGF II parties to a dispute must be made aware of the cost implications of failing to engage in an offer of mediation. Furthermore, it would be wise for a party to respond swiftly to an offer to mediate, giving reasonable grounds for refusal.