Do you have to mediate a professional negligence claim?

28 Jun 2012

Citation: Swain-Mason v Mills & Reeve [2012] EWCA Civ 489

Under the still claimant-friendly CFA costs regime, a claimant who has a weak claim against a professional still stands a good chance of recovery if the case is well managed: follow the Protocol; keep costs down; then offer mediation pre-issue with the threat of an ATE if there is no settlement. In this frequent scenario it takes a tough insurer to withstand the pressure to pay some of its notional defence costs to the claimant just to make the case go away.

However, as we know, the landscape is changing, and insurers who decide not to pay and not to agree to mediate weak claims will feel encouraged by the decision of the Court of Appeal in Swain Mason v Mills & Reeve [2012] EWCA Civ 489. In Swain Mason the claimants were the executors and daughters of a successful businessman who had a history of heart problems; the defendant solicitors had been retained in connection with the management buy-out of his business and had given tax advice; shortly after the buy-out was completed the father died during a planned heart operation. His death gave rise to adverse IHT and CGT consequences. The claimants alleged that had the solicitors warned them of this, the buy-out would have been delayed until after the operation.  The claim and subsequent appeal were dismissed: the defendant learned of the heart procedure essentially by chance and did not have a duty to advise. So far, so good for the solicitors.

However, notwithstanding the fact that the solicitor’s stance was vindicated at trial, the very experienced trial judge Arnold J, referring to the check list of factors set out by the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 which are relevant to the question of whether a party had acted unreasonably in refusing ADR (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 reasonable prospects of success) decided to reduce the costs awarded to the defendants on the basis that their refusal to mediate was unreasonable. In coming to that conclusion he described the solicitors’ attitude as intransigent and considered that a settlement at mediation might have been achieved. Together with other relevant issues on costs the order was for the claimants to pay 50% of the defendants’ costs.

Appeals on costs are discouraged and are difficult to win. However in this case the Court of Appeal overturned Arnold J’s decision. Davis LJ, giving the lead judgment with which Richards LJ and – importantly – Lord Neuberger MR agreed,  concluded that settlement at mediation was not a realistic possibility and rejected the idea that the defendant’s repeated refusal to mediate was intransigent – “A reasonable refusal to mediate does not become unreasonable simply by being steadfastly, and for cause, maintained” (para. 75). He emphasised that the parties are not to be compelled to mediate, otherwise there was scope for a claimant to use the threat of costs sanctions to extract a settlement even where the claim was without merit (para. 76) and reminded himself that the defendant’s position had been vindicated at trial (para. 76). He said:

“The fundamental question remains as to whether it had been shown by the unsuccessful party (the claimants) that the successful party (the defendant) had acted unreasonably in refusing to agree to a mediation. In my view, that could not be shown here; and I therefore think that the judge was wrong to bring into account, adversely to the defendant, the defendant’s attitude to mediation in deciding what costs overall should be awarded”. (para. 77).

The result was that the "refusal to mediate" element of the costs order was stripped out and the claimants were ordered to pay 60% of the defendants’ costs.

In my view, this decision is one of many straws in the wind which suggests that, even leaving aside the proposed statutory changes to the CFA regime, the legal climate in professional negligence work is becoming more defendant-friendly. In my view, insurers (or indeed any defendants) who consider that the claim against them lacks merit and who set out their case clearly during the Protocol or in pleadings will now be able to justify taking a tough line and refusing to mediate. Of course, you still have to defeat the claim…


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