The risks – and costs – of choosing not to mediate

18 Jul 2014

Mediation is a flexible, and generally cost effective way of resolving disputes outside of the courtroom.  Although mediation is growing in popularity, particularly in run-of-the-mill commercial disputes, there are still instances where the parties, given the option to mediate, choose to litigate. Such a choice comes with a high degree of risk, as emphasised by a recent decision of the High Court in Manchester – Garritt-Critchley v Ronnan [2014] EWHC 1774 (Ch).

Garritt-Critchley v Ronnan

In Garritt-Critchley the claimant pursued a claim valued at £208,000.  The claimant’s position from its pre-action letter onwards was that mediation was appropriate and the offer to mediate was repeated on more than one occasion during the litigation.

The defendant’s position at Allocation Questionnaire stage was that the parties were "too far apart" to justify mediation; in correspondence the defendant’s solicitor stated that his clients were "extremely confident of their position" and that rejection of mediation was reasonable.  A court order inviting the parties to attempt mediation was effectively ignored.

The matter came on for trial. After a four day hearing, but before judgment was handed down, the defendant accepted a claimant’s Part 36 offer of £10,000 and costs. The claimant then asked for indemnity costs, because, it said, the defendant’s refusal to mediate was unreasonable.

Justifying a refusal to mediate

The starting point when considering costs in the context of a refusal to mediate remains the decision of the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002. In Halsey the Court indicated that there were six factors which might justify refusal to mediate:

  • The nature of the dispute (i.e. that it is unsuitable for mediation because of some important issue of legal principle – that is very rarely the case)
  • The merits of the case (i.e. that there is such a strong defence that refusal to mediate is reasonable; for an example of such a rare case see Swain Mason v Mills & Reeve [2012] EWCA Civ 489)
  • If other settlement methods have been attempted
  • If the costs of mediation is disproportionately high (this could by definition only apply to a low value claim)
  • If mediation would cause a delay to the trial date
  • Whether mediation has a reasonable prospect of success.

The judge, Judge Waksman QC, was scathing of the defendant’s reasons for refusing to mediate. He started by observing that this was an action of a fairly typical kind where the allegation was whether a binding agreement had been made or not; it was a case of applying well-known contractual principles and was a fact intensive exercise where the court would have to judge the credibility of the witnesses. He commented that this meant that both parties would have to engage in a careful risk analysis.

The judge then dealt with the defendant’s reasons for refusing to mediate. It was submitted that there was no natural middle ground – that it was a "binary" issue about whether an agreement was concluded or not. That argument was rejected, the judge observing that this is usually the case on liability and that this argument was "misconceived".

He referred to comments made by Lightman J in Hurst v Leeming [2002] C.Rep 59.

"The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is the frame of mind of so many litigants."

Have confidence in the mediation process

The defendants had said (earlier, in a confidential witness statement) that they were "confident that no agreement will ever be reached". The judge considered that argument was unrealistic.  

The defendant then submitted that there was considerable dislike and distrust between the parties, and that there had been earlier litigation. This was all the more reason to mediate and, in the judge’s words, "where the skills of a mediator come in most usefully."

The defendant then pointed out that the claimant’s previous offer was £120,000 whereas the defendant had always considered it a low value claim – in other words the "too far apart" point.

The judge observed (para. 22):

"Parties do not know whether in truth they are too far apart unless they sit down and explore settlement. If they are irreconcilably too far apart then the mediator will say as much within the first hour of mediation. That happens very rarely in my experience."

Weigh up the risk – and the cost

The Court’s conclusion was that the defendant’s refusal to agree to mediation was unreasonable; indemnity costs were ordered. Given that the claimant’s costs were £161,000 this must have been a bitter pill to swallow when accepting a Part 36 offer for £10,000.

Most people reading this article will have seen cases of this type. The decision is a timely reminder of the fact that even if you strongly suspect that mediation will just introduce another layer of costs, to refuse to mediate is extremely risky and can be very expensive.

John de Waal QC is a qualified mediator and has acted as lead mediator in over 50 cases. To find out more about John's experience as a mediator, please view his mediation profile.


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