“One Factor Among Many”: Sanctioning Refusal to Mediate

An interesting trend is beginning to emerge in relation to decisions over whether to sanction unreasonable refusals to mediate.

Despite specifically finding that a party’s refusal to mediate was unreasonable, trial judges have begun to widen their considerations over whether to impose a sanction, treating unreasonable refusal to mediate as one of several factors rather than as in some way a paramount determinant, and perhaps unexpectedly not sanctioning a refusal.

Two recent cases have been decided on this basis – Philip Warren & Co v Lidl (discussed in some detail in my CEDR website article reviewing 2021 cases on mediation)[1] and most recently Richards & anor v Speechly Bircham and anor[2].  

These are all first-instance decisions of trial judges exercising their broad discretion on costs, and no less interesting because of that, even if they lack the authority of appeal decisions.

They do as we shall see refer back to appeal decisions as a basis for this approach, albeit perhaps selectively and possibly myopically.

Where the Trend Began

The trend started with Northrop Grumman v BAE Systems[3], a decision of Ramsey J, in a “loser seeking costs relief” case.  NGM lost on a Part 8 construction summons but argued they should only pay 50% of BAE’s costs because BAE refused to mediate.

He powerfully rejected all BAE’s arguments that their refusal to mediate had been reasonable, applying the Halsey factors one by one.

He particularly rejected the two grounds usually relied on to excuse refusal, namely that mediation had no reasonable prospect of success (he found it would have succeeded) and that BAE’s belief in their own case justified refusal.

He also declined to accept the “hundreds of miles apart” argument which persuaded the Court of Appeal in Swain Mason v Mills & Reeve[4].  But ultimately he refused to penalise BAE because they had made an early Calderbank offer to drop hands, which NMG had not bettered.

He applied to factors set out in CPR 44.2 and ordered that costs should follow the event.  He said:

72. Where a party to a dispute, which there are reasonable prospects of successfully resolving by mediation, rejects mediation on grounds which are not strong enough to justify not mediating, then that conduct will generally be unreasonable. I consider that to be the position here.

73. However, the refusal to mediate is not the only factor to take into account in this case. CPR 44.2(4)(c) points out that one of the circumstances to be taken into account in deciding what order to make in relation to costs includes “any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply”. The “without prejudice save as to costs” letter of 20 January 2014 was just such an admissible offer. Whilst the existence of the letter does not justify a refusal to mediate, it is independently a relevant factor that BAE made an offer which NGM was not successful in bettering. NGM’s conduct in not accepting that offer is similarly a matter to be taken into account.

74. The issue is how those two aspects of conduct should be taken into account where BAE has been, overall, the successful party. A refusal to mediate means that the parties have lost the opportunity of resolving the case without there being a hearing. A failure to accept the offer has equally meant that the parties have lost the opportunity of resolving the case without a hearing. Whilst mediation at an earlier stage might have avoided costs, if BAE had mediated even at a later stage, its conduct would not have been unreasonable.

75. Overall, in this case, I have come to the conclusion that the fair and just outcome should be that neither party’s conduct should be taken into account to modify what would otherwise be the general rule on costs.

Development of the Trend

This topic next emerged in Patten LJ’s appeal judgment in Gore v Naheed[5], where the trial judge’s injunction prohibiting obstruction of a joint driveway, except as to permitting 20 minutes of parking for deliveries, was upheld, though his award of modest general damages was reversed.

This was another “loser seeking costs relief” case, and the appeal court declined to reverse the trial judge’s refusal to penalise the claimant for not mediating.  In doing so, Patten LJ refers to:

49. PGF II SA v OMFS Company Ltd in which Briggs LJ emphasised the need, as he saw it, for the courts to encourage parties to embark on ADR in appropriate cases and said that silence in the face of an invitation to participate in ADR should, as a general rule, be treated as unreasonable regardless of whether a refusal to mediate might in the circumstances have been justified.  Speaking for myself, I have some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated. But, as Briggs LJ makes clear in his judgment, a failure to engage, even if unreasonable, does not automatically result in a costs penalty.  It is simply a factor to be taken into account by the judge when exercising his costs discretion.

50.  In this case the judge did take it into account but concluded that it was not unreasonable for Mr Gore to have declined to mediate. His solicitor considered that mediation had no realistic prospect of succeeding and would only add to the costs.  The judge said that he considered that the case raised quite complex questions of law which made it unsuitable for mediation.  His refusal to make an allowance on these grounds cannot in my view be said to be wrong in principle.

The bold passage encapsulates the principle under discussion in this blog – that refusing to mediate is but one factor to be considered.

The authority cited is a little dubious.

It seems to place rather undue weight on Briggs LJ’s remark in PGF, a case where C accepted a Part 36 offer nine months late, and sought to resist costs since that offer was made, normally being liable for such post offer costs.

But D had entirely ignored two bona fide invitations to mediate.  Both the trial judge and the Appeal Court upheld sanctions on D.  Briggs LJ said:

34. In my judgment, the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds. I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism. There may also be cases where the failure to respond at all was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made, but in such cases the onus would lie squarely on the recipient of the invitation to make that explanation good.

The passage in bold is presumably what was relied on in Gore, but Briggs LJ’s reference to “rare cases” hardly provides a firm basis for the “one factor among many” argument: Ramsey J’s judgment in Northrop Grumman is rather clearer on this, but it is of course not an appeal judgment.

But, the underlined passage in Patten LJ’s judgment illustrates that there is a considerable range of personal opinion within the judiciary as to the appropriateness of costs sanction at all on this topic.   Contrast that with Briggs LJ in PGF when he says:

37. There are many types of reasonable objection to a particular ADR proposal which, once raised, may be capable of being addressed. Mediation may be resisted on the basis that some other type of ADR, such as early neutral evaluation, may be equally suitable and preferred by the objecting party. A proposed mediation may be expensive to the other party if, as is usual, the mediator’s fees are shared equally. In such a case it is not unknown for the proposing party to offer to bear the whole fee, or for some cheaper form of ADR, including judicial early neutral evaluation or financial dispute resolution, to be provided more cheaply by the court. ADR may be proposed before the other party has the requisite information, a difficulty capable of being addressed either by limited voluntary disclosure, or by ADR at a later date than that proposed.

38. Difficulties of this kind constantly arise in civil litigation, and the culture is now well-established under which the parties should discuss these difficulties, and seek to narrow their differences, before those which are irreconcilable are put to the court for determination. This occurs routinely in relation to expert issues, and is now prescribed practice ahead of case management conferences and pre-trial reviews. I can see no reason why the same should not apply to ADR, thereby saving valuable court time in the case management process which, as the practice guides now all make clear, extends to the encouragement of ADR rather than merely to the giving of directions for trial.

39. This second reason is partly a matter of practicality, but also serves the policy of proportionality. A positive engagement with an invitation to participate in ADR may lead in a number of alternative directions, each of which may save the parties and the court time and resources. The invitation may simply be accepted, and lead to an early settlement at a fraction of the cost of the preparation and conduct of a trial. ADR may succeed only in part, but lead to a substantial narrowing of the issues. Alternatively, after discussion, the parties may choose a different form of ADR or a different time for it, with similar consequences. In some cases the exchange of views may lead to an early appreciation that the interests of the parties would best be served by the earliest possible trial of an issue of law or construction, as indeed occurred in the second of the cases under review in Halsey where, in the event, the trial lasted a mere two hours.

Active Engagement Between Parties

The Briggs approach calls for active engagement between the parties to respond to the concept of trial litigation as a last resort, canvassing alternative approaches as early as possible, with the judiciary taking seriously its obligation under the overriding objective to encourage and facilitate ADR, to the point of sanctioning parties who fail to do so.

The Patten approach steps back from sanctions, out of distaste for penalising a successful litigant, even if their intransigence has led to additional court time without any prior exploration of the possibility of settlement or the use of mediation.

Patten LJ deals briefly with the question of a sanction for declining to mediate:

50. In this case the judge did take it into account but concluded that it was not unreasonable for Mr Gore to have declined to mediate. His solicitor considered that mediation had no realistic prospect of succeeding and would only add to the costs.  The judge said that he considered that the case raised quite complex questions of law which made it unsuitable for mediation.  His refusal to make an allowance on these grounds cannot in my view be said to be wrong in principle.

How (as I have argued before) a judge might expect an advocate seeking to resist a costs sanction against a client to assert anything other than that mediation would have failed and their case was strong enough to justify refusal is a mystery.

The words of Stephen Furst QC, the trial judge in PGF provide a salutary reminder:

44. The court should be wary of arguments only raised in retrospect as why a party refused to mediate or as to why it cannot be demonstrated that a mediation would have had a reasonable prospect of success.  First such assertions are easy to put forward and difficult to prove or disprove but in this case unsupported by evidence.  Secondly, and in any event, it is clear that the courts wish to encourage mediation and whilst there may be legitimate difficulties in mediating or successfully mediating these can only be overcome if those difficulties are addressed at the time.  It would seem to me consistent with the policy which encourages mediation by depriving a successful party of its costs in appropriate circumstances that it should also deprive such a party of costs where there are real obstacles to mediation which might reasonably be overcome but are not addressed because that party does not raise them at the time.  I have little doubt that that is the position here, namely that any such inhibitions to mediation could have been overcome at the time.

Hence the Fontaine Queen’s Bench standard direction requiring justification of any refusal to mediate to be by contemporaneous, not retrospective, witness statements.

Recent Cases (2022)

Turning to the recent cases which treat refusing to mediate as one factor among many,  Philip Warren & Co v Lidl, PWS lost a passing-off claim against Lidl, who sought indemnity costs against PWS, who had not accepted let alone beaten an offer to settle.  PWS sought “loser costs relief” because of Lidl’s refusal to mediate.

In effect, the judge appears to have accepted that the gap was too wide, with £28 million playing £230,000.  He uses the Gore quotation above to say that refusal to mediate would not lead to an automatic sanction.

Richards v Speechly Bircham was a claim in professional negligence for failure to advise on risks relating to a company transaction.  After a lengthy trial and after a very full judgment, the trial judge found for the claimants and awarded damages.

They sought costs on the indemnity basis against SB for having refused to on four occasions, firstly because it was too early, and then three times because they said the claim was doomed to fail.

Obviously, they were proved wrong on that.

This is a “winner seeking extra costs” case, like the decision relied upon by the claimants – Garrett- Critchley v Ronnan – in which indemnity costs were awarded to the winner because the loser declined to mediate, a case particularly memorable for Waksman J’s aphorism:

Parties don’t know whether in truth they are too far apart unless they sit down and explore settlement.

Gore v Naheed was again cited by the deputy judge to justify a wide exercise of discretion.  His reasoning was as follows:

21. However, the Defendants’ second point is that an unreasonable refusal to mediate is only once facet of a party’s conduct to be taken into account when determining the appropriate order for costs. Mr Tozzi QC and Mr Wright QC referred to the judgment of the Court of Appeal in Gore v Naheed[2017] EWCA Civ 369, at [49], where Patten LJ, citing an earlier decision of the court, said “…a failure to engage, even if unreasonable, does not automatically result in a costs penalty. It is simply a factor to be taken into account by the judge when exercising his costs discretion…”.
22. In Gore v Naheedthe defendant appellants did not rely upon what they contended to have been the claimant’s unreasonable refusal to mediate in support of an argument for indemnity costs. Instead, as the losing party liable to pay the claimant’s costs, they argued that judge should have made some allowance in their favour for the fact that the claimant had either refused to or failed to engage with their proposal of mediation. That had also been the thrust of the unsuccessful argument (for a discount in the costs liability to reflect an unreasonable refusal to mediate) in Northrop Grumman. It was unsuccessful in that case because the judge found that the defendant’s conduct in unreasonably refusing to mediate was balanced out by the claimant not accepting an offer which they failed to better.
23. The Court of Appeal in Gore v Naheedconcluded that the judge’s refusal to make any such allowance was not wrong in principle and declined to interfere with his order. The case concerned declaratory and injunctive relief over a right of way and the judge had said that he considered that the case raised quite complex questions of law which made it unsuitable for mediation. Patten LJ expressed his own view in more general terms when he questioned whether “the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated”. He went on to endorse the observation that even an unreasonable failure to engage in mediation does not automatically result in a costs sanction.
24. Although I have concluded that the Defendants’ failure to engage the Claimants’ proposals for a mediation was unreasonable, that is only one aspect of the conduct to be considered in the exercise of the discretion under CPR 44.2. Further, “the conduct of all the parties”, together with any measure of qualified success that a party may have achieved, is just one factor amongst all the circumstances that are to be considered alongside the general rule favouring the overall successful party when it comes to exercising it. A “failure” to engage in (or at) a mediation clearly does not carry the clearly defined costs consequences of an unaccepted but effective Part 36 offer; not least because of the difficulty of identifying with confidence, even in hindsight on what should be a summary determination rather than a further mini-trial, where any “blame” really lay within the pursuit and conduct of what is a privileged process. The uncertainty of outcome at any proposed mediation also means that the party who is suggesting unreasonableness on the part of the other cannot point to the result at trial and demonstrate that costs have been wasted through the mediation not having taken place.
25. In my judgment, the Defendants’ failure in this case to engage constructively with the mediation proposals does not justify an order for costs against them on the indemnity basis. To make such an order would involve elevating that factor over others which weigh in their favour. Those others include them successfully resisting a significant part of a claim put at around £4.3m (see the Judgment at [90]-[91]) and doing significantly better than either of the Claimants’ Part 36 offers proposed (thereby avoiding the consequences of CPR 36.17(1)(b)). That is a very different outcome from the one in Garritt-Critchley.
26. In circumstances where neither side made a cost-effective Part 36 offer, the Defendants’ unreasonable conduct in relation to mediation is in my judgment sufficiently marked by an order that they pay the Claimants’ costs down to and including trial on the standard basis. That is an appropriate “sanction” for them not engaging in a process of ADR which might have curtailed those costs in a significantly lower sum at an earlier stage of the proceedings.

Unclear Picture

Sadly this leaves litigants with a rather muddled picture, in which it will be difficult for advisers to give firm views to their clients.

The one safe piece of advice is for a client to express a genuine wish to mediate.

If the other party ignores this or declines flatly to mediate because the case against them is thought to be doomed to fail, what then?

Can an offering party – whether they win or lose at trial – rescue some of their investment in the costs of fighting their case, when they wanted at least to explore the possibility of settlement in a confidential environment which gives the best possible chance of finding a mutually acceptable outcome, or (if not) keeps all parties protected from criticism for not settling.

Trial judges are to a large extent shielded from case management, which is where most of the travails of litigation are encountered, and where a lightening of the judicial load is really needed.

They not unnaturally see a proper place for trials and for exercising their judgmental skills.

But the CPR have surely created the need for a different approach, one in which settlement is something which the courts can and should encourage and facilitate, to keep the over-pressed courts as widely available as possible to all those who need them.

Being firm with those who choose to ignore settlement processes is an important way to achieve that end.

Of course, CPR 44.2 establishes a wide scope for judicial discretion on costs, and each case will turn on its facts.  But it only does so retrospectively, which will remain the case until the courts decide that they can and should in the right cases require parties to engage in settlement discussions.

Judges also need to understand there is little in the ”hundreds of miles apart” excuse for not mediating.

Only judges who themselves have encountered the closing of apparently unbridgeable gaps in mediations in which they acted as lawyers or mediators will understand that.  There is a risk that softening the risks associated with refusing to mediate will keep pressure building on the courts to the detriment of civil justice as a whole.

[1]  [2021] EWHC 2372 (Ch): the article is at https://www.cedr.com/court-decisions-about-mediation-in-2021/

[2]  [2022] EWHC 1512 (Comm)

[3]  [2014] EWHC 3148 (TCC)

[4]   [2012] EWCA Civ 498

[5]   [2017] EWCA Civ 369