No such thing as watertight: refusal to mediate leaves Defendant sunk
Garritt-Critchley and ORS v Ronnan and ANOR (2014)
3 February 2014
The High Court considered an application by the Claimants for their costs to be paid by the Defendants on an indemnity rather than standard basis, following an unreasonable failure by the Defendants to engage in mediation or any other form of Alternative Dispute Resolution (“ADR”).
The Claimants brought a claim against the Defendants alleging that the Defendants had failed to allocate shares in a company pursuant to an alleged agreement to do so. The key issue for the Court to determine was whether or not there was in fact a binding agreement.
The Claimants provided a Letter of Claim in which they quantified their loss at £208,000; however, the Letter of Claim also went on to state, “Notwithstanding the above, our clients are willing to enter into an appropriate form of ADR, such as mediation at the appropriate time. We therefore hope that the issue of proceedings will not be necessary."
The Defendants did not respond to that invitation to engage in ADR and the Claimants subsequently commenced proceedings. At the time of completing the Allocation Questionnaire, the Defendants expressly stated that they did not wish to engage in mediation because they considered that the parties were too far apart at that stage.
The Claimants subsequently wrote to the Defendants asking for an explanation as to why they were not willing to mediate. The Defendants confirmed that, whilst they were aware of the penalties a Court might impose if they were found to have unreasonably refused to mediate, they were extremely confident of their position and did not consider that the Claimants had any realistic prospect of success; on that basis they considered the refusal to mediate to be entirely reasonable.
The parties thereafter entered into further correspondence in which the Claimants again invited the Defendants to consider mediation; the Defendants continued to reject the proposal and reiterated their confidence in their defence. The Court subsequently directed that, in order to further the overriding objective, the parties ought to consider mediating the claim, and if any party refused to engage in mediation they must file a witness statement setting out their reasons for the refusal. Despite the Court’s direction, the Defendants maintained their refusal to engage in mediation.
Around two months prior to trial, the Claimants made a Part 36 Offer of £10,000; the period for acceptance of that offer expired without the Defendants accepting it. In response, the Defendants made a counter-offer that the Claimants discontinue their claim, on the basis that the Defendants would pay three quarters of their costs.
The Claimants continued to propose that the parties mediate or enter into some form of negotiations. However, the matter proceeded to trial without the parties having engaged in either mediation or any form of ADR. Following conclusion of the trial, but before the Court could enter Judgment, the Defendants accepted the Claimants’ Part 36 Offer out of time.
The Claimants subsequently sought their costs on an indemnity basis on the grounds that the Defendants had unreasonably refused to mediate.
The Court upheld the Claimants’ application and ordered the Defendants to pay the Claimants’ costs on an indemnity basis.
Judge Waksman QC held:
That whilst the issue of liability in this case centred on whether a concluded agreement had in fact been reached or not, and there was therefore no middle ground, it was misconceived to take the view that mediation was not worthwhile because the sides were opposed on a binary issue. The Court considered that the case was certainly capable of mediation and the Defendants had therefore acted unreasonably in their refusal to engage in mediation. The Court stated that the case was “a classic matter where mediation should be considered because there is ample room for manoeuvre within the wide range of possible quantum scenarios.”
Specifically, the Court considered the principles established in Halsey v Milton Keynes General NHS Trust , and the sort of cases that might justify a refusal to mediate such as “where the party wishes to resolve a point of law, considers a binding precedent would be useful, or in cases where injunctive or other relief is essential to protect the parties”. It was also noted that in Halsey the Court had concluded that most cases were not by their very nature unsuitable for ADR.
The Court expressed surprise that whilst the Defendants believed that they were justified in refusing to mediate on the basis that they were extremely confident in the prospects of their defence, they had not proceeded to make an application for summary judgment. In particular, in noting the Defendants’ view as to the strength of their defence, the Court referred to the comments of Mr Justice Lightman in Hurst v Leeming  who stated, "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."
The Court also considered the Defendants’ point that, having received the Claimants’ Part 36 Offer of £10,000, it was clear that the cost of mediating the claim was likely to be as much as that offer. However, the Court took the view that the costs of mediation should in fact be compared with the costs of a trial, rather than the quantum of the Claimants’ offer.
The Court concluded that whilst the Defendants had failed to engage in mediation at that late stage, the most pertinent issue was the continuing failure to engage with the process from the outset. In summary the Court stated that “the reasons that have been given simply don't stack up and don't accord with the authorities in my view”.
In that regard, the Court considered the recent case of PGF II SA v OMFS Co 1 Ltd  in which it was held that parties who remain silent in the face of an offer to mediate, even if it is reasonable to refuse, risk being penalised by the Court in relation to costs. However, the Court distinguished the present case on the basis that the Defendants did respond but the reasons they gave for not engaging in mediation were simply misconceived.
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