Punishment for losing parties who unreasonably refuse to mediate
The original authority of unreasonable refusal
In 2012, the case of PGF II SA v OMFS Company established the principle of “unreasonably refusing” an offer of mediation or other form of ADR in a case where a mediation offer was ignored entirely by the defendant who ultimately went on to win the case. The usual rule on costs is that the loser pays the costs of the winning party. However, the court denied the defendant any of their costs on the basis that having ignored the invitation to mediate they had “unreasonably refused” to do so.
Reid v Buckinghamshire Healthcare NHS Trust
In this case, the main issues in dispute had already been settled, and all that was left to decide was the parties’ legal costs of the case and how much would be paid by the losing defendant to the successful claimant. Agreement could not be reached, and a hearing was listed for a Judge to make a determination at a costs only hearing. Prior to the hearing, the claimant made a Part 36 offer (which is strategically tactical as this bears costs consequences in its own right) accompanied by an offer to mediate; it wasn’t until some 6 weeks later that the defendant replied, only to refuse both offers. At the hearing, the claimant was awarded more for their costs than their Part 36 offer had been; it is usual when a party “beats” their offer to be awarded their costs on an indemnity basis (an additional 10% on their costs) backdated to the date their offer was refused.
Costs were indeed ordered on an indemnity basis, but Master O’Hare took issue with the defendant’s delay in refusing the mediation and backdated the indemnity costs to be paid to the claimant, ordering that they should accumulate from the day on which the defendant was deemed to have received the offer, not the date on which it was refused. The claimant therefore received an additional 6 weeks of interest on their costs.
The risks of being penalised in terms of costs as a result of parties’ conduct when responding to an offer to engage in ADR continue to grow, and this case serves to extend the court’s reach in how far it can take those sanctions.
Is it arguable that this decision imposes an obligation on a party to accept an offer of mediation or other form of ADR, even where they feel it would be a waste of time and money, which would appear to conflict with the court’s recent focus on ensuring all steps taken in a claim are proportionate. It also suggests that parties must attempt to resolve their issues outside of the court, notwithstanding the overarching right to a fair trial and access to justice for all. Defendants who would otherwise have proceeded with litigation on the basis that the claim against them was so weak it would ultimately fail, may, as a result of these recent decisions, be forced to spend unnecessary time and money in what may be futile mediations, purely to safeguard themselves from possible costs punishment. There is also a possibility that the court’s well-intentioned support for ADR could undermine the reputation that it has built as a voluntary and reputable alternative to litigation, and instead turn it into a meaningless box that must be ticked in order to avoid costs sanctions at the end of the case.
Guidance from the Court
What is ideally needed from the courts now is guidance on what constitutes a reasonable refusal of an offer to attempt ADR. Parties should now be aware that they cannot simply ignore offers to attempt to settle nor can they allow any substantial delay in refusing.
Anticipating the consequent increase in mediation between parties due to this decision, how should attitudes be managed? As discussed, there will be parties who are simply turning up to mediation with only the intention of avoiding costs sanctions; should the judge be made aware of these instances or would this infringe on the confidentiality of the mediation process?
For the time being, parties who dare to refuse to mediate should have robust grounds for doing so and set these out in writing to record those reasons in the event that they are required to defend their decision further down the line.
We eagerly await developments in this area.