Mediation update – Refusal to mediate

29 / 01 / 2014

Mediation is a process by which an independent third party (the Mediator) helps parties to a dispute  resolve it. Mediation is voluntary and the parties can decide whether to settle or not and if so, the terms. Usually mediation is confidential and without prejudice and what is said in it cannot be referred to the Court (with some very limited exceptions). The Mediator does not determine any issues but facilitates dialogue and settlement.

Statistics point out that 70% of cases that mediate settle at the mediation or soon after and a further percentage settle as a result of the process.

Most cases do settle in any event. The argument for mediation is that cases that mediate settle earlier, resulting in a saving of costs and time (and judicial resources). However a number of cases don’t mediate until after the parties have set out their cases and exchanged information.

The English Courts strongly encourage parties to a dispute to resolve it by means of Alternative Dispute Resolution (ADR), which means by methods other than litigation (going to court). ADR includes negotiation, mediation, arbitration and evaluation by a neutral. The most common methods of ADR are negotiation and mediation.

The Courts recognise that no party can be obliged to mediate (by reference to the European Convention on Human Rights and the right to a fair trial). Certain courts have however ordered that the parties enter into ADR (with its wider choice of processes).

The Courts have imposed costs sanctions on parties who they consider unreasonably refused to mediate. The sanctions include that a party who would normally be entitled to the costs of litigation would not recover them or only a reduced amount.   Alternatively if the refusing party was ordered to pay costs that the amount payable by them would be increased to a higher basis than normal. Conceivably in an extreme case the Court could reverse the usual costs order that the loser pays a contribution to the winner’s costs.

A party who refuses to enter into ADR can also be subject to costs sanctions.

In Dunnett v Railtrack [2002] the Court’s attitude was that even if one’s opponent’s case was weak, one should not dismiss an invitation to mediate out of hand. In that case the victorious party who refused mediation in that way did not recover its costs.

The Court of Appeal in Halsey v Molton Keynes NHS Trust [2004] set out a non-exhaustive list of factors to take into account in deciding whether a refusal to mediate was unreasonable. These include whether the refusing party made other attempts at settlement, or reasonably believed it had a watertight case, if the costs of the mediation would have been disproportionately high, or whether it would have delayed a trial, the merits of the case or the nature of the case itself (such as construction of law or a document) made it inappropriate.

Whilst there is considerable pressure to agree to mediate, and risk by refusing, there is a line of cases where the Court has held that a party reasonably refused to mediate.

Note however the recent decision of PFF II SA v OMFS Company 1 Limited [October 2013] in which the Court of Appeal declined to order that the Defendant could recover certain costs as in its view the Defendant unreasonably refused to mediate. In this case the Defendant did not respond to two invitations to mediate. The Court said that as a general rule, silence was by itself an unreasonable refusal to mediate, notwithstanding that the refusal might have been otherwise justified.

The Court saw this as a modest extension of the Halsey principles. It also gave itself a little room for manoeuvre in future by saying there might be some cases where mediation was obviously inappropriate or there had been a mistake; in which case it was up to the recipient of the offer to mediate to explain.

The Court’s rationale was that it was better to deal with reasons for refusing mediation there and then rather than at a much later date when costs were being debated (often at the end of the case), when recollections are not fresh.  Moreover, the Court also saw that engaging with the offer at that time might itself assist the parties in narrowing the issues and presumably settlement. It was also thought that failure to engage with an offer to mediate deprived the parties of any benefit to be gained from the process.

Therefore parties who receive an offer to mediate, would be well advised to engage with the offer. They do not necessarily need to agree to mediate but if they refuse or believe that it is best for this to take place at another time, they need to explain in writing why, in cogent terms and have in mind the decision in Halsey and other cases.