Refusal to mediate – are the courts getting tougher?

Background

The courts have come a long way very quickly in recognising the claimed benefits of ADR (Alternative Dispute Resolution) in finding solutions to disputes. Mediation is the foremost type of ADR in use today – a neutral third party assists the parties in finding a solution to a dispute, coming up with (hopefully) an agreement that can encompass remedies that a court could not legally order.

It has for long been the case that unreasonably refusing an offer of mediation could (and normally would) result in a costs sanction, even if a party were successful at trial. However, what happens when a party does not refuse mediation, but simply refuses or fails to respond? Should the party offering ADR chase for a response or just let sleeping dogs lie?

Background – the facts

Northamber v Genee World [2024] EWCA Civ 428 is a complex case dealing with an exclusivity provision contained in a supply agreement. Very briefly, Northamber entered into an exclusive supply agreement for IT equipment with Genee. The allegation was that Genee had breached the exclusivity provisions by making sales to a third party (IES). An allegation of inducing a breach of contract was made against a director of Genee (Mr Singh) and also IES. The High Court held that Mr Singh had induced breaches of the exclusivity terms by agreeing sales to IES (but not for the whole period alleged). The Court of Appeal upheld Northamber’s appeal that IES was also liable for inducing breach of contract by the very act of placing orders for goods from Genee.

The costs aspect – at trial

As is normal, a case management conference provided that the parties should consider ADR and, if a party did not engage in ADR proposed by the other party, it had to serve a witness statement within 21 days explaining why not.

Northamber’s lawyers wrote to Mr Singh’s and IES’s lawyers suggesting mediation. This was met by deafening silence from Mr Singh and his lawyers. IES’s lawyers at least responded formally to say that they would take instructions, but nothing further was heard and no witness statement was filed by either Mr Singh or IES explaining why.

As we have seen, Northamber was successful in its claim against Mr Singh (at least in part) and the judge ordered Mr Singh to pay 70% of Northamber’s costs. He declined to go beyond this figure to reflect Mr Singh’s failure to engage in mediation as had been offered. There is some suggestion that the judge smelled a rat – he observed that considerable costs had been incurred and the offer of mediation was late in the process. He pointed out that Northamber had not followed up on its offer of mediation: this enabled it to say at the end of trial that it had suggested mediation while in fact having little expectation that Mr Singh or IES would engage in the process anyway. He did not take into account the failure to serve witness statements.

The latest (but almost certainly not the last) word

The Court of Appeal disagreed with the judge’s approach and found that the judge had fallen into error.

It pointed to two significant cases

• Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 – where the Court of Appeal held that an unreasonable refusal to engage in ADR could be unreasonable litigation conduct and entitled a court to apply a costs sanction
• PGF II SA v OMFS 1 Ltd [2013] EWCA Civ 1288 – where the same court held that the simple act of failing to respond to an offer to mediate could be considered unreasonable conduct, even where the refusal could have been justified

The Court of Appeal in this case set great store by the failure to comply with the order to file a witness statement – if this failure were not visited by costs sanctions, then there would be no incentive on a party to comply. It was not Northamber’s duty to chase for an answer either: if they got no answer, they were entitled to assume that any chasing up would not be met with a positive response.

However, when it came to applying a costs sanction, the Court of Appeal fought shy of ordering that Mr Singh should pay 100% of Northamber’s costs. Indeed, the Court of Appeal recognised that there is precedent for saying that an unreasonable refusal of ADR or silence in response to an offer does not automatically result in a costs sanction (see Gore v Naheed [2017] EWCA Civ 369, at [49] (Patten LJ)). Instead, they increased the judge’s order that he should pay 70% of the costs by a “modest” 5% to make it 75% of Northamber’s costs.

Takeaways

One can only say that this area of the law is something of a lottery – the trial judge here clearly suspected the claimant of manoeuvring itself into a better costs position by making a “half-hearted” (if not cynical) offer of mediation. The Court of Appeal came to a different conclusion, but only changed the order by 5%. Another court might have said something more than 5%, but equally a different court might have done nothing.

The important point is that any offer of ADR has to be taken seriously and responded to. It is a high risk strategy to refuse without being on really strong ground, folly to do nothing at all, risky to fail to comply with a court order. It is not that the courts are getting tougher, but they are keen to promote the general approach of encouraging ADR wherever possible.

The bottom line is – when the other side offers ADR, do something, preferably engage in the ADR process and make the best of the opportunities it represents.

14th June 2024

(As always, this is a general note, and you should take professional advice before acting on any of the information presented here)