Unexplained wealth order

High Court issues costs penalty for failure to resolve issues with ADR

This latest High Court case again demonstrates the pitfalls for litigants who unreasonably refuse to engage in Alternative Dispute Resolution such as mediation to resolve issues. Parties that fail to do so risk be punished by the court when it comes to costs.

In JB v DB [2020] EWHC 2301 (Fam), Mr Justice Mostyn penalised a party in costs for failing to comply with the prior order to use their best endeavours to resolve the dispute “if necessary through mediation or another form of non-court dispute resolution”.

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The Facts

In this family law judgment, Mostyn J penalised the husband by way of a costs order for failing to comply with his previous direction that the parties should endeavour to resolve the issues through alternative dispute resolution (ADR).

Mostyn J previously directed the parties in the following terms:

“The parties are directed in the meantime to use their best endeavours to resolve the issues, if necessary through mediation or another form of non-court dispute resolution. The court will require at the hearing a full explanation of what efforts have been made to resolve the issues and will want to know why, without breaching privilege, the case has not been capable of settlement.”

Mostyn J, JB v DB [2020] EWHC 2301 (Fam)

At the subsequent hearing the husband argued that it was “essentially impossible” to resolve the issue by discussion and mediation. The Judge did not agree with this, and stated that in fact the issue was:

“squarely in the centre of the arena, it would have been possible for the parties in discussions to have a worked out a way to solve the problem, of which an obvious one was to have agreed a figure which properly represented the interests of the children in remainder, to have carved that out and to have provided for it, leading to consensus as to the extent of the residue of the trust, so that that residue could be dealt with in the terms of the order of 15 June 2018.”

Mostyn J, JB v DB [2020] EWHC 2301 (Fam)

Mostyn J ordered that there should be some sanction to reflect the court’s disapproval that the husband has paid such cavalier regard to his obligations as incorporated in the previous order. Certainly the obligation to engage properly in negotiations to see if there was a way round what had now emerged as a very significant impediment should have been taken very seriously indeed, and that in the circumstances where the husband has wilfully refused to do so, Mostyn J ordered a sanction in costs which he assessed in the sum of £15,000.

Download the Judgment

What is mediation?

Mediation provides a private forum in which the disputing parties can better understand each other’s position and then work together (with the assistance of the mediator) to explore options for settling the dispute.

Can the court force litigants to mediate?

No. It remains the case that a court cannot compel parties to resolve their disputes through mediation (Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576). The Court concluded that it had no jurisdiction to force the parties to mediate. To oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court. 

The hallmark of ADR procedures, and perhaps the key to their effectiveness in individual cases, is that they are processes voluntarily entered into by the parties in dispute with outcomes, if the parties so wish, which are non-binding. Consequently the court cannot direct that such methods be used but may merely encourage and facilitate. If the court were to compel parties to enter into a mediation to which they objected, that would achieve nothing except to add to the costs to be borne by the parties, possibly postpone the time when the court determines the dispute and damage the perceived effectiveness of the ADR process.

A successful litigant can be deprived of costs following refusal to mediate

In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, the court considered whether a refusal to mediate should give rise to costs sanctions.

CPR 44.3(2) provides that “if the court decides to make an order about costs (a) the general rule is that the unsuccessful party will be ordered to pay the cost of the successful party; but (b) the court may make a different order”. CPR 44.3(4) provides that “in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including-(a) the conduct of the parties”. Rule 44.3(5) provides that the conduct of the parties includes “(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol.” 

In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to mediate, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. The burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to mediate.

When does an unreasonable refusal to mediate lead to costs sanctions?

In Halsey, the court accepted the submission of the Law Society that factors which may be relevant to the question whether a party has unreasonably refused ADR will include (but are not limited to) the following:

  1. the nature of the dispute: in the Court’s view, most cases are not by their very nature unsuitable for ADR;
  2. the merits of the case: the fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted reasonably in refusing ADR. If the position were otherwise, there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit;
  3. the extent to which other settlement methods have been attempted: the fact that settlement offers have already been made, but rejected, is a relevant factor. It may show that one party is making efforts to settle, and that the other party has unrealistic views of the merits of the case;
  4. whether the costs of the ADR would be disproportionately high: This is a factor of particular importance where, on a realistic assessment, the sums at stake in the litigation are comparatively small;
  5. whether any delay in setting up and attending the ADR would have been prejudicial; and
  6. whether the ADR had a reasonable prospect of success

In Halsey itself, the refusal to mediate was considered to not be unreasonable. The claimant had lost the case, but had asked to be released from paying some, or all, of the costs of the successful party on account of that party’s refusal to mediate. The defendant had a strong defence, the costs of mediation would have been disproportionate and the claimant had not satisfied the burden of showing that mediation would have had a reasonable prospect of success.

Case law: when is it unreasonable to refuse to mediate?

  • In Burchell v Bullard & Others [2005] EWCA Civ 358 the court considered that the nature of the case (a small building dispute) lent itself to mediation; and the cost of mediating was small (“a drop in the ocean” the court said) when compared to the cost of litigation in a case of this kind.
  • In Garritt-Critchley and others v Ronnan and another [2014] EWHC 1774 (Ch), the defendants were ordered to pay the claimant’s costs on an indemnity basis because their position of consistently refusing to mediate due to confidence in their position and a belief that the parties were too far apart, was wrong.
  • In DSN v Blackpool Football Club Ltd [2020] EWHC 670 (QB) (20 March 2020), the judge considered that indemnity costs should apply because of the defendant’s refusal to engage in mediation. This was conduct “out of the norm” as the court did not accept the defendant’s justification that it believed it had a strong defence. No defence by itself justified a failure to engage in any kind of ADR.

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