Is mediation mandatory? If a party completely foregoes mediation will that party be punished in costs? The case law suggests that although the court cannot compel parties to mediate, an unreasonable refusal to do so is likely to result in costs penalties for a defaulting party. The costs risks of unreasonably refusing to mediate or not responding to a mediation proposal may be severe.
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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.
Government guidance on mediation during COVID-19
In response to the Covid-19 emergency, the Cabinet Office has released a non-statutory guidance note entitled “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency” calling for parties to contracts to “act responsibly and fairly”.
“the Government strongly encourage[s] parties to seek to resolve any emerging contractual issues responsibly – through negotiation, mediation or other alternative or fast-track dispute resolution.”Cabinet Office’s Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency
ADR requirements in the pre-action stage
The Pre-action protocols require parties:
- To consider whether alternative dispute resolution would be suitable and, if so, to agree which ADR procedure to attempt.
- To provide evidence, if required by the court, that alternative dispute resolution was considered.
The pre-action protocols refers to the courts’ power to take account of the parties’ compliance with the Pre-action PD when providing directions for the management of claims and making costs orders. It provides several examples of non-compliance, including where a party has unreasonably refused to consider alternative dispute resolution.
Possible sanctions include staying the proceedings until the parties have complied with the relevant steps, or even order for a party at fault to pay costs – possibly on an indemnity basis. For example, see Burchell v Bullard  EWCA Civ 358 where the court penalised a party who ignored an offer to mediate made before the claim was issued.
Can a court force parties 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  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.
In Halsey, the court relied on Article 6 of the European Convention on Human Rights and stated:
“It is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest terms. It is another to order them to do so. It seems to us that 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….it seems to us likely that compulsion of ADR would be regarded as an unacceptable constraint on the right of access to the court and, therefore, a violation of Article 6.”Halsey v Milton Keynes General NHS Trust  EWCA Civ 576
Successful party can be deprived of costs following refusal to mediate
In Halsey v Milton Keynes General NHS Trust  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.
Halsey principles: when should 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:
- the nature of the dispute: in the Court’s view, most cases are not by their very nature unsuitable for ADR;
- 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;
- 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;
- 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;
- whether any delay in setting up and attending the ADR would have been prejudicial; and
- 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.
Post-Halsey case law: when is it unreasonable to mediate?
- In Burchell v Bullard & Others  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  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  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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