With mediation an established part of the dispute resolution process in the UK, a party set on refusing an invitation to mediate a dispute shouldn’t be surprised if the courts take a dim view of their decision. So can a client can still justifiably – and without consequences - say no to mediation? According to Stuart Evans, Dispute Resolution Partner, that may well depend on when the question is asked.
Case law has clearly confirmed that saying no to an invitation to mediate without reasonable justification during the course of litigation will result in costs sanctions. If you win the case, you may end up getting a lower recovery from the losing party (possibly nil), turning the “loser pays” rule on its head.
In the landmark case of Halsey v Milton Keynes General Trust , the successful party had refused an invitation to mediate. At the end of the case the court gave a non-exhaustive list of considerations when determining whether that party acted unreasonably in refusing to mediate. Although the Court of Appeal was satisfied that a costs sanction was not appropriate, Halsey is cited as a key decision outlining what the court will take into account in assessing this issue. Of course each case turns on its own facts, but without a thorough and persuasive explanation of why mediation was rejected as an option, the risk of a costs sanction will be very high.
Can any disputes be safely regarded as unsuitable for mediation? In Halsey, the Court of Appeal considered that the types of cases that would be unsuitable for mediation were where:
- A point of law had to be resolved;
- Injunctive relief was necessary;
- Allegations of fraud or other commercial disreputable conduct had been made.
However, subsequent decisions have indicated that there is nothing inherent in these types of cases that would absolutely make them unsuitable for mediation in all cases. Parties to a case involving a point of law can still make risk assessments of how that is likely to be decided. Despite the gravity of allegations of commercial fraud, bringing for example potential considerations of disclosures under Anti Money Laundering legislation and the privilege against self-incrimination, this does not render such disputes incapable of being commercially compromised.
There are other examples of cases in which mediation may be unsuitable, which include:
- The existence of effective ongoing negotiations or attempts at settlement (although their failure may bring mediation back into the equation);
- There is a need for a precedent (although this does not differ from the point of law case raised above);
- A court order is required;
- There is a clear indication that mediation has no realistic prospect of success (a rarity needing to be evidenced by unequivocal correspondence by one or both parties);
- There are issues affecting the state or human rights, policy and public interest or criminal sanctions are involved (whilst settlements of such disputes may require formal ratification, again this should not make mediation inherently unsuitable).
Whilst these types of cases have the scope to be considered unsuitable for mediation, they should not be treated as solid red lines. A court may consider that the dispute cries out for mediation despite the subject matter and make strong suggestions that it takes place. If that happens, the refusing party will be at risk of costs consequences. Sometimes an “ADR order” will be made by the court requiring the parties to mediate, and for the costs of the mediation to form part of the recoverable costs of the case. What can be said is that a flat refusal to even consider mediation, let alone where the line of suitability might be, will have a very high risk of costs sanction (Dunnett v Railtrack ), as will a refusal to respond to an invitation to mediate (PGF II SA ).
Consideration of mediation is also expected of those contemplating litigation. The Civil Procedure Rules, related protocols and practice directions require parties to consider mediation before commencing proceedings. Saying no can lead to costs and other sanctions later on, remembering that a judge will query such issues at a Case Management Conference, Pre-Trail review and possibly other applications, as well as at trial.
Sometimes a party will say yes to mediation to “tick the box” to avoid the sanctions imposed in cases like Halsey, only to fold its arms and take an unreasonable negotiating line in the mediation itself. Normally, such behaviour will stay behind the confidential closed doors of mediation, but in the case of Earl of Malmesbury , the parties waived privilege so that evidence of alleged unreasonable conduct during the mediation could be considered; in these rare circumstances saying yes to mediation offered no protection, and a costs sanction was ultimately imposed.
The implications of saying no to an offer of mediation, and the assessment of the reasonableness of saying no, will not be tested until the end of a case, when the court looks at the issue of costs by reference to correspondence relating to mediation (along with costs protective offers and other documents impacting conduct and costs). There will therefore be an element of crystal ball gazing to ascertain the court’s likely view on a refusal, which may be many years after the dispute arose and proceedings were commenced. As is always the case with litigation, there is no way of guaranteeing the outcome of that debate.
So will the threat of a costs sanction be enough in itself to convince a client to mediate? Not necessarily; most cases settle pre-trial, so the likelihood of judicial scrutiny of a refusal to mediate and consequent sanction is statistically unlikely. But a litigant should only undertake legal proceedings on the basis that they will see it through to trial despite the statistics, and be properly prepared for all eventualities rather than a hostage to fortune.
So, other than potential costs sanctions, what factors should a client consider when weighing up the pros and cons of mediation?
A party believing itself in a strong position may think that agreeing to a mediation suggests an unwarranted lack of confidence. Conversely, if a party believes that it is in a weak position, it will think that acceding to mediation will affirm such negativity in the eyes of the opponent. In both cases, this is over simplistic. A mediator will focus on reaching a negotiated outcome that the parties are prepared to accept, meeting as far as possible the objectives of both. That is something a judge cannot do. Both parties can present their strongest position, have that “reality tested” and be secure in the knowledge that no confidential information will be passed on to the opponent, so that if no deal is done then nothing has been conceded. In a commercial context, compromise based upon a proper risk assessment and a brainstorming of options is both normal and sensible, with no connotation of weakness.
Parties in the course of apparently fruitful negotiations may feel that mediation is unnecessary, which is fine if the result is a mutually acceptable compromise. However, if things are not going smoothly and there are significant barriers emerging or if negotiations have not borne the promised fruit, an independent, neutral third party in the form of a mediator could find the keys to a resolution.
Another concern for parties and their lawyers is “we don’t know enough yet”, often the case when evidence in the form of document disclosure and witness statements (and possibly expert evidence) has not yet been provided. This tends to arise as a barrier to mediation in the early stages of a dispute or subsequent proceedings, before formal requirements have been met. And a lack of evidence can certainly be problematic; whether it is fatal depends on whether a party has sufficient information to negotiate based upon the merits of the case as known, the best and worst alternatives to a negotiated agreement (BATNA and WATNA), and the options for settlement available. This very much depends on when mediation is considered; it may appear plausible to refuse mediation at an early stage, but less so as more information becomes available. And of course, the smoking guns that one lawyer is convinced will eventually turn up do not always surface!
Can mediation guarantee a settlement? No, although the statistics suggest it is more than likely that a settlement will ensue. If it does not, have the parties wasted time and money? Not necessarily. Having gone through the process of mediation, issues can be narrowed and a template for negotiation used, which may lead to a deal being reached (with or without the help of a mediator) later on. It can be incorporated into the directions the parties must follow to take a case to trial, so there should be no undue delay caused. If the parties want to have a window to mediate, then a stay of the proceedings can be agreed or ordered by the court.
None of the perceived concerns that parties or their lawyers might have about mediation should be impossible to overcome. Certainly over time, what might be considered a legitimate concern in the early stages of a dispute might be viewed very differently in the pre-action phase, subsequent progression of the case, and after the provision of evidence. What is overwhelmingly clear is that if parties are going to trial in the expectation of success, unless they have a highly compelling reason why they have not responded to an offer to mediate, then there is a high risk that the joy of any success will be mitigated by a nasty costs surprise. The better position will be that of the party who has sent an invitation to mediate, leaving the other party to run the risk of refusal.
So, is it safe to say no to an offer of mediation? If you believe that your case will go to trial and you decline mediation, you will have to show compelling reasons why there should be no costs sanctions. If you believe that statistics are on your side and the case will not get to trial, you may never be tested on this, although you will be reliant on achieving a negotiated deal directly with your opponent in the interim. The longer the case goes on, the more real the risk of a costs sanction if you say no.
For those parties litigating over substantial sums, where costs are an immaterial part of the overall equation, the question becomes less pressing. Most cases do not, however, fall into that rarefied category.
If you have a dispute and are looking for advice, the DMH Stallard Dispute Resolution team has highly regarded experienced litigators. The team deals regularly with mediation, arbitration and expert determination as part of the process of resolving disputes on pragmatic commercial terms.