Silence in the context of settlement – to mediate or not to mediate?
A recent Court of Appeal decision has sent a firm warning to litigants and their legal advisers in respect of the use of Alternative Dispute Resolution (“ADR”). The decision in Thakkar & Anr v Patel & Anr  EWCA Civ 217 should be noted by all litigants as it confirms what the Courts expect of litigants regarding the use of ADR, mediation in particular, within the court process, especially when the leading figure of civil litigation reforms, Lord Justice Jackson, handed down this important judgment.
This was an appeal against a costs order that was made. One of the main issues relating to the appeal focussed on the parties’ unwillingness and failure to mediate the claim. The dispute before the Court was a claim for dilapidations to a property amounting to approximately £210,000. Such a claim was met with a counterclaim for just over £40,000.
Both parties in their allocation questionnaires confirmed they required a stay of proceedings to engage in ADR. Lord Justice Jackson noted in his judgment that both parties showed a desire to engage in ADR and to possibly settle the claim. Initially, both parties expressed such a willingness to mediate the claim and counterclaim. From the evidence, it appeared the Claimant and its representatives were proactive in making arrangements for mediation and identifying suitably qualified mediators for the Defendant’s consideration.
In contrast, the Defendant and its representatives were, in Jackson LJ’s views “slow to respond to letters and raised all sorts of difficulties”. Eventually, the Claimants decided that progress was unlikely to be made in respect of such a mediation appointment and gave their explanation why such progress appeared to hinder the use of ADR:
“Our clients have made all reasonable attempts to arrange a mediation but have been thwarted by your clients’ conduct. Since April 2012, countless weeks have been lost through having to chase for responses. When your client finally gave a clear window of availability we tried to fix a mediation within that period a variety of excuses have been given as to why that date could no longer go ahead.
Understandably, our clients no longer have any confidence that a mediation can be arranged given your clients’ conduct and do not feel that it is reasonable that they should continue to have to amend their travel plans and work commitments of both themselves, their surveyor, and the writer, when the likelihood is that further ‘circumstances’ will arise that will lead to the postponement of any future date.”
Understandably, the ADR stay was lifted and the matter proceeded to trial. The Claimants were awarded £45,000 and the Defendants awarded £17,000 on their counterclaim. A balance of £28,000 was therefore owed to the Claimant.
The issue of costs then arose following the judgment. In the first instance decision, the trial judge commented that the Defendant as having been “relatively unenthusiastic or lacking in preparedness to be flexible”, but also commented that the Claimant was the party that ended the ADR process. Furthermore, the Judge at first instance was of the view there were real prospects of settlement had mediation taken place. Taking into account the conduct of the parties and all the circumstances relating to the claim, the Judge ordered the Defendants to pay 75% of the Claimant’s costs, whilst also ordering the Claimant to pay the Defendant’s costs of the counterclaim. The Defendants appealed this decision.
Lord Justice Jackson agreed with the trial judge that if a mediation appointment had taken place there would have been a real chance of achieving a settlement without the need to incur litigation costs. The dispute was a commercial dispute, relating to monies owed. In addition, it was noted that the offers made by the parties were close to what was awarded. However, the costs of the litigation were far greater than the sums claimed. Discussions and negotiations between the solicitors for the parties had failed and at first instance the Judge commented:
“Any mediator would have had both parties in the room with him. He would have let them have their say. He would then have pointed out (a) the small gap between their respective positions, and (b) the huge future costs of the litigation. In those circumstances, I would be astonished if a skilled mediator failed to bring the parties to a sensible settlement.”
Lord Justice Jackson in his judgment referred to the seminal case of PGF II SA v OMFS Company where the Court of Appeal held that silence in the face of an offer to mediate was, as a general rule, deemed as being unreasonable conduct meriting a costs sanction on the party who failed to engage in such ADR. This, crucially, was even if an outright refusal to mediate might have been fully justified.
In this matter, both Judges were of the view that mediation was likely to be successful in resolving the dispute without either of the parties having to incur further legal costs. The Court make the distinction that the Defendants did not refuse to mediate, but simply “…dragged their feet and delayed until eventually the claimants lost confidence in the whole ADR process.”
In such circumstances and based on the facts, the judge at first instance believed that the appropriate order for costs was the Defendants to pay 75% of the Claimant’s costs, whilst also recovering their costs of the counterclaim. Lord Justice Jackson agreed with the decision, stating that the Judge’s Order was a “tough order, but it was within the proper ambit of the trial judge’s discretion.”
The lesson learnt from this decision is the Courts have made it abundantly clear to litigants over the years that it expects them to be proactive in seeking possible settlement terms and to engage constructively with one another during proceedings. This includes fully exploring the potential for the dispute to be referred to the various methods of ADR. This decision highlights the position that ignoring a mediation proposal made by a party will usually warrant a costs sanction against the party who fails to engage in a meaningful way to resolve the dispute.
Where mediation is appropriate, the Court expects parties to engage constructively in such discussions and negotiations. A party which delays or drags its feet on such a settlement proposal will undoubtedly be punished for such conduct in future. As Lord Justice Jackson in his judgment emphasises, “…where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it….in the present case, the costs sanction was severe, but so severe that this court should intervene.”
Our team of expert litigation solicitors are well accustomed to deal with all types of ADR, including mediation. If you have a query on litigation issues, mediation or pursuing a claim, contact us for a no obligation quote and discussion on 01633 603178.