For the Lawyers

The Court of Appeal in PGF 11 SA v OMFS Company 1 Limited [2013] EWCA Civ 1288, made it clear that that parties to a dispute must consider mediation and a party that refuses an invitation to mediate will face a costs sanction. In its judgement, the Court of Appeal took the opportunity to consider the use of mediation over the last ten years and particularly in the light of the Review of Civil Litigation Costs by Lord Justice Jackson. The Jackson ADR Handbook has been provided to every member of the judiciary so it is not surprising that the Court of Appeal made it clear that if a party is invited to mediate, then it would be unreasonable for that party to refuse. But it is not necessary to await an invitation to mediate; it can be tactically advantageous to invite the other party to agree to a mediation, knowing that a refusal will possibly enhance your client’s costs entitlement.

Since PGF, the courts have reiterated that they expect parties to engage in mediation and that the reasons often advanced by a reluctant party will not be regarded as a sufficient justification not to do so. These typically include arguments along the lines that the defendant believes that it has a good defence to the claim and/or that the parties are so far apart that there is no point in arranging a mediation.

There are two notable cases that have been decided since PGF where defendants who have successfully defended cases have nevertheless been criticised and, in one case, the defendant had its entitlement to costs reduced by virtue of its refusal to engage in mediation. The relevant Part of the Civil Procedure Rules under which the courts have considered the challenges to the costs entitlement of a successful party is Part 44.

In Northrop Grumman Mission Systems Europe Ltd v BAE Systems Ltd [2014] EWHC 3148, the defendant had refused to mediate, citing its belief in the strength of its case. Mr Justice Ramsey stated “However, BAE reasonably considered that it had a strong case. On that basis was it unreasonable for BAE to reject NGM’s offer to mediate? I have come to the conclusion that it was”. He continued “Where a party to a dispute, which there are reasonable prospects of successfully resolving by mediation, rejects mediation on grounds which are not strong enough to justify not mediating, then that conduct will generally be unreasonable”.

This was followed by Laporte v Commissioner for the Police of the Metropolis [2015] EWHC 371. In this case the defendant declined to engage in mediation. It successfully defended the case at trial and cited the emphatic nature of its victory as justification for its refusal to mediate. Mr Justice Turner did not agree and reduced the defendant’s entitlement to costs by one-third of what it would ordinarily have been entitled to. A detailed analysis, by Masood Ahmed, of the case and the reasoning behind Mr Justice Turner’s decision, can be found in the Law Society’s Gazette of 2/3/15 at page 18.

The message from the judiciary is clear – parties are expected to accept offers to mediate and those who do not, even if ultimately successful at trial, risk the imposition of a costs penalty.

Further, the courts recognise the value of ADR. Even if it does not result in a resolution of the case as a whole, it is valuable in clarifying and narrowing the issues upon which a court might ultimately decide.

Considering using mediation to resolve a dispute demonstrates compliance with Outcome 1 of the Solicitors Code of Conduct 2011.

The substantial increase in court fees in 2014 and again in 2015 means that, for financial reasons alone, mediation is an attractive option for resolving a dispute.