To mediate or not to mediate? – Patel v Barlow & Ors (No 2)

A party’s obligation to agree to mediation is a common issue of debate, as is the extent to which it should be penalised on costs for any refusal to mediate a claim. The recent case of Patel v (1) Barlows Solicitors & (2) Paul Stanley & Paul Barber¹  provides useful guidance on this point.

Mr and Mrs Patel (“the Claimants”) successful claimed against Mr Stanley and Mr Barber (“the Second Defendants”), for settlement monies that they held following a professional negligence claim against Barlows Solicitors, in which they were acting as trustees in bankruptcy. The case has a complex factual background but, in essence, the Claimants successfully demonstrated that  settlement money received by the Second Defendants represented capital invested by them in a joint venture with the bankrupt and that it should be returned.

The order for costs was not straightforward – the Claimants sought costs on an indemnity basis and a number of challenges were raised by the Second Defendants. Of most significance is their assertion that the Claimants should not be penalised on costs because of their refusal to engage in mediation. The Court noted that under CPR 44.2(4) and (5) and CPR1.4(2)(a) both parties are obliged to consider resolution of a case by appropriate ADR and that unreasonable failure to do so may result in a sanction in costs. However, such a sanction will not be applied in every case.  HHJ Mithani QC referred to the case of Northrop Gruman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C41) Ltd [2014]² in which the court set out six factors relevant to determining costs:

1.     The nature of the dispute.

2.     The merits of the case.

3.     The extent to which other settlement methods had been attempted.

4.     Whether the costs of ADR were disproportionately high.

5.     Whether ADR had a reasonable prospect of success.

HHJ Mithani noted that the claim against the Second Defendants was very strong, there were other (failed) settlement attempts, the costs of mediation would have been high and that in all likelihood ADR would not have succeeded.

However, the crucial point in this case was that the Claimants did not reject the offer of mediation outright. Following an offer of £40,000 from the Second Defendants, which was rejected, their solicitors suggested mediation. The Claimants’ solicitor responded:

“My client is not against mediation per se. However, in an attempt to keep costs down, we are working with Counsel to see if we can put forward a possible offer. I will of course keep you updated as to how we get on but should this not be possible, I would be happy for you to suggest 3 mediators from whom we can select one.”

The Second Defendants’ solicitor replied that she was “prepared to pause progressing mediation arrangements for a limited period of time in order to allow your clients to put forward an offer in writing”.

There followed a Part 36 Offer by the Claimants in the sum of £315,000 and further correspondence in which the Claimants’ solicitor queried whether a counter-offer would be made. The reply was as follows:

“… the Trustees are amenable to further without prejudice discussions with a view to exploring settlement. Notwithstanding this, it would appear at this stage that the parties are simply too far apart to engage in sensible discussions. We say this with reference to your clients’ part 36 offer and our clients’ last without prejudice offer, made in January 2019. In order for sensible discussions to take place, your clients would need to accept that their part 36 offer is beyond reason and further that any settlement would include the Trustees retaining a significant percentage of sums held on account. Moving forward, perhaps you could take instructions and provide an indication as to whether a without prejudice telephone conference would be a productive use of time and resources in all of the circumstances.” 

To which the Claimants solicitor replied:

“… your clients’ offer lacks any appreciation of any risk to your clients. As a consequence of that lack of appreciation we consider that mediation is unlikely to be productive. If you disagree then please let us know, our clients remain willing to mediate.”

The Court concluded that the Claimants could not be criticised for refusing to mediate when Without Prejudice communication has been so unsuccessful. The parties were indeed very far apart in terms of an acceptable settlement and it was hard to see that any sort of concession resulting in a compromise would have been made at mediation.

As such, the Claimants should not be penalised on costs. Ultimately, the Court awarded costs on an indemnity basis, noting that the Second Defendants’ conduct before and during the court proceedings justified such an order and commenting that it “had fallen seriously short of the standards expected from insolvency practitioners”.

Comment

The particular facts of this case go some way towards explaining the Court’s decision – it is clear from the award of indemnity costs that the Second Defendants’ conduct throughout was far from reasonable.  However, the case usefully shows that mediation is more than part of a ‘tick box’ exercise entitling parties to their costs. There will be circumstances in which mediation would be wholly unlikely to succeed and in which a party is entirely justified in refusing an invitation to partake in ADR.  This is especially so in cases where settlement discussions have taken place and shown the parties to be far apart in their expectations.

[1] [2020] EWHC 2795 (Ch)
[2] [2014] EWHC 3148 (TCC)