Failure to Mediate: What are the consequences?

The High Court has ruled in Richards & Anor v Speechly Bircham Llp & Anor (Consequential Matters) [2022] EWHC 1512 (Comm) that a failure to mediate did not justify an order for costs on an indemnity basis.

We have previously reported on the substantive judgment of this case in our article: THE CRITICAL DIFFERENCE BETWEEN BEING “RIGHT” OR “WRONG” AND BEING NEGLIGENT- RICHARDS V SPEECHLY BIRCHAM LLP [2022] EWHC 935 (COMM). This article focuses on HH Judge Russen QC’s ruling in relation to the consequential matters arising out of the substantive judgment, specifically in respect of legal costs following an unreasonable refusal to engage in mediation.

The Claimants (Mr Richards and Mr Purves) argued in this case that the Defendants (Speechly Bircham LLP and Charles Russell Speechlys LLP) should pay their costs of the proceedings as they argued that they were the successful party in the substantive judgment. They sought for their costs to be paid on the indemnity basis on the ground that the Defendants had unreasonably refused to engage in mediation.

In support of the Claimants’ argument, they relied on 4 ‘without prejudice save as to costs’ offers which the Claimants made to the Defendants to mediate the claim – 3 of those offers to mediate were made before the Claim Form was issued.

The Defendants’ responses to the Claimants’ offers to mediate (or participate in some other form of ADR) were as follows:

1. First offer: the Defendants did not consider that a mediation would be productive or cost effective at that stage. They set out that they would keep the merits of some form of ADR under review once full disclosure had been given.
2. Second offer: The Defendants responded that there was no point in engaging in mediation or ADR as the claim was doomed to fail.
3. Third offer: The Defendants reiterated their position that there was no point in a mediation because the claim was entirely without merit.
4. Fourth offer: The Defendants again responded that there was little point in having a mediation over an unmeritorious claim. That response also referred to the expense of a mediation and indicated that the Defendants would be prepared to have a short without prejudice call between solicitors to explain why a Part 36 offer of £500,000 made by them the previous month would not be increased.

The Defendants’ arguments in opposition to costs being awarded on the indemnity basis were twofold: (i) that their approach to mediation was not unreasonable; and (ii) that, in any event, an unreasonable refusal to mediate was only one facet of a party’s conduct to be taken into account when determining costs.

The Defendants relied on the ‘without prejudice save as to costs’ correspondence between the parties and Part 36 offers made by both parties (the Defendants made a Part 36 offer in the sum of £500,000 and the Claimants had made two Part 36 offers, the first of which was in the sum of £4.25m and secondly, in the sum of £3.5m– none of the Part 36 offers were costs protective offers) as being serious attempts by the Defendants to settle the claim. The Defendants also argued that their response to mediation was not unreasonable as they had been open to mediation – their initial response to the offer of a mediation was not a refusal but that it should follow disclosure; and they had made provision for mediation in their costs budget.

Notwithstanding the Defendants’ arguments, HH Judge Russen QC ruled that the Defendants’ approach to mediation was unreasonable, and he concluded that the Defendants’ responses to the Claimants’ offers to mediate amounted to a refusal to mediate. He concluded that any concerns in relation to disclosure could have been explored in preparation for, or at mediation.  In addition, he ruled that the assumptions made by the Defendants in respect of the Claimants’ motivations for attending mediation, which made it unlikely to succeed, could have been explored by the mediator at a mediation.

HH Judge Russen QC did however agree with the Defendants that a party’s unreasonable refusal to mediate is only one facet of a party’s conduct to be taken into account when determining the appropriate order for costs, which should be considered alongside all the circumstances of the case and the general rule favouring the successful party. The High Court concluded that the Defendants’ failure to engage in mediation did not justify an order for costs against the Defendants on the indemnity basis because it would involve elevating the Defendants’ failure to engage in mediation, above other factors (such as that the Defendants had successfully resisted a significant part of a claim put at around £4.3m and had achieved a judgment significantly better than either of the Claimants’ Part 36 offers). HH Judge Russen QC held that the appropriate ‘sanction’ for the Defendants’ unreasonable conduct in failing to engage in mediation, was to pay the Claimants’ costs (up to an including trial) on the standard basis.

This is an interesting judgment of the High Court because it highlights the importance the Courts put on the parties engaging in mediation (and/or other forms of ADR). Whilst the Courts cannot compel a party to mediate (although the position on this may be changing – see our article: MEDIATION – A MANDATORY STEP?), a party will risk engaging in unreasonable conduct if it refuses to do so, resulting in cost penalties against them. The reasons for failing to attend mediation provided by the Defendants in this case (i.e. that it was not the appropriate time to mediate and that the case was unmeritorious) were not seen as adequate reasons to refuse to engage, and it is difficult to see what reasons would be considered as adequate.

Despite the importance the Courts put on mediation, this case also shows that a failure to engage in mediation and/or other forms of ADR is only one factor the Courts will look at when deciding on costs and, it appears, that only in certain circumstances, where the full circumstances of the case – together with the parties’ failure to mediate, will the Courts award costs to be paid on the higher indemnity basis.

If you would like to discuss this article further and/or would like any advice in relation to this judgment or mediation in general, please contact Anna Braden a.braden@beale-law.com.

If you are looking for a specialist mediator to mediate your dispute please contact: Antony Smith a.smith@beale-law.com (London Office); and/or Lyndon Richards l.richards@beale-law.com (Dubai Office), who are accredited CEDR mediators.