NEWS & VIEWS

Mediation: why saying yes is insurance

Everyone knows mediation is less expensive than litigation.  What is less discussed are the reasons why one should offer to mediate even if your opponent resolutely refuses to agree and that it is a good idea to repeat the offer.

The principal reason is that an unreasonable refusal to mediate is highly likely to affect the costs recoverable by the winning party. The usual rule in litigation in the UK is that the winning party recovers their costs, or at least the costs the court considers were reasonably incurred. That however is a discretionary rule and the winning party who unreasonably refuses to mediate can have their costs reduced significantly.

A recent example a few months ago is the case of Wales v CBRE Managed Services & Aviva Administration [2020] EWHC 1050 (Comm)

Here the two defendants won their case but their different attitudes to offers to mediate were illustrative. CBRE refused three times for different reasons. Aviva expressed willingness to mediate but said that whether mediation took place was dependent on participation by CBRE as reaching a satisfactory settlement depended on their presence. The judge considered Aviva to have been reasonable in taking that view and did not reduce their costs for that reason. He severely reduced, however, a proportion of CBRE’s costs by 50% and by 20% for another portion. What made the difference was a shift in the argued defence, but the principle is unaffected, unreasonable refusal to mediate can be awfully expensive.

History

This is not new. In 2004 in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ. 576 the Court of Appeal set out the governing principles at length. A key issue is that the courts recognise it is not appropriate to compel a reluctant party to mediate as that is contrary to the idea that mediation is voluntarily undertaken. They do, nevertheless, consider it is their role to encourage it, and the method of encouragement may well be fairly tough, as demonstrated in Wales.

Factors

In Halsey, the Court of Appeal accepted a list of non-exclusive factors to be considered when deciding whether a refusal to mediate is unreasonable. They include (a) the nature of the dispute; (b) the merits; (c) what other efforts have been made to settle; (d) the costs of mediating; (e) whether prejudicial delay would be caused; and (f) prospects of success. None of these is determinative and the decision will be one taken on balance. For example, in Wales the judge specifically mentioned that not all of these factors pointed in one direction.

What appears to have influenced the decision were the repeated refusals and the unconvincing nature of the excuses given for doing so. The court thought that even if a mediation had failed it would have resulted in a clarification of the issues and shortened the whole process.

Lessons 

It seems obvious that requesting mediation is a win-win. If you settle all to the good. If you meet a rejection and win your case your costs are secure. If you meet a rejection and lose your case, you can argue that your opponent’s costs should be reduced. The offer acts as an insurance policy.

If you are an advisor in these situations you need to be incredibly careful if advising against mediating. Some lawyers lack enthusiasm for mediation. They often prefer to do their own negotiating with their opponent and consider they do not need the services of an outsider. However, that process lacks the injection of independence that a skilled mediator possesses. More importantly for the advisor who gets it wrong, any cost incurred by the client may require a visit to the negligence policy.

There are some cases the court accepts where mediation may not work. For example, if it is important to resolve a principle of law or possibly where allegations of fraud are made. Confidence that your case is bound to succeed, however, alone is not an adequate reason to refuse. That confidence has itself to be reasonable. Another factor that will be considered is the extent to which a court or tribunal has encouraged the parties to mediate.

All cases require a balancing exercise and will turn on their own facts but what is essential is a dispassionate review before deciding. The best starting point is that mediation should be offered or accepted unless there are particularly good reasons to reject.