MEDIATION AND LITIGATION: ANOTHER EXAMPLE OF THE DANGERS OF IGNORING OFFERS TO MEDIATE

Mediatelegal

This blog reports regularly on cases where the courts have highlighted the advantages of mediation and the dangers of rejecting an offer to mediate. The latest note of cautious comes from the judgment of Lord Justice Jackson in Thakkar -v- Patel [2017] EWCA Civ 117

“The message which this court sent out in PGF II was that to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed. The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction. In the present case, the costs sanction was severe, but not so severe that this court should intervene.”

THE CASE

The action concerned a claim for dilapidations by landlords of commercial premises and a counter-claim for damages for flooding by the tenants.  The claimant landlords claimed £210,000 plus interest. The defendants counterclaimed £41,875 for the rent paid when the premises could not be occupied by reason of the flooding.

Both parties expressed a willingness to mediate.  Jackson L.J. observed:

  “The claimants were proactive in making arrangements for a mediation and identifying possible mediators for consideration by the defendants. The defendants, by contrast, were slow to respond to letters and raised all sorts of difficulties. Eventually, in a letter dated 22 August 2012 the claimants set out the history of their attempts to set up a mediation and concluded as follows:
“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.””

 

THE TRIAL

The matter proceeded to trial.  The judge:

  • Awarded £44,933.52 to the claimants on the claim.
  • Awarded £16,750 to the defendants on the counterclaim.

There was a balance due to the claimants of £28,183.52.  With interest the final balance was £32,083.13.

COSTS

The defendants had made (but later withdrawn) an offer of £30,000.

“Turning to costs, the judge noted that the defendants’ offer of £30,000 was “well judged”, but it did not take effect under Part 36 because it had been withdrawn after three weeks. Nevertheless the judge accepted that the defendants’ offer was still relevant if it was one which the claimants ought to have accepted within 21 days. He noted the claimants’ argument that they were unable properly to assess the defendants’ offer at that stage of the proceedings.”

CONDUCT IN RELATION TO MEDIATION

15. The judge then examined the parties’ conduct in relation to mediation. He accepted the claimants’ solicitor’s letter of 22 August 2012 as an accurate summary of the events. The judge summarised the position as follows in paragraph 26 of his judgment:
“Both parties initially and superficially were willing, so it is not a case of simple refusal or rejection or silence. But looking at the matter overall and in particular looking at the chronology set out in the letter to which I referred, the conclusion I reach is that the claimants were more proactive. The defendants or defendant, particularly, was to say the least apparently relatively unenthusiastic or lacking in preparedness to be flexible. It was, as has been pointed out, ultimately the claimants who closed matters down and decided to move forward. To some extent they can be criticised for closing down the process, rather than continuing to press for mediation and going the extra mile and I accept that point. But it must be tempered by the finding already made that the reality is that it was the defendants who were the less keen to participate.”
16. The judge stated that there were real prospects of settlement if a mediation had taken place. The defendants’ revised offer of £40,000 indicated a willingness to negotiate. After weighing up all the circumstances, the judge ordered the defendants to pay 75 per cent of the claimants’ costs of the claim. He ordered the claimants to pay the defendants’ costs of the counterclaim.

THE DEFENDANTS’ APPEAL TO THE COURT OF APPEAL

The defendants main complaint was that, if interest were taken into account, the claimants had failed to beat their offer of £30,000.  However the offer was withdrawn and Part 36 did not apply. The defendants argued that the judge should have taken this into account under CPR Rule 44.2.

The Court of Appeal held that the judge had a keen understanding of the details of the case and declined to interfere with his discretion on that grounds.

THE MEDIATION ISSUE

Lord Justice Jackson turned to the mediation issue:-
“27. I turn now to the mediation issue. The claimants took proactive steps to set up a mediation during the period March to August 2012. The defendants, whilst not refusing outright to mediate, dragged their feet and delayed for so long that the claimants lost confidence in the process and closed it down. The judge held that this case was suitable for mediation. He held that if there had been a mediation there was a real chance of achieving a settlement. Those findings were plainly correct. I say that for five reasons:
i. The dispute between the parties was a commercial one. It was purely about money;
ii. The defendants were willing to pay £30,000. The claimants were, or became, willing to accept £40,000;
iii. The costs of the litigation were vastly greater than the sum in issue; iv. Bilateral negotiations between the parties had been unsuccessful;
v. 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.
28. The total costs of both sides in this litigation are about £300,000. The position as at August 2012 was that pleadings had closed and there had been a lengthy stay for settlement negotiations and ADR. The litigation did not really move forward until the directions hearing in October 2012. It therefore follows that the vast majority of the litigation costs would have been saved if there had been a settlement in August 2012. 29. In PGF II SA v OMFS Company 1 Limited [2013] EWCA (Civ) 1288; [2014] 1 WLR 1386, the Court of Appeal held that silence in the face of an offer to mediate was as a general rule unreasonable conduct meriting a costs sanction. That was so even if an outright refusal to mediate might have been justified. The present case is different. The prospects of a successful mediation were good. The defendants did not refuse to mediate, but they dragged their feet and delayed until eventually the claimants lost confidence in the whole ADR process. The judge held that most but not all of the blame for the abortive mediation lay with the defendants.”

The Court of Appeal held that the decision on costs was a tough one but was within the proper ambit of the judge’s discretion.

THE MEDIATION STING IN THE TAIL

“The message which this court sent out in PGF II was that to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed. The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction. In the present case, the costs sanction was severe, but not so severe that this court should intervene.”

RELATED POSTS

Mediation