SILENCE IN THE FACE OF AN OFFER TO MEDIATE CAN HAVE AN IMPACT ON COSTS: ONCE AN OFFER TO MEDIATE IS MADE THE BALL IS IN THE RECIPIENT’S COURT

In Northamber PLC v Genee World Ltd & Ors (Rev1) [2024] EWCA Civ 428 the Court of Appeal reiterated certain key points about a party refusing to mediate. Silence in the face of an offer to mediate can have an impact on the costs award.  The judgment contains an important reminder of some key issues in relation to failure to respond to mediate.

 

“I agree that the judge fell into error. Mr Singh and IES were silent in the face of an offer to mediate. That was in itself unreasonable. To compound matters, they breached an order of the court requiring them to explain their failure to agree to mediation. If breaches of such orders are ignored by courts when deciding costs, parties will have no incentive to comply with them. That would undermine the purpose of making them, which is robustly to encourage parties to mediate.”

THE CASE

The Court of Appeal were considering a number of issues following a judgment relating to breach of an exclusivity agreements.  The appeal of one of the defendants was allowed in part.  One of the issues the Court had to consider was an appeal in relation to costs. In particular it was argued that the trial judge failed to take sufficient account of the fact that the claimant had made an offer to mediate and there had been no substantive response from either defendant.

THE JUDGMENT ON THE COSTS AND MEDIATION ISSUE

Northamber’s ground 5

    1. Northamber challenges the costs orders made by the judge. Ground 5 encompasses two different challenges. One is only relevant to the costs order which the judge made in favour of IES. Since I have concluded that Northamber’s appeal succeeds on ground 1, this order will have to be reconsidered in any event. It is therefore unnecessary to consider Northamber’s challenge to it. The other challenge, which is relevant to both costs orders, concerns the failure of both Mr Singh and IES to respond to an offer of mediation made on behalf of Northamber.

 

    1. On 5 October 2021 DJ Rouine made a case management order, paragraph 7 of which provided as follows:

 

“At all stages the parties must consider settling this litigation by means of alternative dispute resolution. Any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise.”

    1. On 16 February 2022 Northamber sent the solicitors acting for Mr Singh and for IES a letter reminding them of this order. The letter went on to refer to the judgments Northamber had obtained against Genee, to invite Mr Singh and IES to consider Northamber’s prospects of success and to state that Northamber’s incurred costs were about £450,000 and its budgeted costs were £300,000, which were substantial given the claims advanced by Northamber. The letter went on:

 

“Whilst the Claimant remains committed to pursuing the action it also remains open to mediation as a method of resolving the dispute.

We would ask you to take instructions from your clients and for an indication, by return, as to their willingness to mediate. You will be aware of the consequences if a party refuses to mediate. Please note we are willing to mediate separately or jointly.”

    1. On 4 April 2022 IES’s solicitors replied saying that they were taking instructions, but there was no further response. Mr Singh’s solicitors did not respond at all. Neither party served a witness statement as required by DJ Rouine’s order.

 

    1. In his judgment on costs the judge rejected Northamber’s contention that Mr Singh’s and IES’s failure to mediate and to comply with DJ Rouine’s order should result in an adjustment of the costs orders that would otherwise be made for the following reasons:

 

“25. … I have no evidence before me that the claimant ever chased either the second or third defendant’s solicitors for a reply. I would describe the letter of 16 February 2022 appearing as it did after very considerable costs had been incurred and a long way through the litigation as a half-hearted attempt – if indeed it was an attempt at all – by the claimant to suggest a mediation, enabling the claimant to say at the end of the trial, as it does, that it had suggested mediation but without any expectation that there would be a mediation, but it did not follow it up at all when the second [and third] defendant’s solicitors did not reply.

26. I do take into account the fact that no witness statement has been provided which explains why the second [and third] defendant did not engage in mediation and that there was a direction of DJ Rouine that they should do so.”

    1. Northamber contends that this reasoning amounts to an error of principle. It is almost 20 years since this Court held in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576[2004] 1 WLR 3002 that an unreasonable refusal to participate in alternative dispute resolution constitutes a form of unreasonable litigation conduct to which the court may properly respond by applying a costs sanction. It is over 10 years since this Court held in PGF II SA v OMFS 1 Ltd [2013] EWCA Civ 1288[2014] 1 WLR 1386 that silence in the face of an invitation to participate in mediate is, as a general rule, of itself unreasonable even if a refusal might have been justified by the identification of reasonable grounds. Furthermore, in the present case, DJ Rouine’s order required both Mr Singh and IES to explain their reasons for refusing to mediate, but neither did so. In those circumstances Northamber contends that the judge should have held that Mr Singh’s and IES’s silence in response to its offer to mediate was unreasonable conduct and that this should have been reflected in the judge’s costs order.

 

    1. I agree that the judge fell into error. Mr Singh and IES were silent in the face of an offer to mediate. That was in itself unreasonable. To compound matters, they breached an order of the court requiring them to explain their failure to agree to mediation. If breaches of such orders are ignored by courts when deciding costs, parties will have no incentive to comply with them. That would undermine the purpose of making them, which is robustly to encourage parties to mediate.

 

    1. The judge’s reasoning ignores these points. The facts that the litigation had been underway for a long time by 14 February 2022 and that substantial costs had already been incurred were certainly relevant to the exercise of the court’s discretion as to how to respond to Mr Singh’s and IES’s conduct, but the litigation continued for more than eight months after that, including a nine-day trial, and substantial further costs were incurred which could have been avoided by a successful mediation. The judge seems to have considered that the onus lay on Northamber to chase Mr Singh and IES for a response, but I do not see why that should be so. They made a clear offer to mediate and reminded Mr Singh and IES of DJ Rouine’s order. After that, the ball was in Mr Singh’s and IES’s court. That was particularly so in the case of IES given that its solicitors said that they were taking instructions, but did not reply substantively. Northamber was entitled to assume that a chasing letter would not have met with a positive response. Nor do I see why the offer to mediate should be castigated as “half-hearted”, particularly in the absence of any reasons whatsoever from Mr Singh and IES explaining their refusal to mediate. Finally, although the judge stated that he was taking the breach of DJ Rouine’s order into account, in reality he did the opposite.

 

    1. The more difficult question is how Mr Singh’s and IES’s conduct should properly be reflected in costs. Although costs sanctions have been imposed in a number of cases for an unreasonable refusal to mediate or for silence in response to an offer of mediation, it does not automatically follow that a costs penalty should be imposed: see Gore v Naheed [2017] EWCA Civ 369, [2017] 3 Costs LR 509 at [49] (Patten LJ). Rather, it is a factor to be taken into account among the other circumstances of the case.

 

  1. Given that the costs order in respect of Northamber’s claim against IES must reconsidered anyway, I shall confine attention at this stage to the judge’s order that Mr Singh pay 70% of Northamber’s costs of the claim against him. He reached this decision taking into account the extent of Northamber’s success, the extent to which costs had been incurred on issues where Northamber had succeeded and Mr Singh’s conduct. Northamber contends that Mr Singh should be ordered to pay 100% of its costs. In my judgment this cannot possibly be justified by Mr Singh’s failure to respond to Northamber’s offer to mediate. Equally, however, I do not think that it would be right to impose no sanction at all for Mr Singh’s conduct. I consider that the correct response would be to impose a modest, but not insignificant, costs penalty by increasing Northamber’s costs recovery by an additional 5% to 75%.