ABOUT TDM
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IGNORE MEDIATION AT YOUR COST!
As a result of the Court of Appeal decision in Susan Dunnett -v- Railtrack plc, if you are party to litigation and the other side or the Court either invite or order you to mediate the dispute, failure to do so could result in an adverse costs ruling. The courts are prescribing mediation in the belief that mediation is frequently successful.
Railtrack's defence of Ms Dunnett's appeal was successful. Furthermore, an offer by Railtrack not to enforce costs payable to Railtrack by Ms Dunnett and for Railtrack to pay £2,500 to Ms Dunnett, was rejected. However, she did inform Railtrack that she wanted to settle the matter outside court and at a hearing prior to the appeal, a judge of the Court of Appeal advised Ms Dunnett to explore the possibility of using ADR. She tried but her approaches were rejected by Railtrack.
The litigation resulted from Ms Dunnett's horses being struck by a train and tragically killed as a result of a gate being left open. Ms Dunnett's action against Railtrack was unsuccessful for a variety of reasons, including the abandonment of what appeared to be her best claims, by her then lawyers.
Railtrack decided not to take part in the mediation because they did not want to have to bear the costs associated with a mediation and they were not willing to contemplate making any payment above that which had already been offered. Given that the Court of Appeal found in Railtrack's favour the usual costs order is that Ms Dunnett be liable to pay Railtrack's costs of the appeal but because of the refusal to mediate no order for the payment of costs was made.
In the costs judgement, given by Lord Justice Brooke (approved by Lord Justices Robert Walker and Sedley) Lord Justice Brooke pointed out that:
"Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve. This court has knowledge of cases where intense feelings have arisen, for instance, in relation to clinical negligence claims. But when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the court to provide".
And Lord Justice Brooke went on to say:
"It is to be hoped that any publicity given to this part of the judgement of the court will draw the attention of lawyers to their duties to further the overriding objective in the way that is set out in Part 1 of the Rules and to the possibility that, if they turn down out of hand the chance of alternative dispute resolution when suggested by the court, as happened on this occasion, they may have to face uncomfortable costs consequence".
In commercial litigation, an unsuccessful mediation can result in a further substantial bill for professional costs. Those involved in commercial disputes may take comfort from the fact that in the Dunnett case, emotions were running high and the Claimant was an individual. Nonetheless, given the judiciary's belief in the successfulness of mediation, it is to be expected that the courts may make similar costs orders to that made in the Dunnett case against those who are involved in commercial disputes who refuse to take part in a mediation.
COSTS PENALTIES FOR REFUSING TO MEDIATE
In two out of the three recent cases dealt with in this note, the Courts have declined to impose costs sanctions on a party refusing to mediate where the mediation had no prospect of succeeding. However, as Lightman J confirmed in his judgment in one of these cases, the position nevertheless remains that a "refusal [to mediate] is a high risk course to take, for if the Court find that there was a real prospect [of the mediation succeeding], the party refusing to proceed to mediation may ...be severely penalised".
The Recent Decisions
In Hurst v Leeming, Mr Hurst (a solicitor), sued the barrister (Mr Leeming) who had represented him in proceedings against his former partners. Mr Hurst attributed the failure of his arguments at first instance, and on appeal to both the Court of Appeal and the House of Lords, to the legal advice he had been given and the representations made by Mr Leeming at trial. Mr Hurst's previous actions against his former solicitors, based on vicarious liability for Mr Leeming's negligence, were struck out as hopeless and an abuse of process. At the opening of the trial against Mr Leeming, Mr Hurst was forced by Lightman J to admit that his action had no merit and should be dismissed.
Lightman J awarded Mr Leeming all his costs, despite Mr Leeming having refused to mediate. Lightman J was of the opinion that the critical factor was whether, objectively viewed, a mediation had any real prospect of success and Mr Leeming was justified in his refusal as:
"[Mr Hurst] is a person obsessed with the injustice which he considers has been perpetrated on him and is incapable of a balanced evaluation of the facts.....Mr Hurst was out to obtain a substantial sum in the mediation process. He was not likely to accept any mediation which did not achieve that result ".
In SITA v Watson Wyatt and Maxwell Batley, Watson Wyatt sought a contribution from Maxwell Batley towards the US$35m settlement they entered into with SITA. Maxwell Batley were wholly successful in defending the claim and were awarded their costs in full, despite having refused to mediate on three occasions. In reaching this decision, Park J found that:
"the only reason of substance why Watson Wyatt wanted Maxwell Batley to take part was so that pressure could be brought on them to make a large contribution to whatever sum SITA was eventually willing to accept in settlement of its claims against Watson Wyatt".
In his view, Watson Wyatt was not interested in compromising the dispute between itself and Maxwell Batley but simply sought to obtain a contribution to the settlement from Maxwell Batley. He also emphasised the manner in which the requests were made, noting that Watson Wyatt tried to "browbeat and bully" Maxwell Batley into the mediation. Furthermore, on the timing of the requests, Park J found that Maxwell Batley had been joined into proceedings only shortly before the first round of mediation between the parties and therefore had been given insufficient time to prepare and the third request to participate in the mediation had been too close to the commencement of the trial to be realistic.
In Leicester Circuits v Coates, the Court of Appeal considered the position on costs where both parties agreed to participate in a mediation approximately one month before trial but one party, Coates, on the instructions of their insurers, withdrew from the mediation the day before it was due to take place. Coates maintained in its defence that the mediation was simply part of negotiations and that negotiations had come to nothing but the Court of Appeal was not persuaded by this argument. Judge LJ said:
"The whole point of having mediation, and once you have agreed to it, proceeding with it, is that the most difficult of problems can sometimes, indeed often are, resolved".
Judge LJ also dismissed the argument that the mediation had no prospect of success on the basis that:
"having agreed to mediation it hardly lies in the mouths of those who agree to it to assert that there was no realistic prospect of success".
Judge LJ awarded Coates their costs in the lower court up to the approximate date to which mediation was agreed with each party left to bear their own costs thereafter.
Comment
These cases show the Courts taking a hard line against those who refuse to mediate, irrespective of the stage of the proceedings. Whilst Hurst and Watson Wyatt provide two examples of an exception to the rule that costs sanctions will be imposed upon a party who refuses to mediate, in both cases, the refusing party was able to show that the party suggesting the mediation had an agenda which was wholly at odds with the merits of the case and the mediation therefore had no real prospects of success. These decisions are consistent with the Court of Appeal's decision last year in Dunnett v Railtrack where due to the emotionally charged nature of the case, a mediation may well have succeeded where a simple offer did not.
What is nevertheless evident from these decisions is that refusal to mediate remains a high-risk strategy. For a refusing party to be confident of not being penalised in costs, that party must be able to demonstrate to the Court that the mediation had no prospect of success.
For further information about these cases or the issues arising out of it, please contact:
George Brown 020 7556 6716 at Reed Smith London
