15 January 2015 #Dispute Resolution
Mediation is a voluntary and confidential form of alternative dispute resolution (www.practicallaw.com/0-107-6391) (ADR). A neutral third party is appointed by the parties who are in dispute in an attempt to reach a settlement without the involvement of the court. Depending on what you want to achieve, mediation can offer a number of advantages. Parties retain control of the decision on whether or not to settle and on what the terms of the settlement will be. It is a far cheaper means of resolving a dispute than taking matters all the way to a court hearing and mediators provide more creativity and flexibility over settlement options than the court process. It is not surprising therefore that mediation statistics indicate a high success rate, with some mediators claiming success rates in excess of 90%.
On the downside, if the mediation is unsuccessful, the costs may have been incurred without benefit. Some parties are wary of “showing their cards” to the other side and it is not unknown for litigants to use the exercise to probe the other side’s strengths and weaknesses. Sometimes a party will feel it has such a strong case that it feels it will only end up compromising unnecessarily in the mediation process. And in a case where it is “win or lose”, for example on the interpretation of a contract, it may be felt that mediation is not the answer. However, the courts have been clear that they expect parties to engage in ADR even in cases where the above concerns are present and the costs rules back this up. Where a party has been found to have unreasonably refused a request to engage in mediation, adverse costs consequences may be imposed, with the refusing party being ordered to pay some or all of the other party’s costs even if they are successful and would otherwise have been entitled to their own costs. The courts have taken this approach in a long line of cases over the last 10 years or so, with very few exceptions.
In a very recent 2014 case - Northrop Grumman Mission Systems Europe Limited (NGM) v BAE Systems - the court confirmed its willingness to penalise parties refusing genuine offers of mediation. Here, the dispute essentially boiled down to contractual interpretation – whether there was a termination for convenience clause in a Licensing Agreement between the parties – and £3 million depended on that interpretation. It was decided, following trial, in BAE’s favour and NGM accepted that under normal principles BAE as the winning party was entitled to costs. However, NGM argued that this award should be reduced by 50% because BAE had unreasonably refused to mediate. The court accepted this argument. Any refusal to mediate must be considered in light of the merits of the case, the extent to which mediation was attempted, delay and costs, and whether mediation would have had a reasonable prospect of success. In this instance, this was exactly the sort of situation in which a mediator could have assisted. A mediator is skilled in finding a middle ground, bringing the skills of evaluation and facilitation to the table, and they can find solutions which otherwise would not be considered. Whilst BAE's confident view of their claim did provide some justification for not mediating, when considering all the other factors, mediation would have had reasonable prospects of success and it had therefore been unreasonable for BAE not to participate in it (the court said).
Unusually in this case NGM was found to have been equally unreasonable in refusing to accept a without prejudice offer that had been made (and which it subsequently failed to better in court). The two unreasonable positions effectively cancelled each other out and so there were no adverse costs consequences for BAE; BAE got away with it. But this will not be the normal outcome to a refusal to mediate.
The message coming from the courts could not be clearer. Any refusal to a request to engage in mediation should be done so with extreme caution - even when a party reasonably believes it has a very strong case and that mediation will be fruitless. Such a refusal is still very likely to result in the refusing party being penalised in costs.