14 November 2017 #Dispute Resolution
Anyone who has been involved in a legal dispute will have been told to consider engaging in some form of alternative dispute resolution, most often mediation, before the issue of proceedings. This has, for a long time now, been actively encouraged by the courts and by the Court Rules: the Practice Direction on Pre-action Conduct states:
“Litigation should be a last resort… the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings… if proceedings are issued the parties may be required by the court to provide evidence that ADR has been considered. A party’s silence in response to an invitation to participate or a refusal to participate in ADR might be considered unreasonable by the court and could lead to the court ordering that party to pay additional court costs.”
Against this background, there will always be a risk for a party who refuses to mediate, but nevertheless there are circumstances in which the court will accept that such refusal is reasonable. One example is the recent case of Parker Lloyd Capital PLC -v- Edwardian Group Limited, which sheds further light on how the courts will approach this issue.
The Claimant, Parker Lloyd, claimed £2m which it alleged was due as a success fee payable for the introduction of a substantial new financing facility entered into by the Defendant, Edwardian Group, the owner of a hotel chain. Parker Lloyd’s case was based upon an oral agreement which they alleged had been reached at a meeting between the parties’ representatives in 2012. They claimed that, in the event of the successful introduction of financing they would be entitled to 1% of the total value of that financing. The Defendant denied that any agreement had been entered into.
During the course of the proceedings Parker Lloyd pressed Edwardian Group to engage in mediation, but they refused to do so. The case went to trial and Parker Lloyd was unsuccessful. The court rejected much of Parker Lloyd’s evidence and found its witnesses to be unreliable. Indeed it found that one of the witnesses had given untrue evidence in a statement and in court. During the course of the argument about liability for costs, Parker Lloyd argued that Edwardian Group should be penalised because it had refused to engage in mediation even after being warned by the Judge at the Case Management Conference that this refusal was dangerous.
The Defendant’s position was that the refusal to mediate was reasonable. It said that the dispute came down to a single issue: whether an oral contract was entered into as alleged or not, and it had always been confident that its case was watertight and that it would win. It said that it would never have accepted any offer because of this, and therefore there was nothing to be gained by incurring costs of a pointless mediation. It was also concerned that the Claimant would try to use mediation to extract a nuisance payment for a claim that had no merit.
The court did not accept that the refusal to mediate was unreasonable. It was not satisfied that it had been unreasonable for the Defendant to believe that mediation had been suggested as a tactic to extract a payment. In all the circumstances it decided that there should be no costs penalty for the Defendant as a result of that failure.
Although, in this case, the Defendant’s refusal to mediate was motivated by its very strong belief in its case and the fact that it considered the claim to be extremely weak, the mere fact that an outcome is binary – win or lose – will not normally in itself be a factor justifying a refusal to mediate: there must be more. In this case it seems that the court had serious concerns about the approach of the Claimant to the litigation, including the veracity of one of its witnesses and this was the additional factor. Without such additional factors, simply believing that you have an extremely strong case, whether you are claimant or defendant, will not guarantee relief from cost sanctions if you refuse to mediate.