High Court rejects costs sanction for party’s refusal to mediate

High Court: timing of mediation suggestion was material factor

A defendant that refused to mediate a $16m claim did not act unreasonably and so should not be penalised in costs, the High Court has ruled – while also stressing the advantages of without prejudice discussions between the parties.

ADS Aerospace Ltd v EMS Global Tracking Ltd [2012] EWHC 2904 (TCC) saw a contractual claim dismissed, but the claimant argue that there should be at least a 50% reduction in the defendant’s costs entitlement due to the unwillingness to mediate.

In March 2012, the defendant tried to initiate a settlement dialogue, and in April made a settlement offer of £50,000, which it later upped to £100,000; in June the claimant offered to settle for £4.2m. Neither offer was accepted or apparently acknowledged, and the trial took place in July.

The onus was on the claimant to establish that the defendant acted unreasonably in refusing or not wishing to participate in mediation, and Mr Justice Akenhead said he was not satisfied that the defendant did act unreasonably.

The judge found that “there had been no willingness on the part of the claimant to engage even in a without prejudice discussion until 31 May 2012, notwithstanding at least four attempts on the part of the defendant to initiate the same since early March 2012”. He also said there was no reason for the claimant not to give such a discussion a try.

He continued: “It is clear from the offer to settle which was made by it that the claimant, for good or bad reason, had a strong view that it was entitled to substantial compensation and that was clear also to the defendant. The claimant gave every appearance that it was simply not interested in a nuisance payment.

“There is certainly no evidence upon which I could draw the conclusion that it would have been interested, even through the good offices of the mediator, in settling its claim at that level.”

The lateness within the trial programme of the claimant’s mediation suggestion was a material factor, Mr Justice Akenhead added. “Without prejudice discussions would have been quicker, cheaper and less intrusive into trial preparation than a mediation which, even if it lasted only a day in itself, would have diverted solicitors and counsel by more than one day because they would have had to prepare for the mediation.”

Finally he found that the defendant had not acted unreasonably in believing that it had a very strong case both on liability, causation and quantum.

“It might be said that a good mediator would have been able to ‘work on’ the claimant to accept what would in effect be a nuisance offer but, in the context of this case, with the sensible solicitors and counsel (who the claimant did engage in this case), I have no doubt that without prejudice discussions would probably have achieved the same result or at least got to the same stage.”

A briefing on the case from Herbert Smith Freehills said: “This judgment demonstrates that a court is likely to rule that where trial is imminent and there remains significant disparity in the parties’ respective positions, HP2-Z30 without prejudice discussions are preferable to mediation, being quicker, cheaper and less intrusive.

“In this case the judge was in no doubt that without prejudice discussions would HP3-C33 probably have achieved the same result as mediation or at least got to the same stage. On the facts, the claimant’s offers to mediate were likely interpreted as empty gestures given their reluctance to engage in realistic settlement discussions.

“The defendant’s stance was of course vindicated by the court’s finding on the merits, but that will not always lead to the conclusion that a party was justified in refusing mediation. Refusals to mediate should be very carefully considered and documented, indicating clear justifications for refusal at that point in time – as the defendant did in this case.”