Failure to engage in mediation

[2011] EWCA Civ 78 TEDR Volume 16 Issue 2

The Facts

The case involved a building dispute between a home owner (Mrs Rolf) and a small builder (the Defendant).

The builder was to carry out works to the garage and loft of the home. There were contractual terms for part payment. In fact, the relationship broke down and the Defendant did not finish the job. He had received some of the monies. There was a fundamental dispute as to why the contracts broke down. In summary the Claimant made several offers to settle her claim for various five figure sums. She also offered to attend mediation. The offers all went un-noticed by the Defendant until the 11th hour when he made an offer to settle. However, by then it was perfectly apparent that he was in financial difficulties. Overall, the case ran to trial and Mrs. Rolf succeeded in obtaining a judgment for £2,500.00. That sum was clearly far less than any of the offers previously on the table and the overall value of her claim.

The question of costs was considered. At first instance the judge awarded no costs between the parties until the Claimant’s Part 36 offer. Thereafter, the claimant was to pay the Defendant’s costs.

The Issues

Could the Court take into account the failure to engage in mediation when deciding the issue of costs?

The Decision

Overall, the Part 36 offers and financial offers were largely irrelevant in this case. The only real issue for consideration in terms of an offer was the failure to engage in mediation itself. Accordingly, the Court of Appeal held that they would allow the appeal and consider the issue of costs fresh. Their Lordships considered all of the circumstances of the case but, in particular, with regards to mediation, made the following observations.

CPR Part 44.4 says that the Court must have regard to all the circumstances of the case when considering costs orders. Conduct is a relevant issue and covers a wide field of enquiry. There is authority to show that such conduct can include the reasonableness of parties’ response to a call for mediation especially where the Court itself has recommended or encourage it: see Dunnett v Railtrack (Practice Note) [2002] EWCA Civ 303. Clearly, there was no such recommendation or encouragement in this case but once again, their Lordships reiterated their concern that the offer of round table discussions was spurned. Reasons were given for that by the Defendant at the appeal but they did not bear real examination and were unreasonable (He felt that he wanted his day in Court and did not feel that there would be any successful outcome to mediation). The Court reiterated that it was of course possible that settlement discussions or even mediation would have produced a solution or one satisfactory enough to allow both parties to have reached an agreement. Overall their Lordships considered that the negotiation and/or mediation would have had reasonable prospects of success and thus the refusal to enter into such a processes was unreasonable and ought to bear materially on the outcome of the Court’s decision in terms of costs.

Accordingly even though the Claimant had succeeded in her claim only to the tune of £2,500.00, given the Defendant’s failure to engage the order was no order for costs.

Comment

There was a good argument in this case that the Claimant should be deprived of her costs given she had ended up with far less than she was claiming. However, the Defendant was penalised for his failure to engage in mediation. The judgement also makes clear that if their Lordships had been considering this issue at first instance it may well have been that an order favouring Mrs. Rolf in terms of costs would have been made