Summary

The Court held that a successful party should not be penalised in costs for having declined to mediate, as its refusal to do so had not been unreasonable.

Background

ADS had claimed over $16 million for breach of contract and repudiation of an exclusive distribution agreement. The defendant successfully defended the case. On the issue of costs, ADS argued that despite having brought an unsuccessful claim, it should only have to pay 50% toward EMS’ legal costs because EMS had refused to mediate.

Issues

The issue for the Court to decide was whether EMS had acted unreasonably in refusing to mediate. In deciding this issue the Court considered the parties’ attempts to settle the matter prior to the trial listed for 2 July 2012. In early March 2012, EMS tried to instigate settlement discussions and in April 2012 offered £50,000 inclusive of costs, interest and VAT. This was dismissed by ADS as a “nuisance payment”. On 31 May 2012 ADS suggested a mediation which was declined by EMS on the basis that there were no reasonable prospects of settlement as ADS was unlikely to accept much less than $16 million. ADS then made an offer of £4.246 million and repeated its request for a mediation which EMS again declined having regard to the proximity of the trial and counter offered £100,000 inclusive of costs, interest and VAT. EMS made clear it was willing to continue WP discussions.

Decision

The Court held that EMS had not been unreasonable in refusing to mediate and that ABS should pay EMS’ costs to be assessed on the standard basis for the following reasons:

1. EMS had initiated without prejudice discussions in early March 2012 and had at all times indicated it was willing to hold without prejudice discussions;

2. ADS failed to enter without prejudice discussions until 31 May 2012 despite at least four attempts by EMS;

3. ADS had made clear its belief that it was entitled to substantial compensation well above the level offered or likely to be offered by EMS;

4. The suggestion to mediate was made only 20 working days prior to trial and would have intruded upon trial preparations;

5. Mediation would have cost substantially more than without prejudice discussions;

6. EMS had not been unreasonable in taking the view that it had a strong defence.

Comment

Following the decisions in a number of cases about costs and refusal to mediated (in particular Halsey v NHS and Dunnett v Railtrack) it became fashionable for a time for defendants to claim that a refusal to mediate / engage in the Pre-Action Protocol to the fullest possible degree would deprive a successful claimant of costs. That was not ratio of those cases, but merely the law of unintended consequences in operation. The result was that parties became (over?) sensitive to such risks, even where they had a strong case, and many pointless mediations and numerous fruitless Pre-Action Protocol steps, both at huge cost in terms of time and money, resulted as parties “went through the motions” simply to protect themselves on costs.

Cases such as ADS v EMS demonstrate that the pendulum is swinging back the other way, and that (entirely rightly) the Courts are not generally willing to penalise a party who reasonably refuses to mediate. Where as here the request to mediate is made very close to trial and the parties are not close to settlement, the court may well consider the offer of quicker, cheaper without prejudice discussions a reasonable alternative.

The facts here were clear and strongly in favour of the successful claimant, and so it appears easy for the judge to decide the normal rule – costs follow the event – should apply. Cases closer to the line are likely to see parties agree to mediate, even if the intention is only to go through the motions and protect the costs position.