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Time to be reasonable: engage with your opponent

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28/07/2014

A decision in a recent case further exhorts disputing parties and their lawyers to treat seriously any request to take part in alternative dispute resolution (ADR). Following its repeated and unreasonable refusal to engage in mediation, the defendant in Phillip Garritt-Critchley & others v Andrew Ronnan & Solarpower PV Ltd [2014] (PGF) was ordered to pay the claimant’s costs on an indemnity basis.

This decision follows on from the PGF case [1] earlier this year, in which the court decided that ignoring a request to participate in ADR such as mediation amounted to unreasonable behaviour. (See: Prevaricate at your Peril.)

It remains the case that a court cannot force an unwilling party to mediate – but those who refuse unreasonably will find themselves penalised in costs. It’s time to be reasonable. Even if you think you have a cast iron case and believe your relationship with the other party to be beyond repair, you must seriously consider – and engage in – ADR.

The facts
The parties disagreed about whether there was an agreement for certain shares to be issued. From the outset, the claimant made clear that it was willing to try an appropriate form of ADR. The defendant’s refusals throughout the proceedings were fairly consistent: the claimant’s initial offer in the letter before claim was refused ‘at that stage’; in the allocation questionnaire, mediation was rejected on the grounds that the parties were too far apart; and, when pressed for reasons, the defendant explained they were confident in their claim and believed (therefore) that refusal to mediate was reasonable.

The claimant continued to make further requests to mediate throughout the proceedings which were all refused.

In giving directions for trial, the district judge recorded that mediation was appropriate for the dispute and required the refusing party to file a witness statement explaining the refusal in a sealed envelope 21 days before trial (which the defendant did).

As the trial date approached, the claimant made a Part 36 offer to accept £10,000 for their claim from the defendant plus their costs to date. This offer expired without acceptance. The defendant then counter-offered with a Part 36 offer requiring the claimant to discontinue and pay the defendant’s costs. The claimant did not accept but reiterated its willingness to negotiate. The defendant again refused and the 4-day trial went ahead. However, before judgment was given, the defendant accepted the claimant’s Part 36 offer out of time.

Subsequently, the claimant successfully applied for its costs to be dealt with on an indemnity basis on the grounds of the defendant’s repeated unreasonable refusals to mediate.

Guidance on what to consider when deciding whether to mediate
The court’s views on the defendant’s arguments and evidence is instructive for those weighing up whether to mediate or carry on to trial:

  • the defendant’s refusal to mediate based on their confident approach to the proceedings and their robust view of their chances of success was the wrong approach. This was a fairly typical action about whether the parties had made a binding agreement. The decision could have gone either way based as it was on the factual evidence and the credibility of the witnesses and there was a risk analysis to be done by the parties to assess their chances of success. The claim was therefore eminently suitable for mediation;
  • once the issue of liability was decided, there could have been various possible outcomes on quantum which could have been very usefully considered in a mediation;
  • applying the decision in Halsey [2], (which sets out the criteria to be considered when deciding whether to mediate), most cases will be suitable for mediation. The defendant’s reasons did not fall within the few exceptions where mediation would not be appropriate: there was no point of law to review; it was not an unusual case for which a binding precedent would be useful; and relief such as an injunction was not needed for the protection of one of the parties;
  • believing you have a strong case is no justification for refusing mediation [3]. The court thought the defendant’s “extreme confidence” unrealistic and besides, if they were that confident, surely they would have applied for summary judgment;
  • believing your settlement position is too far apart from the other is no reason to refuse ADR. How do you know until you talk to each other? If it becomes apparent at the mediation that you are too far apart, the mediator will soon tell you;
  • the parties’ dislike and mistrust of each other was irrelevant: mediators are trained to handle high and negative emotions in a way that can lead to settlement;
  • the defendant’s reliance on the PGF case in arguing that it had responded to the mediation offers promptly and explained their position was misplaced given that their reasons were misconceived and their response unreasonable;
  • the defendant’s approach in weighing up the value of the claimant’s offer as against the cost of the mediation (rather than the trial) was wrong.

The decision reiterates the court’s strong support for ADR. Serious consideration of ADR is now an essential step in resolving a dispute. If you, like the defendant in this case, are tipped off by the court that your case is suitable for mediation, be very cautious about rejecting it.

For more information on how to approach ADR, you might want to read our note on How to deal with settlement approaches in the early stages of a dispute.

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[1] PGF II SA v OMFS Company 1 Ltd
[2] Halsey v Milton Keynes General NHS Trust
[3] Hurst v Leeming [2001] EWHC 1051 (Ch)

For further information, please see our briefing on ADR and unreasonable refusal: The rule and an unexpected exception.

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