Mediation is a form of “alternative dispute resolution” (ADR) involving a third party neutral mediator seeking to resolve the dispute between parties on a face to face basis, normally lasting one day.
The procedure involves the parties having a round table meeting initially with the mediator after which they break out into their separate rooms. The mediator then shuttles between the parties to try and get an agreement with which all parties can live.
Costs sanctions imposed for refusal to mediate
There have been quite a number of court cases where one of the parties has refused an offer to mediate resulting in the court imposing a cost sanction on them. In each case it was the successful party which refused to mediate and ended up having their awards reduced by the court.
More recently (October 2015), the courts have held that the costs sanction which can apply where a party unreasonably refuses to mediate can also apply where the party refusing to mediate ends up being the losing party in the litigation.
Reid v Buckinghamshire Healthcare NHS Trust
The case in question was a medical negligence case, but the principles apply equally to all litigation including construction disputes.
In the Reid case, the Defendant NHS Trust was found unreasonably to have refused the claimant’s proposal to mediate. The Trust subsequently lost the Court case. When it came to deciding who should pay what costs, the Court imposed a costs sanction on the Trust for what was held to be their unreasonable refusal to mediate. In this case, the defendant was ordered to pay costs on an indemnity basis from the date on which it had failed to respond to the claimant’s offer to mediate, rather than the whole proceedings. However, in another recent medical negligence case (Bristow v Princess Alexandra Hospital NHS Trust), the losing defendant was ordered to pay the costs for the entire proceedings.
Court disapproval of defendant’s conduct
The following extract from the Reid judgment serves as a warning to parties of the risks of refusing an offer to mediate, “If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s cost, even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct”.
In construction disputes it is not unusual for relations between the parties to be strained, to put it mildly. Nevertheless whilst it may be tempting to reject a proposal to mediate, it is only likely to be in rare circumstances that a Court will find that it was reasonable to refuse an offer to mediate. Therefore our general advice is to agree to mediation if it is proposed, no matter how difficult relations are between the parties.