Mediation: "vindicated" claimant escapes sanction for refusal to mediate

A recent Court of Appeal decision has rowed back from the high-water mark of judicial encouragement of mediation. Will this case result in a pause or slow-down in the growth of mediation? We think this is unlikely; as we explain, we remain optimistic that mediation will continue to grow.

Court’s encouragement of mediation

Mediation is on the rise in the UK, with more and more disputes being resolved by means of mediation rather than by the courts. The reasons for the popularity of mediation are plain to see. Litigation can be extremely expensive, time-consuming and destructive of relationships. In contrast, mediation offers disputing parties the chance to resolve their dispute amicably with significant savings in terms of costs and all-round “aggro”.

It is not surprising therefore, that mediation is regarded as in the public interest and is actively encouraged by the courts. This encouragement is written into the court rules, where it is stated the courts must “encourage the parties to use an alternative dispute resolution procedure [a term that includes mediation] if the court considers that appropriate and facilitating the use of such procedure”; see Civil Procedure Rule 1.4 (2)(e).

The courts encourage litigants to mediate with orders for costs against parties refusing to participate in a mediation. This is how it works:

• The general rule regarding costs is that “costs follow the event”, meaning that the unsuccessful party to litigation pays the costs of the successful party.
• That said, judges have a wide discretion when it comes to costs and there has been a run of cases where the courts have dis-applied this principle where the successful party has unreasonably refused to participate in a mediation. In these cases, the courts have refused a successful party some or all of its costs. The rationale for this is that the costs would not have been incurred had the parties resolved their dispute at a mediation and it’s not fair to penalise the unsuccessful party who was prepared to give mediation a go.
• Faced with this, rather than take a risk regarding costs, parties will usually agree to mediate their dispute. This is even if they are confident they will succeed in court and/or they are sceptical whether a mediation will assist the parties to resolve their dispute.
• Accordingly, the purpose of encouraging parties to mediate is served by the courts punishing a party in costs for refusing to mediate.

The high water mark of these pro-mediation cases was the case of PGF II SA v OMFS Company 1 Limited in 2013. In the PGF II case, the Court of Appeal decided that a party who failed to respond to the other party’s offer to mediate is to be treated as having acted unreasonably and denied its costs. This is regardless of whether there in fact existed a good reason for refusing to mediate. In light of this robust decision, and taking account of the fact that the cost of mediating is nearly always much less than the costs of litigating to trial, parties have generally agreed mediate whenever this was proposed by an adversary.

Bucking the trend: Gore v Naheed and Ahmed

This was until the Court of Appeal case of Gore v Naheed and Ahmed, heard in May 2017. The case was a dispute between neighbouring land owners concerning rights of way. It involved some complex issues of property law. The Claimant was successful with his claim at trial, having refused the Defendants’ offer to mediate. The question for the Court of Appeal was whether the Claimant should be denied his costs on account of unreasonable conduct in the form of refusing to mediate.

The Court of Appeal awarded the Claimant all his costs, despite the fact that he refused to mediate. In the judgment, Lord Justice Patten said “Speaking for myself, I have some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated”.

This is, frankly speaking, a surprising statement given the many previous cases including the Court of Appeal’s decision in PGF II where successful parties (i.e. parties whose rights were vindicated by the court) had been refused their costs. On this basis, is the Court of Appeal rowing back from its active encouragement for parties to mediate? Another surprising feature of the judgment in Gore was the court’s finding that as the case involved complex legal questions, this justified the Claimant’s view that mediation was unlikely to result in a settlement being reached which in turn meant it was not unreasonable to refuse to participate in a mediation. This line of reasoning flies in the face of practical experience, which tells us that even cases involving complex legal issues are capable of being resolved by mediation. This is because there are many factors at play in mediation, not just the underlying legal issues, and the primary objective of parties is not usually to have a court decide upon legal issues but to reach a resolution that is commercially acceptable. Accordingly, it is not unusual in practice for a party to settle a claim even where the legal position is difficult, indeed one could say that the uncertainty this brings is an extra motivation to settle as it increases the risks involved of going to court for a decision on a claim.

Where does this leave mediation?

Certainly, it is possible to see Gore as a backward step for mediation. There is little doubt that the case will be relied upon in future by parties seeking to justify having refused to mediate. That said, these cases are quite easy to distinguish from one another, leaving judges free to make whatever decision they think is appropriate in any particular case. In any event, the commercial and practical benefits of mediation will often be incentive enough to agree to mediate. We are therefore optimistic that Gore will not change the practice of parties mediating their disputes before going to trial. Refusing to mediate will still involve taking a significant risk on costs.