We dont have to talk any more

Ever since the Civil Procedure Rules were introduced in 1999, judges have developed a passion for mediation. They now raise the possibility of mediation in virtually every case – an approach that will apply to most, if not all, areas of litigation that involve social landlords: construction, employment and disrepair cases, for example.

The order the judges use tends to go something like this: “The parties do give serious consideration to using mediation with a view to reaching an early settlement. The parties will be expected to provide an explanation if mediation has not been attempted. Cost consequences may follow.”

But what are the cost consequences? At first glance, the order appears to cast doubt on the general rule that a party who wins at trial is entitled to their costs – in other words, if you refuse mediation but win the case, the court might not order the losing side to pay your costs.

Mediate to accumulate

Until recently, that’s precisely what the courts were doing. In Dunnett vs Railtrack (February 2002), when considering whether Dunnett should pay Railtrack’s costs of the appeal, Lord Justice Brooke said: “Given the refusal of the defendant [Railtrack] to contemplate alternative dispute resolution [in this case, mediation] at a stage before the costs of this appeal started to flow … the appropriate order on the appeal is no order as to costs.”

Naturally enough, this made lawyers – and their clients – nervous. There could be no guarantee the court would find the reasons (if any) for refusing mediation acceptable.

In Dunnett, the reason given by Railtrack for not mediating was that it wasn’t prepared to offer any more than had previously been offered in writing. A sensible enough reason, perhaps, but not acceptable to the court.

This approach led not to a climate of fear, but one of risk management. Litigants often found themselves going to mediation knowing there was no prospect of a settlement. The process was undertaken simply to satisfy the court and to eliminate the nasty prospect of winning a case but being denied a costs order.

Thankfully, that has changed. In Halsey vs Milton Keynes General NHS Trust and Steel vs Joy and others (May 2004) the Court of Appeal decided to clarify the uncertainty being created by refusal to mediate.

Both cases involved roughly the same scenario. In Halsey, the defendant, Milton Keynes General NHS Trust, had refused to mediate. The trust later went on to win at trial and it was awarded its costs in the usual way. Halsey appealed, saying the judge was wrong to award the trust its costs given that it had refused to mediate. In Joy, the claimant had won at trial following a refusal to mediate. It too was awarded its costs. Joy appealed that decision. Both appellants relied on Dunnett.

In future, winning parties will only have to pay their own costs if the loser can convince the court that the winner’s refusal to mediate was unreasonable

The Court of Appeal held that it was an unacceptable departure from the general rule to deny a winning party its costs.

In future, the general rule will only be set aside if the unsuccessful party can convince the court the successful party’s refusal to mediate was unreasonable.

As Lord Justice Dyson put it: “The burden should not be on the refusing party to satisfy the court that mediation had no reasonable prospect of success. As we have already stated, the fundamental question is whether it has been shown by the unsuccessful party that the successful party unreasonably refused to agree to mediation.”

What’s unreasonable?

Whether the decision was unreasonable will depend on a number of factors including the nature of the dispute, the merits of the case, the personalities involved, the type of relief claimed and, viewed objectively, whether mediation had a realistic prospect of success.

It is suggested, however, that it will be very difficult for an unsuccessful party to prove a successful party acted unreasonably in refusing to mediate.

At the very least, the unsuccessful party would have to show mediation would have resulted in the same result, or close to it, that was achieved at trial. Merely saying “we could have resolved it much earlier” will almost certainly not be enough.

As a result of this case, litigants can feel a little more relaxed about refusing an offer to mediate. In doing so, however, it is important to ensure that mediation is not dismissed out of hand. It must still be considered if offered by the other side or recommended by the court, and rejected only if there is a good reason for doing so.

Once the decision to refuse has been made, it should be communicated in writing, with reasons, to the other side. Although mediation can be, and very often is, a great way of resolving disputes, it is not always a suitable or worthwhile endeavour.