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Refusal to mediate may be justified

by Matthew Rushton on 12 Nov 2012

refusal to mediate

In ADS Aerospace Limited v EMS Global Tracking Limited [2012] EWHC 2904 (TCC) Mr Justice Akenhead, sitting in the Technology and Construction Court in October 2012, held that a successful party was not unreasonable in refusing an offer to mediate and should not be penalised in costs on that basis.

Background

The Claimant sought $16m for breach and repudiation of an agreement between the parties for the exclusive distribution of satellite tracking devices for aeroplanes or helicopters. The claimant lost on all the key issues and judgment was handed down in August, 2012. A further judgment on cost issues followed in late October.

As to costs, the Claimant sought a reduction of at least 50% in the Defendant’s costs entitlement to reflect the unwillingness of the Defendant to mediate. While the Claimant accepted that the Defendant was entitled to costs, it maintained that the Defendant acted unreasonably in refusing its request to attempt to settle the dispute in mediation.

Nevertheless, there had been numerous attempt to settle, as detailed in the judgment:

  • “2 March: the Defendant's solicitors telephoned the Claimant's solicitors to try to initiate a settlement dialogue but the latter said that they wanted to wait for the exchange of witness statements and possibly expert reports before any discussions.
  • 2 April: Mr Justice Ramsey ordered the Claimant to provide security for costs in the sum of £100,000 by 23 April.
  • 10 April: the Defendant’s solicitors wrote to the Claimant's solicitors saying that it was their client’s view that the claim against them was without foundation and bound to fail but nonetheless they offered £50,000 to settle the proceedings inclusive of costs, interest and VAT. There was no acknowledgement, let alone any response.
  • 13 April: in a telephone conversation to establish whether there was any prospect of a settlement dialogue, the Claimant's solicitors showed no inclination to discuss settlement.
  • 15 May: the Defendant’s solicitors telephoned the Claimant's solicitors to reiterate their client’s willingness to try to settle. The latter indicated that they would take instructions and revert.
  • 31 May: the Claimant's solicitors wrote referring to the £50,000 offer as a "nuisance" payment, stating that their client and insurers had taken "extensive legal and technical advice in relation to the merits of the claim and the evidence". They suggested that "since both parties appear to be willing to discuss settlement…that an attempt should be made to resolve the dispute with the assistance of the mediator"; such a mediation would have to take place during the week commencing 11 June 2012 due to their client’s commitments. They stated that if there was no agreement to mediation their client might refer the letter to the court when considering costs.
  • 1 June 2012: the Defendant's solicitors wrote back referring to the previous history (between March and 15 May (set out above)), and saying that they did not think "that mediation is likely to be a worthwhile or successful investment of time and cost" as "each side is now familiar with the other’s case, and each ought to be able to assess with a reasonable degree of accuracy the relative strength of its position"; there was nothing to suggest that the Claimant would accept much less than $16 million and "absent any such indication we risk doing no more than waste time and (irrecoverable) cost when both parties should instead be focusing on the trial". Nonetheless the Defendants would "in good faith consider any reasonable offer your clients make" and they would welcome a without prejudice discussion sooner rather than later.
  • 6 June 2012: the Claimant’s solicitors wrote back saying that the cost of mediation could not really be a concern given the Defendant’s estimated costs of about £1 million. The Claimant did not consider that its claim was misconceived, that view being "reinforced by detailed consideration of your client’s factual and opinion evidence". There were "reasonable prospects of settling this matter if your client is able to recognise its liability". They suggested that a skilled mediator could help settle disputes which appeared to be incapable of resolution and that mediation was the better option than without prejudice discussions. On the same day the Defendant’s solicitors wrote back saying that a formal mediation was not necessary given that it was less than three weeks before the trial and repeating their offer of without prejudice discussions.
  • 7 June 2012: the Claimant through its solicitors offered to settle the case for £4,246,000 inclusive of costs and interest, the offer being open for seven days. The offer of mediation was repeated.
  • 11 June 2012: following a telephone conversation that day, the Defendant offered £100,000 inclusive of costs interest and VAT in settlement; that offer was open for seven days.”

The general rule is that the costs follow the event, and that the unsuccessful party will be ordered to pay the costs of the successful party. Nevertheless the court has discretion to order otherwise (CPR 44.3 (2)). The leading authority in deciding whether a party has acted unreasonably in refusing ADR is Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576, in which the Court of Appeal identified relevant factors, including:

1) The nature of the dispute

2) The merits of the case

3) The extent to which other settlement methods have been attempted

4) Whether the costs of the ADR would be disproportionately high

5) Whether any delay in setting up and attending the ADR would have been prejudicial

6) Whether the ADR had a reasonable prospect of success

In ADS Aerospace Limited v EMS Global Tracking Limited [2012] EWHC 2904 (TCC) the burden therefore fell on the claimant to establish that the Defendant acted unreasonably in refusing or not wishing to participate in mediation. Akenhead J was not satisfied that the defendant did act unreasonably, citing the following reasons:

(a) There had been no willingness on the part of the Claimant to engage even in a without prejudice discussion until 31 May 2012, notwithstanding at least four attempts on the part of the Defendant to initiate the same since early March 2012.

(b) It is clear from the offer to settle which was made by it that the Claimant, for good or bad reason, had a strong view that it was entitled to substantial compensation and that was clear also to the Defendant. The Claimant gave every appearance that it was simply not interested in a nuisance payment. There is certainly no evidence upon which I could draw the conclusion that it would have been interested, even through the good offices of the mediator, in settling its claim at that level.

(c) The Defendant was at all times prepared to engage in without prejudice discussions with the Claimant and there appears to have been little or no good reason why that approach should not have been tried in March, April, May or indeed June 2012 at least on a "nothing ventured, nothing gained" basis. At the very least such an approach would have "bottomed out” where the parties were likely to have stood. That would have helped.

(d) The lateness within the trial programme of the mediation suggestion coming from the Claimant was a material factor, coming as it did just before the double bank holiday Jubilee weekend and with less than 20 working days before the trial, when doubtless great efforts were being made to prepare for the trial. Without prejudice discussions would have been quicker, cheaper and less intrusive into trial preparation than a mediation which, even if it lasted only a day in itself, would have diverted solicitors and counsel by more than one day because they would have had to prepare for the mediation. Mediation would also have cost substantially more than without prejudice discussions, which was not immaterial in the light of the Claimant’s impecuniosity highlighted by the security for costs order.

(e) I do not consider that the Defendant acted unreasonably in believing that it had a very strong case both on liability, causation and quantum. Of course, it is easy in the light of a judgment which was strongly in its favour for it to argue that this is the case. However, the factors set out in the judgment, particularly at Paragraph 128 that the Defendant had not ceased to manufacture the SAT-111, at Paragraph 136 that the SAT-221 project had not got to the stage of producing a product or a derivative and at Paragraph 147 that estoppel simply did not apply would have been particularly obvious to the Defendant by June 2012. There were very real difficulties also apparent in the Claimant’s case on repudiation (see Paragraph 149 to 151 of the judgment) and the damages claim was demonstrably overstated (worth no more than about $400,000 rather than the $16 million claimed). It might be said that a good mediator would have been able to “work on” the Claimant to accept what would in effect be a nuisance offer but, in the context of this case, with the sensible solicitors and counsel (who the Claimant did engage in this case), I have no doubt that without prejudice discussions would probably have achieved the same result or at least got to the same stage. I very much doubt having seen Mr Karlsen in the witness box that he would ever have accepted a nuisance offer, which is all that would have been available either in mediation or in without prejudice discussions. I do not in any sense blame Mr Karlsen who I did not and do not believe was or is dishonest, but he clearly and very obviously wholly believed in the Claimant’s case and would have found it very hard to accept a small six-figure sum inclusive of costs, which would have left the Claimant nothing after costs had been paid out on its side.

Interpretation

It would be inappropriate to read this case too broadly and assume that an offer to mediate can reasonably be refused when trial is imminent. Akenhead J was careful to stress that whether a party has unreasonably refused ADR is a determination that is made having regard to “all the circumstances of the particular case”. Given the factual history of the case, the repeated refusal of the Claimant to engage in settlement discussions, and the lateness of the proposal to mediate (less than 20 days before trial), Akenhead J expresses no doubt that without prejudice discussions “would have achieved the same result, or at least got to the same stage” as a mediation conducted by a good mediator. Under these circumstances, it was not unreasonable for the Defendant to refuse the Claimant’s 11th hour request to mediate.

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Topics: Mediation

Matthew Rushton

Written by Matthew Rushton