Court of Appeal Penalises Party for Failing to Mediate

Leicester Circuits Limited v Coates Brothers plc [2003] EWCA Civ 333

The Court of Appeal’s decision in Dunnett v Railtrack plc [2002] 2 All ER 850 highlighted the adverse costs consequences that can flow from the failure to consider properly the use of ADR (see Litigation e-bulletin –17 April 2002)

A further recent decision of the Court of Appeal, Leicester Circuits Limited v Coates Brothers plc [2003] EWCA Civ 333, has applied Dunnett and provides another timely reminder about adverse costs consequences that may result from failing to mediate, even when a party is ultimately successful in the litigation.

Leicester Circuits Limited ("Leicester") was involved in the manufacture of printed circuit boards ("PCBs"). Coates Brothers plc ("Coates") provided Leicester with special inks used in the PCB manufacturing process. The dispute essentially revolved around allegations of breach of contract by Coates for supplying special ink that was not fit for its purpose.

At first instance, Leicester succeeded. Coates then sought to appeal the decision.

Prior to the hearing of the appeal, the parties agreed to attend a mediation on 10 January 2002 in an attempt to resolve the dispute. However on 9 January 2002 solicitors acting for Coates confirmed in writing to Leicester’s solicitors that they were withdrawing from the mediation. This was done on the basis of instructions received from insurers.

On appeal, Coates was successful in reversing the decision made by the first instance court. Under the general rule, Coates would recover its costs from Leicester for hearings at both the appeal and the lower court level, unless the court decided to make a different order.

Leicester sought to challenge the application of the general rule as to costs on a number of bases, including the fact that Coates had withdrawn from an agreed mediation process.

Coates argued that mediation was "a form of negotiation which came to nothing". The Court of Appeal (Judge, Longmore LLJ and Sir Swinton Thomas) rejected this argument. Judge LJ stated:

"The whole point of having mediation, and once you have agreed to it, proceeding with it, is that the most difficult of problems can sometimes, indeed often are, resolved."

Coates also argued that there was no realistic prospect of success in the mediation (although not referring to it explicitly, undoubtedly picking up on the language used by Lightman J in Hurst v Leeming [2002] EWHC 1051 see Litigation e-bulletin – 5 July 2002). The Court of Appeal also rejected this argument, taking the view that "having agreed to mediation it hardly lies in the mouths of those who agree to it to assert that there was no realistic prospect of success".

The Court of Appeal then considered Dunnett v Railtrack and applying it to the facts of this case Judge LJ said:

"It seems to us that the unexplained withdrawal from an agreed mediation process was of significance to the continuation of this litigation. We do not for one moment assume that the mediation process would have succeeded, but certainly there is a prospect that it would have done if it had been allowed to proceed. That therefore bears on the issue of costs."

Leicester was therefore ordered to pay costs up to 1 January 2002, the approximate time of the agreement to mediate. Thereafter, there was no order for costs so that each party bore their own costs, therefore penalising Coates for this period. The costs of the appeal followed the event and were to be paid by Leicester.

This decision emphasises the importance courts now place on the use of mediation whenever possible.

A recent series of cases has indicated an increased willingness on the part of judges to embrace their powers under the Civil Procedure Rules and penalise parties who fail to consider the use of mediation or who are viewed as unreasonably refusing the offer of mediation from the other party to the litigation. This case extends these principles to include cases where parties agree to mediate and one party then withdraws without reasonable excuse.

Built on the foundations of Dunnett v Railtrack, Leicester Circuits Limited v Coates Brothers plc is another warning that the judiciary will be ready to penalise in costs those who do not consider seriously the use of ADR.

Article by Robert Neill and Anthony Monaghan

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