UK: What Is The Current Approach Of The Courts When A Party Refuses To Mediate? P4 Limited v Unite Integrated Solutions Plc.

Last Updated: 7 December 2006
Article by Jeremy Glover

Following the Court of Appeal decisions in the cases of Halsey v Milton Keynes General NHS Trust and Steel v Joy and Halliday [2004] EWCA Civ 576, which were decided together in May 2004, the position of the Courts was clear. Parties were to be encouraged to settle their disputes through ADR.

Dyson LJ said in Halsey that:

"Parties sometimes need to be encouraged by the court to embark on an ADR. The need for such encouragement should diminish in time if the virtue of ADR in suitable cases is demonstrated even more convincingly than it has been thus far. The value and importance of ADR have been established within a remarkably short time. All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR. But we reiterate that the court's role is to encourage, not to compel. The form of encouragement may be robust…

The encouragement employed by the Courts, if a party has unreasonably refused to mediate is to deprive a successful party of his costs. In addition, the Court of Appeal’s comments have been reinforced by the various provisions of the Civil Procedural Rules and Pre-action Protocols.

The factors as set out in Halsey, which are used by the Courts to establish whether or not a party has unreasonably refused ADR, include:

  1. The nature of the dispute. Although most cases are suitable, it is accepted that the situation might be different if the dispute, for example, involved a recurring point of law where a binding precedent would be useful or allegations of fraud.
  2. The merits of the case. In other words if a party reasonably believes that he has a watertight case this might be sufficient justification for a refusal.
  3. That other settlement methods have been attempted but failed. If settlement offers have already been made, but rejected, then this will be a relevant factor. For example, it may show that one party is making genuine efforts to settle, and that the other party has unrealistic views of the merits of the case. However the Courts do take the view that mediation often succeeds where previous attempts to settle have failed.
  4. The costs of mediation would be disproportionately high. It should noted that this will be balanced against the costs of a contested court hearing.
  5. Delay. Is the request to mediate a delaying tactic designed to adjourn the actual Court hearing?
  6. Does the mediation have a reasonable prospect of success? In Halsey, the Court of Appeal made it clear that the burden is placed on the unsuccessful party to show that there was a reasonable prospect that mediation would have been successful.

Notwithstanding the potential sanctions, parties still do decline to mediate. This happened in the recent case which came before Mr Justice Ramsey, namely P4 Ltd v Unite Integrated Solutions Plc, [2006] EWHC 2640. P4 had claimed some £70k. In his judgment, Mr Justice Ramsey decided that P4 was only entitled to recover £387. He therefore had to decide liability for costs. It was argued that, having failed to beat a payment into court made by Unite, P4 would have to pay Unite's costs from the date of that payment. However, P4 argued that there should be no order for costs for the whole period for two reasons. The first was Unite's failure to provide P4 with information in relation to Unite's payments to its subcontractor. The second was a refusal by Unite to mediate.

In respect of the first submission, the Judge accepted that there was a failure to provide relevant information to P4 which was of importance during the pre-action protocol stage. In relation to the refusal to mediate, the submissions focussed on the judgment in the Halsey case.

Unite felt that the dispute involved a long term relationship and there were allegations of bad faith. Therefore, this was the type of dispute which most probably could not be successfully mediated. Unite said that it had a strong case, as could be seen from the end result. Unite also said that it did make settlement offers but these were rejected. In other words P4 held an unrealistic view of the merits of its case. Further, the costs of the mediation would be disproportionately high. P4's offers to settle were increasing and the parties were becoming further and further apart. In short, the mediation would not have lead to a settlement

Mr Justice Ramsey considered that this was a case where the sums in dispute whilst significant were not large. There were a number of factual issues arising. The Judge considered that the nature of the case made it a classic example of a case which lent itself to ADR. At the time the mediation was proposed, there were no allegations of bad faith. These came later. The case fell within the category of dispute where a court will continue to encourage the parties to seek ADR.

However, in relation to the merits, the failure by Unite initially to provide certain documents meant that P4 may have felt they had a stronger case than they actually did. If the documents had been provided to them at an early stage this may have had a strong bearing on the case. Of course, the ideal time to have provided them would have been during a mediation.

The Judge also accepted that the parties exchanged written offers and views and information on the case. However he continued that he did not consider that letters from solicitors which make offers can be a proper substitute for the formal process provided by ADR:

"which involves clients engaging with each other and a third party, such as a mediator, to resolve a dispute. In such circumstances, the aspirations of each party are soon brought within realistic bounds and a situation which one party makes increasing unrealistic offers is avoided. There was no proper engagement in the correspondence on the central issues and concerns which are usually the focus of ADR, three such things as position papers and mediations."

The costs of the mediation, in the view of the Judge, were small when compared against the costs of going to a full contested hearing. In addition, the parties should take into account the management time and cost incurred by both parties in dealing with the action.

The Judge also considered the attitude of the parties. P4 were not intransigent. This was a case where there was a dispute for a comparatively small sum. The potential in such cases is for the costs to be disproportionate. There were a number of uncertain factual and legal issues. Mediation may have assisted parties to continue and build upon their long standing commercial relationship. Further ADR would have had a better prospect of success if Unite had provided the documents sought by P4 at an early stage. Therefore Unite’s refusal to mediate was not justified.

What then was the effect of all this on costs? The Judge had to take into account both the Part 36 offer and the unreasonable failure to agree to mediate. He dealt with the situation by awarding P4 its costs up until the time of the date of the Part 36 offer. Unite were awarded its costs thereafter.

Therefore, it can be seen that the attitude of the Courts remains unchanged. You will face costs sanctions if you unreasonably refuse a genuine offer to mediate. Of course, the other reason to consider mediation is that it just might bring about a settlement to your dispute.

This article is based on an article from the latest issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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