Mediation – it’s good to talk?

Posted: 03/01/2013

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ADS Aerospace Ltd v EMS Global Tracking Ltd [1212 EWHC 2904 (TCC)]

The TCC Pre-Action Protocol actively encourages parties to use ADR to settle disputes and threatens cost penalties against those who fail to participate in ADR. In the recent case of ADS Aerospace Ltd v EMS Global Tracking Ltd, Mr Justice Akenhead examined the consequence of a party refusing to mediate.

The case concerned a $16 million contractual claim regarding breach of an agreement for the exclusive distribution of satellite tracking devices for aeroplanes and helicopters. The claim was dismissed at trial and, in the words of the judge, the defendant “won”. Having given his judgement on the claim, Mr Justice Akenhead was forced to provide a second judgment on the issue of costs between the parties.

Costs in litigation

As a general rule in litigation the unsuccessful party pays the costs of the successful party, subject to the discretion of the court under CPR 44.3(2). In this case the claimant, ADS Aerospace Ltd, submitted that the defendant's costs entitlement should be substantially reduced (by at least 50%) due to the defendant’s refusal to engage in mediation as a means of resolving the claim. In short, the claimant was appealing to the court’s discretion in awarding costs on the grounds the defendant had refused to mediate.

The leading authority on the application of court’s discretion for costs is Hasley v Milton Keynes NHS Trust [2004] EWCA Civ 576 which states:

“In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule.”

As a result the onus was clearly on the claimant to demonstrate to the court that the defendant had been unreasonable in their refusal to mediate.

Had the defendant acted unreasonably in refusing to mediate?

The benefits of mediation are widely recognised by the courts. Mediation is considerably less expensive than litigation, it’s quicker, it’s voluntary and can be entered into at any stage in proceedings. It is also confidential and “without prejudice” which can help preserve business relationships. Finally, it offers the parties a wider range of solutions for settlement, all of which can be made legally binding upon the parties. For all of the above reasons the court will generally expect parties to explore mediation or alternative means of ADR.

In assessing whether or not it is reasonable to mediate the courts do not have an automatic presumption in favour of mediation. Instead the courts adopt the stance that mediation and other ADR processes do not offer a panacea and are not appropriate in every case. As a result, each case will be judged on its own merits.

On the facts of the case, Mr Justice Akenhead concluded that the defendant had not acted unreasonably in refusing to mediate. With the benefit of reviewing what was going on “behind the scenes” with regard to the parties’ attempts to settle the case Mr Justice Akenhead noted the following reasons:

• The claimant had shown no willingness to engage in any form of without prejudice discussion until 31 May 2012, notwithstanding at least four previous attempts of the defendant to initiate such dialogue. Meanwhile the defendant had at all times been willing to engage in without prejudice discussions which would have helped identify the key issues of the dispute.
• On 10 April 2012 the defendant had written to the claimant stating that the claim was without merit and bound to fail but nonetheless offered a £50,000 payment to settle. The claimant maintained the position that it was entitled to substantial compensation (over £4 million) and rejected the offer. Mr Justice Akenhead noted that given the entrenched position of the claimant mediation was unlikely to have helped settle the claim in this instance.
• The claimant’s request to mediate came less than 20 working days before the trial date of 2 July 2012 when substantial work had been undertaken and was continuing for the hearing. Mr Justice Akenhead noted that at this stage, rather than mediation, without prejudice discussions would have been quicker, cheaper and less intrusive into trial preparation and would not have diverted solicitors and counsel from preparation for trial.

For the above reasons it was ordered that the claimant pay the defendant’s costs along with interest from the date the costs should have been paid. 

Summary

This judgment shows that the court will scrutinise the entire situation between the parties with regard to without prejudice dialogue when asserting its discretion on costs for a refusal to mediate. Last minute requests to mediate before trial will be viewed carefully, particularly where there is little evidence to suggest that the parties were ever likely to benefit from mediation or shift from their positions. On the facts, the judge held that mediation at such a late stage in proceedings would have been a waste of time, money and costs when both parties should have been focusing on trial. He stated that, rather than mediation, without prejudice talks would have been more beneficial for both parties at this late stage.

This case demonstrates that a refusal to mediate must be considered very carefully and any refusal must expressly detail the reasons why mediation is being declined. Here the claimant’s request to mediate came at a late stage in proceedings, after an initial unwillingness on its part to engage in mediation or without prejudice correspondence, and from a totally unrealistic view on the strength of its case and the sum it would settle at. As a result mediation was here seen as an empty gesture rather than a genuine attempt to settle the dispute. Nevertheless parties who fail to mediate on genuine attempts to settle a claim are still likely to face substantial penalties on costs through the courts.

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