The Civil Procedure Rules encourage parties to consider settlement at all times, or risk costs sanctions being imposed against them. The Court of Appeal has recently reaffirmed its view that a failure to engage in Alternative Dispute Resolution (ADR) will have costs consequences.
In Thakkar v Patel [2017], the Court of Appeal considered an appeal against an order requiring the defendants to pay 75% of the claimants' costs of the claim, despite the outcome at trial being less advantageous to the claimants than the defendants' (withdrawn) settlement offer.
The case highlights the strict penalties that could result from a failure to mediate.
Key facts
- A dilapidations claim in the sum of £210,000 was issued against the defendants
- The defendants counterclaimed £42,000
- The defendants made a £30,000 offer to settle plus costs
- The claimants did not accept the offer, which was later withdrawn on 11 August 2011
- The judge's awards on the claim and counterclaim resulted in a balance of £28,183.52 and a judgment sum of £32,083.18 including interest. The sum owed by on 11 August 2011 was £28,692.55 including interest.
Although both parties knew the facts and evidence supporting the claimants' claim in August 2011, the claimants only had the statement of case for the defendants' counterclaim. Unlike the claimants, the defendants were therefore able to properly evaluate their position. On this basis, the Court of Appeal upheld the judge's assessment that the claimants acted reasonably in not accepting the defendants' offer before it was withdrawn.
Both parties had initially been positive about mediation. However, the defendants subsequently failed to engage with the ADR process without good reason, which left the claimants' disillusioned about the benefits of pursuing ADR any further. The claimants eventually decided they had no option but to continue with the court proceedings.
The Court of Appeal noted that there was a real prospect of settlement if mediation had occurred. The parties' offers were only £10,000 apart and costs were disproportionate to the claim. If the case had been settled in August 2011, a significant proportion of the parties' costs (approximately £300,000) would have been saved.
Decision
- The Court of Appeal upheld the decision of the trial judge and restated the previous message that "to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed".
- The Court of Appeal did state that the judge's order was "tough", but he had not acted outside of his discretion. This was a case which was clearly suited to mediation, yet it did not happen simply because of the defendants’ conduct in "delaying and dragging its feet for no good reason". The defendants should therefore pay the price of its actions.
This case reaffirms the view of the courts regarding the positive effect that mediation can have in resolving disputes (and saving costs). The decision confirms that a failure to mediate is a highly relevant factor which the court will consider in deciding which party should pay the costs of the proceedings.
As a reminder, ADR must always be considered even in cases in which it may not appear appropriate. ADR should never be rejected without stated reasons, but even where reasons are given, these must be sufficient to outweigh the benefit of the proposed method of resolution.
If you have any questions about ADR, please contact James Sutherland or David Benjamin.