Refusal to mediate costs money

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Refusal to mediate costs money

We recently acted for a large, London based firm of commercial property project managers. Their claim was against a subcontractor for defective works and financial loss. Litigation cost reforms have stressed the importance of considering alternative methods of dispute resolution.

We succeeded at the substantive trial. From early in the proceedings, the subcontractor refused our offers to mediate. Hence, our client was entitled to:

  • Damages for the losses incurred; and
  • Their full costs, with interest.

Refusing to mediate will result in penalties

Note, the subcontractor’s refusal to mediate meant our client:

  1. Recovered 100% of their costs, on the indemnity basis, i.e.
  2. Claim for interest on the costs.

Penalties imposed and costs recovered

Usually in high value commercial litigation, the loser pays the winner’s costs. After we won the trial, we submitted our bill to the defendant’s solicitors. The defendant’s solicitors replied that they were prepared to pay 66% of our client’s costs.

We resisted. We informed the defendant’s solicitors of our intentions:

  • To apply to court to have payment of our client’s costs determined and enforced.

We succeeded. We stated that the defendant refused to mediate. They repeatedly failed to enter settlement negotiations. This entitled our client to costs on the indemnity basis.

The facts of the case

Our clients outsource commercial property building work. Their clients are usually property developers who invest in high value commercial properties. Our clients chose a regional subcontractor.

The subcontractor’s work was defective and delayed. Consequently, our client paid the developer a penalty for late delivery, and paid to fix the defective work.

After receiving instructions, this case was clearly suitable for mediation. We advised our client of the advantages of mediation, especially here, as both parties wanted:

  • A quick resolution; and
  • The matter to remain confidential.

Effective invitations to mediate

We used our knowledge and experience of the judiciary’s attitude to mediation. Before we commenced proceedings, we invited the defendant to mediate. We received no response.

After we commenced proceedings, and exchanged statements of case,  we again invited the defendant to mediate. Although the defendant responded to our letters about other issues, e.g. disclosure, the defendant neither accepted nor rejected our mediation invitation.

We raised this with the defendant’s solicitors. We stated that costs were escalating unnecessarily. We ensured our correspondence could be evidenced when, after the trial,  the court considered costs.

The points argued relating to failure to mediate

After the substantive trial, at the cost hearing, we argued that:

  1. The parties were not so far apart on matters in dispute, which is what the defendant argued, as
    • Following disclosure, there were only three issues in dispute;
  2. A suitable expert, during mediation, could have determined these three issues,
    • With costs split between the parties;
  3. By not responding to our second offer of mediation, our client incurred costs that:
    • Could, and should, have been avoided;
  4. All costs incurred by our client related directly to the claim.

We asked the court to bypass the usual 70 – 80% recovery of costs. The defendant’s refusal to mediate could not be justified.

The court’s decision on refusal to mediate

The court found in our favour. The finding entitled our client to all their incurred costs, regardless of whether the costs were proportionately incurred.

The court stated that ‘if there are reasonable grounds to mediate, and if another party unreasonably refuses to engage, sanctions should be imposed’.

Here the defendant’s sanction was to pay all our client’s costs, rather than the usual percentage of recovery, plus interest.

Here, our invitations to mediate ensured our client received their full costs on the favourable indemnity basis.

Alex Kleanthous runs the dispute resolution team at Gannons. As can be seen from the above, an offer to mediate should be advanced, and taken seriously. We use our knowledge of the judiciary’s attitude to mediation to protect your costs position.