Refusal to mediate costs money

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Gannons 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. Their refusal to mediate meant our clients recovered additional costs.

From early in the proceedings, the subcontractor refused our offers to mediate and the case went to trial. We succeeded at the ensuing trial. Recent litigation cost reforms have stressed the importance of considering alternative methods of dispute resolution. Hence, our client was entitled to additional damages for the losses they incurred and their full costs, with interest.

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 used a regional subcontractor. The subcontractor’s work was defective and delayed. Consequently, our client gave 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 on the advantages of mediation, especially here, as both parties wanted a quick resolution and for the matter to remain confidential.

Penalties for refusing to mediate

The subcontractor’s refusal to mediate meant our client recovered their costs on the indemnity basis, rather than the usual “reasonable and proportionate costs to the case and the dispute”. The indemnity basis meant that costs only had to be reasonably incurred. In practice this meant that our client recovered 100% of their costs, rather than the usual 70-80%.

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 with an offer to pay 66% of our client’s costs.

We declined and informed the defendant’s solicitors of our intentions: that we intended to apply to the court to have full payment of our client’s costs determined and enforced. The court agreed with us after we pointed out that the defendant had refused to mediate. They repeatedly failed to enter settlement negotiations. This entitled our client to costs on the indemnity basis.

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, for example disclosure, the defendant did not acknowledge our mediation invitation.

We raised this with the defendant’s solicitors. Costs were escalating unnecessarily for both sides because of the defendant’s refusal to mediate. We  ensured the existence of the evidence of our correspondence for the court when they considered costs after the trial.

Our arguments relating to failure to mediate

At the cost hearing after the extensive trial, we argued that the parties were not so far apart in dispute. This would have meant mediating the dispute ought to have been easy. We argued this on the basis that firstly, following disclosure, there were only three main issues in dispute. A suitable expert could have determined these three issues during mediation. The two parties could then have split the costs of mediation.

Additional cost recovery

Our client incurred costs that they could and should have avoided because the defendant refused to respond to our second offer of mediation, and thereby forced the case to go to trial.  All costs incurred by our client related directly to the claim. We asked the court to bypass the usual 70–80% limit to the recovery of costs as 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 the proportionality of the costs 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 the full amount of our client’s costs plus interest, rather than the usual lower percentage of recovery. Here, our invitations to mediate and the record we kept of those invitations 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.

  • Gannons turned a potentially stressful situation into such a positive experience