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Is ADR always better?

We've all heard that failure to agree to mediate will have severe cost consequences, but that's not always right.

We’ve all heard that failure to agree to mediate will have severe cost consequences, but that’s not always right.

In Mason & Others v Mills & Reeve (a firm) The Court of Appeal has recently considered an appeal by a defendant regarding a costs order imposed by the Judge at first instance in the lower court. 

While trial judges have a discretion on costs with which an appeal court will not readily interfere, here the appeal court was troubled by the Judge’s decision to hold against the defendant, in terms of costs, the fact that it had refused to engage in mediation or any form of alternative dispute resolution.

The court has a discretion on costs with the general rule being that the unsuccessful party shall pay the successful party’s costs, although the court can make a different order if it is reasonable to do so.  In exercising the discretion on costs the courts will consider all the circumstances of the case, for example, whether it was reasonable for a party to pursue a certain issue.  Importantly, the courts must have regard to the parties conduct including any efforts made to try and resolve the dispute.

In this case, at first instance the judge followed the traditional approach to costs and placed particular emphasis on the fact that, despite proposals to mediate by the claimant and the trial judge, the defendant had refused to participate on the basis of its view that the claim had no merit.  The Judge considered that a successful mediation would have avoided the risk of reputational damage to the defendant and allow both parties to gain a better understanding of the weaknesses of their cases, possibly leading to settlement. 

It was held that the claimant’s refusal to consider mediation was unreasonable and therefore it was ordered that the (successful) defendant would only recover 50% of its costs from the claimant.  The defendant appealed on the basis had been wrong to penalise it in costs for its refusal to mediate. 

The appeal court was troubled by the trial judge’s approach because, firstly, the defendant had been correct in its assessment of the claimant’s defective case.  Secondly, the judge had failed to identify what weaknesses in the respective cases might have been revealed during a mediation and it was not clear why the “potential avoidance of reputational damage” to the defendant was a relevant factor.

The fundamental point to determine is whether an unsuccessful claimant had shown that a defendant had acted unreasonably in refusing to engage in mediation or alternative dispute resolution.  It had not, and the Judge had been wrong to take the defendant’s refusal to mediate into account when making his costs order.  This decision provides an example of a case where, exceptionally, an appeal court was prepared to interfere in the exercise by a trial judge in relation to costs awards and reminds us of the following:

  1. Parties are not compelled to mediate, with alternative dispute resolution not being appropriate in every case,
  2. A claimant should not use the threat of adverse costs sanctions arising out of a defendants refusal to mediate as a means of settling a case which has no merit,
  3. If a party has a watertight case, refusal to mediate will be justified.