Failure to mediate penalised

Posted: 29th October 2013

AgreementIn a landmark decision, the Court of Appeal has emphasised that litigants who refuse to engage in mediation will be penalised heavily in legal costs. One party to a landlord and tenant dispute had twice invited its opponent to engage in Alternative Dispute Resolution (ADR) but had been met each time by silence.

The landlord of a commercial building sued a former tenant for just over £1.9 million in respect of alleged breaches of a repairing covenant. The landlord had twice extended offers to engage in ADR but the tenant had failed to respond in any way. The dispute was ultimately settled after the tenant’s formal offer of £700,000 was accepted by the landlord ‘at the last minute’ before trial.

That result would in normal circumstances have entitled the tenant to its costs on an indemnity basis from the date on which the offer was made but the High Court deprived the tenant of half of the costs benefit that would otherwise have accrued to it on the basis that it had unreasonably refused to mediate.

In dismissing the tenant’s appeal against that decision, the Court of Appeal ruled that the time had come for the high judiciary to endorse the view that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable. Such intransigence was destructive of the policy objective to encourage parties to compromise rather than fight their cases in court.

Finding that, in the circumstances, the tenant’s complete failure to respond amounted to a positive refusal to engage in ADR, the Court concluded: “Silence in the face of two requests to mediate was itself unreasonable conduct of litigation sufficient to warrant a costs sanction…it would be perverse not to regard silence in the face of repeated requests as anything other than a refusal.”