Beware of Not Mediating a Dispute

A recent Irish High Court decision reduced a costs award. This reduction occurred because the plaintiffs’ solicitor failed to comply with the statutory obligation to advise about mediation before commencing proceedings. An English court has also recently imposed a greater reduction on recoverable costs arising from a party’s refusal to consider mediation. Gearoid Carey and Gerard Kelly, partners, examine this decision in the context of an apparent greater judicial willingness to get parties to mediate or else suffer potential cost consequences.

In a recent English decision, the Court criticised the successful defendants' failure to engage in mediation and invited them to explain why they failed to mediate.[1] Subsequently, when it came to the question of costs, the Court felt that the defendants had unreasonably refused to mediate. It therefore reduced the costs recoverable by the successful defendants by 25%. This has echoes of a recent Irish High Court decision. In that Irish case, a smaller, 5% reduction was applied to the recoverable costs. This reduction was due to the plaintiffs’ solicitors failing to comply with the requirements of Section 14 of the Mediation Act 2017 by not advising the clients about mediation.[2] These decisions demonstrate that the courts are increasingly anxious to ensure that parties do engage in mediation where appropriate. This desire is also apparent from the recent High Court Practice Direction 127 concerning the Non-Jury List which requires solicitors for all parties to confirm compliance with Section 14 as part of completion of the Trial Summary Form to be filed.[3]

Background

The underlying dispute in the case related to the terms of an agreement. This agreement itself concerned the basis on which a property was to be transferred from the claimant to the defendants. Central to the dispute was whether the transfer was to have an option to repurchase in favour of the claimant. Discussions took place in March 2019 for the purchase of the property. An oral agreement was allegedly made in March 2020 with monies paid in October 2021. However, relations broke down when the parties sought to formalise arrangements through their solicitors. Proceedings issued in June 2022, with a defence and counterclaim delivered in July 2022. The matter was heard on various dates during spring 2024. Ultimately, the Court determined that the defendants were entitled to succeed in the proceedings.

Decision

As part of the substantive judgment, the trial judge observed that:

“[o]ne matter that seriously concerns me is why the Defendants did not agree to mediation when it was put to them. The importance of mediation can never be over-emphasised… The Defendants will have to advance compelling reasons why the offer of mediation was rejected out of hand.”

Subsequently, when the question of costs came to be determined, the judge reduced the defendants’ costs by 25%. This reduction was because the court considered that the defendants had rejected the claimant’s offer of mediation out of hand. The first offer had been made prior to proceedings issuing in 2022. Another offer to mediate was made later in the year. That was rejected by the defendants, including on the basis that the dispute was unsuitable for mediation and that the mediation would delay the final determination. After strong judicial encouragement to settle, a without prejudice offer was rejected after the first day of the trial. On the subsequent adjournment of the trial, a further mediation offer was made, and also rejected.

The judge considered that the decision to refuse mediation, especially the first one, was misconceived and other refusals were unreasonable. It was not possible for the defendants to say they were almost certainly likely to win and, as a result, that the mediation offer had no merits whatsoever. Even though the parties were at loggerheads, it did not follow that any mediation might not result in agreement. There was nothing to say that, with the benefit of a trained mediator, acceptable settlement alternatives could not have been put forward. Taking into account the Court of Appeal decision in Churchill v Merthyr Tydfil County Borough Council[4], where it was held that the courts could order parties to engage in alternative dispute resolution - including mediation - or stay proceedings to enable such engagement, the court felt justified in imposing a 25% reduction on the costs awarded to the otherwise successful defendant.

Conclusion

Although this is a lower level English decision, it is interesting as it highlights the increasing judicial willingness to promote mediation. As mentioned, the Irish courts have also recently demonstrated a similar willingness though the reduction of recoverable costs where Section 14 of the Mediation Act 2017 has not been complied with. However, it is important to note that the Irish courts have never sought to impose costs consequences on parties successful in litigation for failing to mediate. Although this development in Ireland seems unlikely, it cannot be ruled out. Accordingly, practitioners should be careful to comply with their duty to advise about mediation and, once offered it, parties should carefully consider the possibility of mediation.

For more information and expert advice on commercial disputes, contact a member of our Commercial Disputes team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] The substantive ruling is reported at Conway v Conway & Anor [2024] EWCA Misc 19 but the subsequent costs ruling was delivered ex tempore.

[2] Byrne & Ors v Arnold [2024] IEHC 308, which is addressed at https://www.mhc.ie/latest/insights/mediation-act-non-compliance-has-cost-consequences

[3] HC127 Non Jury List: Hearing of Witness Actions in the Non Jury List, 19 June 2024

[4] [2023] EWCA Civ 1416