Mediation Act Non-compliance has Cost Consequences

A costs penalty was recently imposed by the High Court arising from a solicitor’s failure to comply with the statutory obligation to advise about mediation before commencing proceedings. The penalty imposed shows that the courts are strict about promoting mediation and a warning was issued about more significant penalties for non-compliance in future cases. Commercial Disputes partners, Gearoid Carey and Gerard Kelly examine the decision.

The High Court has recently[1] adopted a much stricter approach to compliance with the obligation to advise a plaintiff about mediation before commencing proceedings by imposing a costs penalty where the solicitor did not do so. The Court warned how the statutory obligation to advise a client about the benefits of mediation prior to litigating was “not unreasonable or burdensome” and was critical of the plaintiffs’ solicitor for not doing so. In imposing a 5% reduction on the party and party costs he was otherwise prepared to order, Judge Kennedy observed how the obligation involved assisted the client in making an informed decision. In rejecting the arguments put forward which sought to justify the solicitor’s failure to do so, he stressed that greater sanctions could be imposed in future cases.

Background

The decision arose in the context of a costs hearing regarding two interlocutory motions related to proceedings regarding an estate. The arguments included whether the failure to comply with Section 14 the Mediation Act 2017 was relevant to the question of costs. By way of explanation, Section 14 imposes an obligation on solicitors to advise clients to consider mediation. It also requires them to give information about the advantages of resolving the dispute without litigating and the benefits of mediation. Section 14 of the Mediation Act 2017 further requires that the originating document, which commences the proceedings, is to be accompanied by a statutory declaration sworn by the solicitor confirming compliance with those obligations. If it does not, the court is empowered to adjourn the proceedings to facilitate provision of the declaration. In the instance in question, the plaintiffs’ solicitor had not complied with the obligations of Section 14.

Decision

The Court started by looking at the powers relevant to the award of costs in proceedings, specifically Sections 168 and 169 of the Legal Services Regulation Act 2015 and Order 99 of the Rules of the Superior Courts. However, Judge Kennedy noted that the award of costs of motions prior to a final determination on the merits are not always clearcut. He then considered how the Law Reform Commission and the courts have endorsed the desirability of alternatives to litigation. In referring to the Mediation Act 2017, Judge Kennedy noted the statutory declaration should have been provided and so he paused the interlocutory hearing to accommodate compliance, thereby delaying matters proceeding on the day.

In considering whether the failure to comply with the Mediation Act 2017 was relevant to the question of costs, the plaintiffs contended it was not, for various reasons. Ultimately, relying on other authorities, Judge Kennedy was of the view that an unreasonable failure to engage in mediation or negotiations could be a relevant factor in determining costs. While he accepted this had not been the case here, there had been a breach of statutory procedures prior to the commencement of proceedings. He stressed how the obligations involved were “not unreasonable or burdensome”. Judge Kennedy also maintained that lawyers acting in their clients’ best interests should advise as to alternatives to litigation. The Section 14 obligation allowed the clients to make an informed decision, to include the opportunity for the lawyer to advise why it may not be appropriate to mediate in the circumstances at the centre of the dispute.

In the context of the current case, he stated that the proceedings should not have been issued until the statutory requirements had been met, noting that Section 14 compliance was in the public interest as well as in the individual client’s interest. He also rejected the claim that the urgency of the interlocutory motion justified non-compliance, observing that the issue could have been addressed while proceedings were being drafted. In addition, a number of months had gone by before the application was actually heard when it could have been addressed.

The assertion that there were tactical reasons not to propose mediation and that the defendants were unlikely to engage in a mediation did not justify non-compliance. In the former respect, even if mediation was not appropriate at that time, “a seed is planted”, and most cases settle before trial anyway. In the latter regard, the chances of engagement were not zero, so even a low possibility of willingness to engage in mediation on the part of the defendants could justify the plaintiffs considering it. As for the concern that proposing mediation might “show weakness”, the Court noted that if all parties to disputes took that view, no case would ever settle. Furthermore, “sophisticated litigators are less inclined to consider a nuanced willingness to negotiate or mediate as a sign of weakness.” In any event, “section 14 offers an ideal basis for an overture which can legitimately be presented as compliance with statutory and professional requirements.”

Ultimately, Judge Kennedy was of the view that the Courts “should… have regard to the failure to comply with the statutory precondition to issuing proceedings, a provision introduced as a public interest measure to avoid unnecessary litigation and to avoid unnecessary recourse to the courts.” Failure to comply with Section 14 was a relevant consideration when exercising the statutory discretion as to costs. Taking all of that into account, he proposed a “relatively modest” reduction to the costs award he would make in the plaintiffs’ favour. Having initially considered a 10-15% reduction, he imposed a 5% reduction, also to reflect a delay in delivering the Statement of Claim. He warned that “Courts may be less lenient in future.”

Conclusion

The decision is an interesting one. It highlights again how the courts use cost implications to direct litigants to what it perceives as appropriate conduct. In this case, it was the failure to comply with the obligations imposed under section 14 of the Mediation Act 2017. The High Court was critical of the non-compliance, even in the context of interlocutory motions, and dismissed in sequence the justifications asserted for non-compliance.

Ultimately, those embarking on litigation, and their advisors, should be mindful that non-compliance may not only result in an adjournment of the proceedings as provided for under the Mediation Act 2017, but may have cost consequences. The fact of a 5% reduction here, and the consideration of a reduction as high as 15% coupled with the threat of more serious consequences in future, should focus practitioners’ minds on Mediation Act compliance.

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] Byrne, Hyslop & Kerrigan v Arnold [2024] IEHC 308