Mediate or Meet the Cost?? Failing to Consider Mediation Could be a Costly Strategy

The dispute resolution landscape post the Jackson Reforms earlier this year has taken on a slightly more rugged if not treacherous appearance, and this is certainly the case concerning the widespread changes to the costs regime. Lord Woolf began the crafting of a more undulating and challenging dispute resolution landscape back in 1996 and now Lord Justice Jackson has added some lofty peaks for litigants and litigators alike to be aware of, or ignore at their peril. These measures have been taken to minimise abuses and streamline the court process by introducing sanctions with a touch more bite. Certainly some sturdy trekking gear and thorough map reading will be required to navigate these new ranges.

Case law is now filtering in which is providing a picture of how the courts intend to interpret some of the new costs measures that were introduced back in April 2013. One such key measure is that the costs of a case must be 'proportionate' to the amount in dispute. No longer will excessive legal costs be justifiable because they were merely 'necessary'. Thus, if the amount in dispute is £200,000, then legal costs to trial of £150,000 would most likely be disproportionate, regardless of how much work was involved.

A judge may even agree that the costs were necessary but be forced to reduce them under the new proportionality criteria. As such, prospective litigants and litigators must carefully budget before and during the litigation process and this will be closely monitored by the court, with deviation from budgets being punished. One solution to increasing and sometimes hard-to-predict litigation costs is early mediation.

Interestingly, Lord Justice Jackson published the ADR (Alternative Dispute Resolution) Handbook as part of his wide-ranging reforms to civil litigation in 2013. This report, among other matters, stipulated that if your opponent offers mediation then this must be considered with constructive engagement. To merely ignore such an offer would attract a costs sanction.

This advice regarding mediation has now been confirmed by the Court of Appeal in the recent case of PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288. In this case the defendant ignored an invitation by the claimant to consider mediation. Ordinarily, a party can justify refusing an offer for mediation by citing various factors that were laid out in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002. Such factors include the merits of the case and whether such mediation would have a reasonable prospect of success. If a party could justify to the court a refusal to mediate according to these 'Halsey Principles' then no costs sanction would generally follow.

However, in line with Jackson's ADR Handbook advice, the Court of Appeal held that to simply ignore an offer to mediate would attract a costs sanction automatically, regardless of whether it was justifiable under the Halsey Principles or not. As such it was held that the defendant would be liable for more of the claimant's costs than if they had simply engaged with the other side in relation to their mediation request. This is in line with the new 'proportionality' requirement as a successful mediation can, in principle at least, greatly reduce subsequent litigation costs and thus is an avenue which must be at least considered properly if suggested.

Some prospective litigants may view considering or undertaking mediation, especially at the outset, as a sign of weakness. However, with possible costs recovery implications now in place around the refusal to consider mediation, litigants should ask their legal advisers to lay out the mechanics, timings and costs of a possible mediation as this may prove more cost effective than litigation, from a commercial perspective.

The key point to take away for litigants and litigators is that consideration must be given to the possibility of mediation if the other side suggest mediation, whether suggested in conversation or in writing. A response must be given to a request and if mediation is not appropriate then you must carefully apply the Halsey principles to the facts to justify your refusal. It may be that the court will issue more 'Ungley orders' - these are orders of the court which require parties to consider ADR before trial and file reasons for any refusal. These objections can then be used by the court when considering costs, which could prove costly if ADR would have proven significantly cheaper than any subsequent yet forced litigation.

No doubt more case law will emerge in the coming months to further augment the new costs regime implemented by the Jackson Reforms. It is doubly important that one now steps the path towards contested litigation with a firm and carefully placed footing, so as to avoid any unpleasant pitfalls.