In its recent decision in Swain Mason and others v Mills & Reeve1, the Court of Appeal gave some encouragement to parties wishing to decline to enter into mediation to resolve their disputes.
The courts encourage parties to use Alternative Dispute Resolution (ADR), including mediation, to resolve their disputes. This is derived from the Practice Direction on Pre Action Conduct and Pre Action Protocols, under the Civil Procedure Rules and Court Guides.
The court can penalise in costs a party who in its view has unreasonably refused to mediate. This can include depriving a successful party of an order that the losing party pay its costs. The court can also make case management orders such as a stay granting the parties time to mediate.
Facts of the case
Mr Swain and his family instructed Mills & Reeve solicitors (MR) to assist them in the sale of their shares in their company. Advice was sought as to the sale of the shares and some tax advice given as to how to structure the sale in relation to the proceeds of sale. As matters proceeded Mr Swain indicated he was suffering from an illness and was about to undergo an operation. There was no indication either was life threatening. No request for tax advice in the event of his death was sought or given. The transaction was entered into and completed. Unfortunately shortly afterward, following his operation, Mr Swain unexpectedly died. A claim was made that MR should have advised taking into account Mr Swain’s possible death. The suggestion was if he had received proper advice a subtantial saving in inheritance tax would have been made either by deferring the transaction for a short period, so that it took place after his death or that it be arranged that the proceeds be immediately re-invested in qualifying securities.
MR declined to mediate throughout. They were convinced they had a good case.
MR succeeded at trial. They “lost” on various issues but were found overall not to be liable. The trial judge noted MR’s refusal to mediate. He ordered that MR only be able to recover 50% of their costs. The parties appealed.
The Court of Appeal dismissed the claimants' appeal on the substantive merits.
On costs, the Court of Appeal was reluctant to interfere with the trial judge’s findings on the issues based decisions, including MR pursuing an extensive and costly disclosure exercise as regards the sellers’ accountants.
On refusal to mediate the Court of Appeal took a different view from the trial judge. It decided that the MR had not unreasonably refused to mediate.
It took the parties back to the Court of Appeal decision of Halsey v Milton Keynes General NHS Trust and that the case was authority that:-
- Parties should not be compelled to mediate;
- ADR and mediation was not a panacea for every case;
- A party’s reasonable belief that it has a strong case is a factor in deciding whether it was unreasonable to refuse mediation.
- Account needs to be taken of whether a meditation would succeed, given the parties’ stances.
- The court should be astute that parties are not wrongly put under costs pressure as regards mediation.
The Court of Appeal taking a broad brush approach substituted an order that MR recover 60% as opposed to 50% of its costs.
This case needs to be set in context as an example of where the court had some sympathy for a party declining to mediate.
It is a reminder of a few of the non–exhaustive list of considerations from Halsey that the court will take into account when deciding if a party has unreasonably refused to mediate:
- The nature of the matter. In Halsey the court recognised that some kinds of cases are not suitable for mediation (for example those with issues of law or construction), however it noted that many cases are not unsuitable for mediation.
- Did the successful party reasonably believe it had a strong case?
- Were other options for settlement pursued?
- The costs of mediation.
- Would the mediation delay the trial of the action?
- Would the mediation have had no reasonable prospect of succeeding?
As to 4 – It has been possible to conduct mediation on a reduced costs basis for some time.
As to 5 – Some mediation providers market an emergency service setting up a mediation as quickly as the next day.
The onus is on the unsuccessful party to establish that the winning party unreasonably refused to mediate.
A party refusing to mediate will still remain at risk including where they consistently do so where there have been changes in the case (as often happens).
A party refusing to mediate due to its belief that it has a strong case will be subject to scrutiny by the court as to whether that opinion is reasonable.
Careful consideration of offers to mediate continues to need to be made.