The Court of Appeal recently confirmed in the case of Gore v Naheed & Anor that a party who refuses to mediate will not automatically be penalised in costs because there is no general rule that refusal is automatically unreasonable.

The facts

The claimant, Mr Gore, was successful in his claim for damages and an injunction in respect of an alleged obstruction of a right of way against Mrs Naheed and Mr Ahmed. Following the general rule that costs follow success, the Court ordered the defendants to pay Mr Gore’s legal costs.

The defendants’ appealed, which was allowed insofar as it related to the damages awarded. However the Court of Appeal held that the claimant had been the overall winner in the litigation. As such he remained entitled to his costs. In relation to costs, the defendants argued at first instance and on appeal that the Court should take Mr Gore’s refusal to engage with their invitation to mediate into account.

Previous guidance

The defendants’ submissions referred to the guidance of the Court of Appeal in PGF II SA v OMES Company I Limited where the Court concluded that, as a general rule, silence in the face of an invitation to participate in alternative dispute resolution should be treated as unreasonable, regardless of whether the refusal might have been justified in the circumstances. The Court of Appeal went on to confirm that this did not automatically result in a costs penalty, however it was a factor to be considered when the Court exercised its discretion.

Did Patten LJ follow the guidance?

In the present case, Patten LJ had difficulty accepting that a party’s actions should be deemed unreasonable simply because that party had opted to have their rights determined before a court of law over mediation, particularly when they were ultimately successful. Patten LJ concluded that it was not unreasonable for Mr Gore to have declined to mediate. His reasons were that:

  1. Mr Gore’s solicitor considered that mediation had no realistic prospect of succeeding and would only add to the costs; and
  2. the case raised some complex questions of law which made it unsuitable for mediation.

What lessons can we take from this decision?

Refusing an offer of mediation will not automatically result in a costs penalty. In both cases, the Court made it clear that this is simply a factor to be taken into account when the Court exercises its discretion in awarding costs.

In certain cases bypassing mediation could save time and expense. However, the decision to refuse an offer to mediate should not be taken lightly. Ultimately, the trial judge has discretion in awarding costs and will consider the extent to which the successful party has acted unreasonably.

Even if mediation does not result in settlement it can still be valuable in narrowing the scope of the issues and better understanding the parties’ respective positions. The different approaches taken by the Court of Appeal highlight the risk of remaining silent when an offer is made. In the rare cases where it is felt that there is no reason to mediate, explaining the reasons for this to the other side and remaining open to the proposal at a later date will reduce the likelihood of a Court imposing a costs sanction for unreasonable conduct.