Phillip Garritt-Critchley and Others v Andrew Ronnan and Solarpower PV Limited [2014] EWHC 1774 (Ch)

Summary

The High Court has struck a further resounding note for all parties to give very serious consideration to mediation during proceedings.

In this case, the Claimants made numerous offers to mediate or to consider some other form of Alternative Dispute Resolution ("ADR). These offers were rejected by the Defendants, who cited their extreme confidence in their case, and the fact that the parties were too far apart for mediation to be worthwhile.

When the Defendants finally accepted the Claimants' offer, the Claimants sought an Order that the Defendants should pay their costs on the indemnity basis, because the Defendants had refused to enter into ADR. The Court agreed and found in favour of the Claimants.

The facts

The dispute centred around the issue of shares in a company. When the Claimants wrote their letter of claim on 24 February 2012, the claim was valued at £208,000. The Claimants' letter required proposals for payment of this sum, but went on to say that the Claimants were willing to enter into ADR, specifically citing mediation. Consequently the Claimants were open to ADR from the outset.

The Defendants did not respond to the offer of mediation in the first instance. When matters subsequently reached the stage of filing Allocation Questionnaires, and the Defendants were required to indicate whether or not they were prepared to mediate, they made it plain that they were not prepared to do so, and they did not wish the Court to arrange a stay to allow for mediation. The reason given was that the parties were "too far apart at this stage". Subsequently, a letter from the Defendants' solicitors confirmed that they were "well aware of the penalties" but were too confident in their position and their view that the Claimant had no prospect of success.

When the Court gave Directions, the Judge commented that mediation would be useful to serve the overriding objective. But the Defendants still refused to mediate, and the Claimants continued to press the point.

Eventually the Claimants offered to settle for £10,000 plus costs. This was met by a counter-offer from the Defendants that the Claimant should discontinue and pay the Defendants 75% of their costs. As neither party accepted the other's offer, the matter proceeded to a four day trial. During the trial, and four days out of time, the Defendants accepted the Claimants' offer.

This meant that the Court had to determine the level of costs to which the Claimants were entitled.

The issues

Previous landmark cases have shown the importance of offers to mediate, and that parties rejecting them do so at their peril. This case continues in the same vein, and highlights the severity of declining to mediate.

In this case, the Defendants had been given numerous opportunities, and a very heavy hint by the Court, but had still refused to mediate. The Court therefore had to consider:

  1. Whether this was a case where mediation or another form of ADR would have been appropriate.
  2. The costs penalty that should be applied.

The decision

The Court found in favour of the Claimants, and awarded them costs on the indemnity basis. This means that any ambiguity on costs is construed in favour of the party claiming them, rather than the more usual standard basis. It means that the paying party will have to pay a higher amount. The Court reached its decision for the following reasons:

  1. Even where there was no natural middle ground between the parties, an assumption that mediation would not be worthwhile was misconceived. The only kind of case that would rule out ADR would be exceptional. Examples would be where the parties needed to resolve a point of law or felt that a binding precedent would be useful, or where a protective injunction was required.
  2. This case was perfectly suited for ADR, as the Claimants had appreciated from the outset, and as recognised by the Judge at the Directions hearing.
  3. It was not realistic for the Defendants to say that they were so certain of success that ADR was not necessary. If this were the case, an application for summary judgment could or should have been made.
  4. Even where there was mutual dislike and distrust between the parties – and here the   Claimants and Defendants had a history of litigation – ADR could be useful. Indeed, mediators' skills are designed to defuse this sort of situation.
  5. Parties cannot know how far apart they truly are until they sit down to explore the position. In circumstances where the differences are genuinely irreconcilable, the mediator will say so at an early stage. The Judge commented that this was "very rare".
  6. The reference to the costs being disproportionate to the claim, as the costs of a day spent in mediation would exceed the offer, was misguided. The correct reference is to the costs of the trial, which of course far exceeded a day in mediation. Indeed, there is perhaps even more incentive to mediate in lower value cases, for this very reason.
  7. The Defendants' failure to engage with the process and to respond to the offers from the outset was unreasonable.

Our advice

This case serves as yet another reminder that parties who are involved in litigation should consider ADR at an early stage, and should seek advice on it from the outset.

In particular, if the other side offers to mediate or to engage in another form of ADR, it would be very risky in most cases to ignore or to refuse the offer. As the recent cases show, the consequences of doing so can be very severe indeed.