‘Litigants who wish to have their day in court may have to pay for it’ according to several recent English High Court decisions.

The conventional wisdom that the successful party to litigation or arbitration is entitled to their recoverable costs is less than certain. In recent years, greater emphasis has been placed on the parties’ conduct in proceedings when allocating costs.

Since the 1999 Civil Procedure Rules were introduced, and with them the express endorsement of noncontentious ADR, the English courts have increasingly been willing to penalise successful parties to litigation on costs who ‘unreasonably’ refuse an offer to mediate the dispute - typically resulting in a reduced cost award. As with a Calderbank offer, a welltimed offer to mediate may be used strategically to pressure a counterparty into early settlement.

What is an ‘unreasonable’ refusal to mediate?

The reasonableness or otherwise of a decision to reject a Calderbank offer typically comes down to whether or not the amount on offer exceeds the amount ultimately awarded. However, offers to mediate do not attract a similar quantum-based analysis.

What constitutes an ‘unreasonable’ refusal to mediate was discussed in Halsey v Milton Keynes General NHS Trust1 . There, the Court of Appeal took the view that imposing an obligation on unwilling parties to refer a dispute to mediation would:

  • Be an unacceptable obstruction of their right to access the court.
  • Achieve little except to add to the costs and possibly postpone determination of the dispute.

Deciding that the burden should be on the unsuccessful party to show the other party acted unreasonably, the court held the following factors ought to be taken into account namely the:

  • Nature of the dispute.
  • Merits of the case.
  • Existence and extent of other settlement methods attempted.
  • Costs of mediation and delays it might cause.
  • Prospects of mediation being successful.

Application of ‘unreasonableness’

While Halsey remains good law, subsequent cases have shown some departure from this original position. In a High Court decision2 , it was held that a party’s refusal to mediate a dispute involving large sums and raising numerous issues was unreasonable, given the significant litigation risk for both parties. In 2008, a mere delay in consenting to mediation was held to justify a considerable reduction of the successful party’s recoverable costs3 .

 Most tribunals in international arbitration are afforded wide discretion on how to allocate costs. Unlike the courts however, arbitrators typically do not have any express power or mandate to order a stay of proceedings in favour of mediation. However, this is becoming more common place, see for example with the Singapore International Arbitration Centre (SIAC) and the Singapore International Mediation Centre (SIMC) who offer an ‘arbitration/mediation/ arbitration’ procedure (the AMA Protocol), under which disputes are referred to arbitration at the SIAC, but after the respondent files its Response to the Notice of Arbitration, the arbitration will be stayed for a period of eight weeks and referred to mediation with a separate mediator appointed from the SIMC’s panel.

Without express provision in the arbitration agreement, or the parties subsequent agreement, it is still unclear whether the arbitrators who have the power to stay arbitrations do so, and whether an order would be inconsistent with the tribunal’s duty to proceed to an award4 .

HFW perspective

Given the growing popularity of multitiered dispute resolution and Arb-MedArb clauses, there is clearly demand for more commercial flexibility in resolving disputes outside of the uni-modal arbitration process. What is telling and perhaps a sign of things to come is the new Rule 41 of the updated5 Singapore Chamber of Maritime Arbitration (SCMA) terms, which expressly provides that an ‘unreasonable refusal’ to mediate can be taken into account when allocating costs.

That said, arbitration is already a voluntary process, with many of the advantages of mediation. At some point one must ask whether expecting parties to refer disputes to more than one form of ADR might just be going too far?

We are monitoring events in this developing area, and we will report further as it evolves.