The Court of Appeal have imposed cost sanctions for a party’s failure to respond to an offer to mediate

In the case of Northamber PLC v Genee World Ltd & Others (Rev1) [2024] EWCA Civ 428, the Court of Appeal considered whether a party’s failure to respond to an offer to mediate should lead to cost consequences.

Background

The original claim was brought by Northamber PLC (Northamber) against Genee World Ltd (Genee) in relation to its breaches of an exclusivity agreement, and against Ranjit Singh (Mr Singh) and Interactive Educational Solutions Limited (IES) in relation to inducing breach of contract and unlawful means conspiracy. The original trial took place in October 2022 and judgment was entered against Genee for breach of the exclusivity agreement and against Mr Singh for inducing Genee’s breaches. The claims against IES were dismissed. More notably, the judge ordered Mr Singh to pay 70% of Northamber’s costs of its claim against him.

Appeal grounds

Northamber brought this appeal on five grounds, one of these being the costs order made by the judge in the first instance, and more specifically the failure of Mr Singh and IES to respond to an offer of mediation.

In October 2021, DJ Rouine made a case management order which required the parties to consider settling the litigation by means of alternative dispute resolution (ADR). If ADR was proposed by one party, and another party did not want to engage in the means proposed, that party was required to serve a witness statement stating their reasons why.

In February 2022, Northamber wrote to the solicitors acting for Mr Singh and for IES to ask them to take instructions from their clients on whether they would be willing to attend a mediation. This letter drew attention to the case management order by DJ Rouine. IES’s solicitors responded in April to confirm they were taking instructions from IES, however no further response was received. Mr Singh’s solicitors did not respond all. Neither party filed a witness statement as ordered by DJ Rouine.

The judge in the first instance rejected Northamber’s argument that Mr Singh’s and IES’s failure to engage in mediation and to comply with DJ Rouine’s order should lead to any costs sanctions over and above the usual costs order. The judge came to this decision on the basis that (i) Northamber did not chase the parties for a reply to its letter, (ii) the letter was sent after considerable costs had already been incurred by the parties and (iii) the invitation was, in his opinion, a half-hearted attempt to suggest a mediation sent only so Northamber could say at the end of the trial that it had suggested mediation without any real expectation that the mediation would actually take place.

Decision

Lord Justice Arnold agreed that the judge in the first instance fell into error when making his decision. In his judgment, Lord Justice Arnold considered the order made by DJ Rouine alongside key cases and principals in this area of law, notably:

• The finding in Halsey v Milton Keynes General NHS Trust that an unreasonable refusal to participate in ADR constitutes a form of unreasonable litigation conduct to which the court may properly respond by applying a costs sanction; and
• The finding in PGF II SA v OMFS 1 Ltd that silence in the face of an invitation to participate in mediation is, as a general rule, unreasonable.

Lord Justice Arnold highlighted in his decision that Mr Singh’s and IES’s silence in the face of an offer to mediate, coupled with their clear breach of DJ Rouine’s order, did amount to unreasonable conduct and should therefore be reflected in costs. Therefore, although Lord Justice Arnold confirmed that Mr Singh’s and IES’s silence, as a general rule, was itself unreasonable and was a factor in deciding on whether to impose a cost sanction, it does not automatically follow that a costs sanction should be imposed.

Lord Justice Arnold spoke about the importance of DJ Rouine’s order, explaining that “if breaches of such orders are ignored by courts when deciding costs, parties will have no incentive to comply with them.” This begs the question, if the parties were simply silent in the face of an invitation to mediate without an order in place, would costs sanctions have been imposed?

Lord Justice Arnold also raised some interesting comments about the invitation to mediate itself, including:

• The fact the litigation had been underway for a long time and significant legal costs had been incurred before the question of mediation was raised was a relevant factor in deciding whether a cost sanction should apply. However, so was the fact that substantial further costs were incurred after the invitation to mediate was ignored which could have been avoided by a successful mediation
• There was no onus on Northamber to chase for a response to its invitation to mediate. The ball was in Mr Singh’s and IES’s court to respond to the correspondence. This was more so in the case of IES as its solicitors sent a response to confirm that they were taking instructions, however no full response or witness statement was provided from either party
• He did not agree that Northamber’s offer to mediate should be considered half-hearted, especially as no reasons were given by Mr Singh and IES for their refusal to mediate.

Lord Justice Arnold concluded that the failure to respond to an offer to mediate in this case could not justifiably result in an order to pay 100% of Northamber’s costs (which is the amount Northamber argued should be paid to it). However, he agreed that an uplift on the current 70% of costs was necessary. Therefore, a costs penalty of an additional 5% was included, to increase the costs liability from 70% to 75%. Lord Justice Arnold commented that this was “modest, but not insignificant”.

This decision highlights two important points. Firstly, that silence in the face of an invitation to mediate is a factor that should be considered by the courts when assessing if a party has behaved unreasonably. Secondly, parties should ensure they comply with all court orders, even if they appear unnecessary or administrative.

If you are looking to put forward an offer to mediate, do consider the timing of doing so. Make sure you look both backwards to the time and costs have been incurred, but also look to the future costs that may be incurred. If you have received an invitation to mediate, do note that ignoring such an offer may be classed as unreasonable behaviour. Check any court orders to see whether any formal action needs to be taken (i.e. filing a witness statement). If no formal action is required, and you do not want to explore mediation, it may still be prudent to respond to formally reject the invitation and explain why it is not unreasonable to do so.

If you have any questions about this case or wish to speak to one of our Dispute Resolution team please do get in touch using info@ts-p.co.uk.