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The Reasonable Refusal to Mediate

I seriously doubt the wisdom of mandatory mediation, for a number of reasons. One is that sophisticated parties who have paid lawyers to advise them, to serve pleadings and to discover evidence, should not be subjected to the additional financial and emotional trauma of mediation where without prejudice settlement discussions have been fruitless.

A UK High Court costs decision [1] last month illustrates the point. At trial a claim for 16 million pounds for breach of a distributorship agreement was dismissed. The claimant argued that although the defendant was prima facie entitled to its costs, there should be a 50% reduction because the defendant refused to mediate.

In rejecting this submission the court relied in part on this passage from the leading authority:

The fact that a party unreasonably believes that his case is watertight is no justification for refusing mediation. But the fact that a party reasonably believes that he has a watertight case may well be sufficient justification for a refusal to mediate. (Emphasis in the original.)

The issue then was the reasonableness of the positions taken by the parties.

The chronology set out by the court reveals that the defendant had offered without prejudice settlement discussions 4 times, and made two settlement offers which the claimant regarded as nuisance offers. A month before trial the claimant proposed mediation . The defendants responded that they welcomed without prejudice discussion but did not think mediation would be a worthwhile or successful investment of time and cost, as each side at that stage was familiar with the other’s case, and “each ought to be able to assess with a reasonable degree of accuracy the relative strength of its position”. In the absence of any indication that the claimant would accept much less than $16 million, the defendants said mediation risked being no more than waste of time and money when both parties should instead be focusing on the trial.

In his costs ruling the trial judge observed:

I very much doubt having seen Mr Karlsen in the witness box that he would ever have accepted a nuisance offer, which is all that would have been available either in mediation or in without prejudice discussions. I do not in any sense blame Mr Karlsen who I did not and do not believe was or is dishonest, but he clearly and very obviously wholly believed in the Claimant’s case and would have found it very hard to accept a small six-figure sum inclusive of costs, which would have left the Claimant nothing after costs had been paid out on its side.

The court held that the claimant failed to meet the onus of showing the defendant had acted unreasonably in refusing ADR. It made no reduction in the defendant’s costs on this ground.