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Cost Consequences of a Failure to Mediate

A recent Wednesday: What’s Hot on CanLII drew my attention to an interesting decision of the Ontario Superior Court of Justice on the scope of a defendant’s obligation to mediate in a meaningful way – and the potential cost consequences of the failure to do so. The case also yet another example of the limits on the confidentiality of the mediation process.

In Dimopoulos v Mustafa, 2016 ONSC 4119 (CanLII), the Court dealt with several issues arising from an accident victim’s successful claim for damages under the Insurance Act. A jury awarded $37,000 in general damages, plus $28,800 in future chiropractic care. The parties couldn’t agree on the amount of the statutory deductible under the Act, which the court concluded was $30,000, leaving an award of $35,800.

The court also awarded the plaintiff costs of just under $107,000, inclusive of disbursements and HST, calculated on a partial indemnity basis.

But the issue that caught my eye was that the plaintiff also sought additional costs of $50,000 as a penalty for the approach the defendant took to settlement and mediation throughout the action.

The court began by commenting on the “astonishingly aggressive opposition by the defendant” to any settlement, including all of the post-judgement issues in dispute. The Insurance Act requires insurers to settle claims as expeditiously as possible and to mediate disputed claims. The plaintiff argued that the defendant didn’t participate in mediation in any meaningful way.

To make its case, the plaintiff asked to Court to “lift the cloak of privilege” over the mediation process and to consider the defendant’s mediation brief, which stated categorically that: “it is the defendant’s position that the plaintiff will be shut out at trial and will be liable for the defendant’s costs. For the purposes of mediation, this defendant is only willing to negotiation [sic] the quantum of costs payable to this defendant.” [para. 26]

[27] In further support of the lifting of the privilege to the defendant’s mediation brief, plaintiff’s counsel argued that the purpose of the communication, i.e., the mediation brief, must be to attempt to effect a settlement. “Where that is not the bona fide or genuine purpose of the communications, the privilege does not protect the communications”, see Bercovitch v. Resnick, 2011 ONSC 5083, at p.29. See also East Guardian SPC v. Mazur, 2014 ONSC 6403 (CanLII) at paras. 35-38.

The defendant strenuously objected to the court lifting the mediation privilege, including disclosure of the mediation brief or any information relating to its conduct at the mediation. The court suggested that admitting the mediation brief would actually help the court to evaluate whether the defendant had mediated in good faith, but the defendant continued to oppose disclosure.

The court concluded that the issue of the defendant’s bona fides justified making an exception to the general principle of confidentiality and ordered the disclosure of the mediation brief itself (but not the full contents of the mediation).

The brief detailed the defendant’s assessment of the merits of the plaintiff’s claim and the reasons why it didn’t think the claim would be successful. Therefore, the defendant concluded that it was not willing to pay anything to settle the case.

The court commented that all defendants are entitled to take their case to trial if they wish, and to accept the risk of damages and an award of costs if they lose. An unwillingness to settle is not the same thing as a failure or refusal to mediate in good faith.

[34] Whether or not the court ultimately agreed with the defendant’s assessment is immaterial to the court’s assessment of the defendant’s bona fides approach to the mediation. The mediation brief reflected a meaningful participation in the process by the defendant. Even if a settlement of the claim was not forthcoming, it enabled the plaintiff to obtain an understanding of the defendant’s position and the reasons for that position. That outcome, while obviously not optimal for the plaintiff, was nonetheless meaningful as it allowed the plaintiff to review his risks and trial strategy and approach. The defendant came to the mediation and explained the reasons for which it concluded that the claim would not succeed. Accordingly, I am unable to agree with the plaintiff’s contention that the defendant’s conduct in the mediation was contrary to the requirements of s.258.6 of the Insurance Act, such that it ought to attract punitive cost sanctions against the defendant.

As the court noted, it’s ironic that the defendant so strongly opposed disclosure of its mediation brief, when the brief itself demonstrated its willingness to engage in mediation – though not to put any money on the table.

This decision stands in stark contrast to previous cases where insurers have faced serious cost consequences for refusing to mediate at all. See for example, the Court of Appeal’s decision in Keam v. Caddey 2010 ONCA 0565, where the defendant refused to mediate on the grounds that the plaintiff’s claim did not meet the statutory threshold for damages. The plaintiff was successful at trial and was awarded substantial damages, however, the trial judge declined to award additional costs because the defendant put forward a “genuinely available position” to deny liability. The Court of Appeal said that reasoning was wrong and awarded an additional $40,000 in costs to “reflect the censure of the court and to provide an appropriately significant recovery [for the plaintiff].” (para. 32)

Though not mentioned by the court in the Dimopoulos decision, I also find it ironic that the result once again demonstrates the merits of a mediated solution to such claims. Although the plaintiff was successful at trial, and ultimately awarded costs as well, it was only a partial indemnity. Therefore, while the case cost the defendant more than $140,000 due to its refusal to settle – not to mention defendant’s own legal fees which must have been considerable – it appears that at the end of the day, the plaintiff gets very little of that amount.

I can understand an insurer’s reasons for adopting a tough stand on what it considers to be frivolous or nuisance claims, but in this case that seems to have been taken too far.

Recently, I’ve been giving a series of CLE presentations to in-house counsel on the lawyer’s duty to encourage settlement of legal disputes and to recommend alternative dispute resolution – Rule 3.2-4 of the Federation of Law Societies of Canada Model Code of Professional Conduct. Of course, this must be balanced against counsel’s duty of zealous advocacy (Rule 5.1). It is always a difficult balance to find.

As this and other cases show, the positive obligations to consider settlement and engage in mediation require parties and counsel to do so in good faith, but not necessarily to compromise their legal position, no matter how wrong it may ultimately be.

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