David Watkinson considers the cost implications of not engaging with an invitation to mediate as decided by Mr Justice Griffiths in DSN v Blackpool Football Club  EWCA 670 (QB)
A number of blogs on this site have dealt with the costs consequences of failing to engage with mediation. The law has developed incrementally putting more flesh on the bones of Briggs LJ’s general statements in PGF II SA v OMFS Co Ltd  EWCA 12 and establishing fresh pathways and boundaries. Most recently we have Griffiths J’s costs ruling in the title case. The facts of the case are sensitive and not relevant to the present topic. It is only necessary to know that the claimant was successful and was awarded just under £20,000 in damages. The learned judge had three issues to deal with:-
The last subdivided into two issues, one of which was whether the defendant should pay such costs “as a result of failure to engage in Alternative Dispute Resolution”. We are concerned with that alone.
The directions for trial (Master McCloud) included the following:-
“At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including mediation); any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21days of that proposal; such witness statements must not be shown to the trial judge until questions of costs arise”.
When compliance with the directions was virtually complete, the claimant, having made a second offer to settle under CPR 36 for the sum of £20,000 (the claim had been in the range of £50,000 to £100,000) invited the defendant to enter into settlement negotiations. The defendant’s solicitor refused. The required witness statement contained this:-
“Having considered all of the available evidence, the defendant continues to believe that it has a strong defence to this claim”.
Shortly after the claimant offered to settle for £10,000. The defendant refused in similar terms.
The Court’s Ruling
In summary, the learned judge held “the defendant failed and refused to engage in any discussion whatsoever about the possibility of settlement” (para 27).
In para 28, the defendant’s reasons for refusing to engage in mediation were found to be “inadequate”; the reason was solely the defendant’s belief in the strength of its defence. The learned judge stated,
“No defence however strong justifies by itself a failure to engage in any kind of alternative dispute resolution” (para 28-well worth reading for the general points it makes about the advantages of ADR).
“If the defendant had been correct that it had ‘a strong defence’, its responses to the claimant’s settlement overtures and the statement made in compliance with [Master McCloud’s direction] would still, in my judgment, have fallen short of an acceptable level of engagement with the possibility of settlement or ADR….” The parties are obliged to conduct litigation collaboratively and engage constructively in a settlement (citing Sir Geoffrey Vos in OM v Petron SA v Glenmore Int  EWCA 195) (para 29).
The judge made the order for indemnity costs, holding the defendant’s conduct took the case out of the norm and that its response [in the witness statement] was “particularly disappointing”. He limited it to the costs incurred from one month after the directions order (paras 30/31).
If not the case already, DSN has opened the door to the Courts regularly requiring a statement of reasons in the form of Master McCloud’s order in order to encourage ADR in line with CPR 1.4(2)(e). This is a step forward from PGF II which deprecated silence in the face of an invitation to mediate. As DSN shows a statement of reasons leads to examination of the adequacy of those reasons. Parties who receive arequest to agree to try mediation or engage in any form of ADR would now be wise to consider whether the reasons for any refusal would withstand the Courts’ scrutiny.