In a recent dilapidations case a defendant, whose offer to settle the claim was accepted by the claimant a day before trial, was penalised by the judge when assessing costs on the basis that it had previously refused to mediate with the claimant.
Is this a harsh decision? Probably, but it is indicative of the importance the courts are now placing on mediation and, although they cannot force parties to mediate, it underlines that judges will consider whether or not a party has refused to mediate when exercising their discretion to award costs.
The claimant advanced an argument in the claim that it subsequently had to accept was wrong and, on the day before trail, it accepted a Part 36 offer that had been made by the defendant some 9 months previously. That brought the proceedings to an end, save for the question of costs.
It was accepted by both sides that the claimant was liable to pay the defendant’s costs up to the expiry of the “relevant period” (i.e. 21 days) specified in the Part 36 offer. However, the issue was whether the claimant was also liable for costs after the expiry of the “relevant period” and up to the date of the acceptance.
A party that accepts a Part 36 offer after the relevant period expires will generally be liable for the opposing parties’ costs, albeit this is at the court’s discretion. The claimant argued that it should not be liable for costs for this period as, amongst other things, it said the defendant had unreasonably refused to mediate. The defendant argued that its refusal was not unreasonable given that it had previously mediated with the claimant concerning another dispute, which had proved unsuccessful.
The judge agreed with the claimant and held that the defendant was unreasonable in refusing to mediate and considered that there was a reasonable prospect that the mediation may have been successful.
It seems a heavy burden for a party to have to pay its own costs as a result of refusing to mediate in circumstances where the other side advanced a claim that was factually wrong and had, historically, been uncooperative.
What is the lesson to draw from this? Parties should always consider mediation at an early stage, even where it appears unlikely that a deal can be reached.