Mediation Case Law in 2024 - Mid Year Review

1. Have Sanctions for Refusing to Mediate Survived Churchill?

The short answer is yes, but in relation to cases where the triable issues arose largely before that decision in November 2023.

In Northamber v Genee World [2024] EWCA Civ 428, C’s appeal was allowed to find that D2 had actionably induced a breach of contract. C also appealed that the trial judge had only allowed them 70% of their costs, having refused to make any deduction for D’s refusal to mediate. DD had entirely ignored C’s invitation to mediate and failed to file witness statements to justify their refusal within the Fontaine direction timetable. C did not chase DD on the topic. Arnold LJ delivered the unanimous judgment of the CA, saying:

She both declined to order ADR and also declined to give permission to appeal to the Court of Appeal as a suitable case for deciding whether Halsey was right on this point.

Three significant matters arise from this decision. Firstly, the Court of Appeal said that it was not necessary for C to do to any more to follow up their proposal to mediate, and they did not blame C for not doing so.

Secondly, this is the first decision in which the imposition of a sanction is related specifically to failure to file the witness statements required by former Senior Master Fontaine’s direction which has been in general use for some years across the Divisions of the High Court and in the County Court. This was, it will be remembered, an extension of the “Ungley order” commended by the Court in Halsey, which set a date for consideration of ADR – usually soon after the order was made – rather than requiring consideration of ADR “at all times” as required by Fontaine; and also required witness statements at the time of refusal, rather than within a short period of trial. This, as suggested by Briggs LJ in PGF, deliberately required contemporaneous recording of any excuses for not mediating to be lodged, and not ones which might be capable of finessing by subsequent events close to or during trial.

Thirdly, the Northamber Court of Appeal clearly separated the two issues of whether there was indeed an unreasonable refusal to mediate worthy of sanction, and what that sanction might be, challenging the tendency among some judges to say that whether a sanctionable failure to mediate is just “one of several factors” to take into account[1]. This is based on a questionable interpretation of PGF v OFMS by Patten LJ in Gore v Naheed, although it has been followed several times since. What Briggs LJ said was that failure to respond to a genuine offer to mediate is “as a general rule unreasonable conduct which merited a sanction”, only in principle excusable “in rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism”. Jackson LJ added strength to this view in Thakkar v Thakkar[2] when he said:

The message which this court sent out in PGF II was that to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction.

What that sanction should be is of course a matter for discretion and depends on a number of factors which will always impinge upon what costs decision to make in a jurisdiction where issue-based costs orders are possible and comparisons between the conduct of winners and losers can swing the apportionment of costs in directions that were inconceivable before the CPR reforms came into effect in 1999. In Northamber, the Court of appeal merely added a further 5% to the proportion of costs recoverable by C from the defendants. But this still represented a sanction for the failure in principle to respond to the Fontaine direction as required. Another 5% of the budgeted costs still represented £37,500, and possibly more after a nine day trial and two day appeal!

In Invenia Technical Computing v Hudson [2024] EWHC 1302 (Ch), C sought an injunction to restrain B from proceeding with a winding-up petition which (they said) was an abuse of process, as it was based on demands for disputed debts. D made a number of applications seeking more time and relief from sanctions and seeking to strike out the application. The strike-out attempt was lost at an earlier hearing, the judge finding it to be “totally without merit”.  At the substantive hearing in December 2023 for an injunction which dealt with D’s other applications too, ICC Judge Barber granted an injunction to C and found firmly against D on almost every application and cross-application (but not on every point). At a costs hearing in February 2024, the judge awarded C all their costs, some on a standard basis and some on an indemnity basis, declining to sanction C for refusing to mediate. Her judgment reads quite like old times in the way that Halsey is applied, with reference to the burden being on the losing party to change what a successful party (here ITC) might expect by way of costs. Besides Halsey and Churchill, she was referred to such old friends as Dunnett v Railtrack, Hurst v Leeming and Royal Bank of Canada v MoD, saying that she took those cases into account without any detailed analysis.

The judge found that D’s proposal to mediate had been backed with various threats of action if not accepted, and that C’s response that they would agree to mediate once various allegedly wrongful steps taken by D (in respect of the which the judge later ruled in C’s favour) had been reversed. D argued that this was a repudiation of his offer to mediate and sought to escape full liability for the costs, based on this refusal. The judge found that C reasonably believed they had a “strong” case (she did not use “watertight” as the test), and also that mediation would have added an unnecessary layer of expense and possibly hazarded a hearing date. She was quick to criticise some of H’s unwarranted actions, threats and allegations of fraud.

Invenia reminds us that Halsey is still unreversed on the question of costs sanctions for refusing an inter-party offer to mediate, though its strength as an authority on reasonable belief in a “watertight” case as a reason for not mediating has been much diluted by other decisions since 2004[1], none of which were mentioned in the judgment as having been cited. It remains unreversed on the burden of proof, despite criticism of this[2]. But what would have happened in Invenia in the light of Churchill and the new CPR rules currently proposed? If D had had his proposal to mediate turned down in the same way by C and had applied for an ‘ADR order’ would the court have granted his application? Could C have resisted it on the same conditional basis as they attempted? Or would a court simply have told the parties “get on with mediation”? If D had proposed mediation but not followed up C’s refusal by making an application for an ‘ADR order’, the court would almost certainly questioned whether his was a bona fide suggestion of mediation and lent no credence to it as a reason for considering a costs sanction for C’s refusal. Invenia provides an interesting test-bed for seeing how courts might react in real life in the light of the change of approach generated by Churchill.

In Heathcote v Asertis [2024] EWCA Civ 242, the trial judge found partly in favour and partly against each party. The judge decided that C had in effect been the overall winner. His order that D paid 75% of C’s costs was upheld, based (among other things) on the fact that D had refused to mediate and made no Part 36 offer.

In Payone gmbh v Logo [2024] EWHC 981 (KB), D had removed quantities of confidential documents from C when employed by them, asserting that he was a whistleblower. He acted in person but lost at trial and C was granted an injunction to restrain further dissemination of those documents. D refused to mediate and this was a factor in ordering indemnity costs against him, even though he was an LiP.

Similarly in Duke of Sussex (C1) and Sanderson (C2) v Mirror Group Newspapers [2024] EWHC 274 (Ch), a high profile privacy claim with the Duke of Susses as the headline claimant and with several other claimants. At a costs hearing following the unsuccessful claim of C2, who lost on limitation, but even if successful on that would have been awarded lower damages than a Part 36 offer made by D, Fancourt J ordered C2 to pay D’s costs on the indemnity basis because of her exaggerated claims and her refusal to contemplate mediation. He did so despite the significant criticisms he had made about D’s conduct.

2 . Ordering and Advising Mediation and Threatened Sanctions for not Mediating

Churchill definitely identified that judges have the power to make ‘ADR orders’ if they think fit. The amendments to the CPR clarifying the powers to do so, on which the CPRC consultation ended in May 2024, are not of course yet in force. They might be introduced in October 2024 or perhaps only in April 2025, the two points of the year when CPR changes occur. But Churchill also recognised the existing inherent power of the courts to stay for ADR, used in a series of cases before Churchill was decided.[1] Have judge started making ‘ADR orders’ or ordering a stay? The answer is ‘only occasionally’.

In Heyes v Holt [2024] EWHC 779 (Ch), a claim in proprietary estoppel, D sought to strike out C’s claim. The judge held that although it was weak it was arguable. He went on to observe:

This is a case which cries out for mediation by the parties. I am aware that mediation has already been attempted between the parties (in November 2022), and on that occasion it failed. I commend them nevertheless for trying. But that was before the claim had even been issued. Now that the parties have full pleadings and disclosure, as well as (for what it may be worth) this judgment, the parties should try again. I will order a stay for that purpose. In entering such a mediation, the claimants would now be aware that, on the materials that I have so far seen and heard, their case is weak, and the costs of the whole trial would, on the claimants' own evidence, ruin them if they lost. I can also see considerable scope for cross-examination of the claimants on their evidence at trial. In a case where summary judgment has been sought, but not obtained, there is always a (real) risk at trial for the party or parties that survived the application. On her side, the defendant would be aware of the difference between, on the one hand, simply looking at documents presented to the court on their own, and, on the other, hearing and seeing witnesses and cross-examination at trial. She would also take full account of litigation risk. In litigation, whatever the lawyers say, nothing is certain.

He then ordered a stay for a second mediation, and gave other directions.

In Francis v Pearson and Burston [2024] EWHC 605 (KB) a libel action between fellow occupiers of a residential estate which had been running for many years, DD unsuccessfully sought to have it struck out for want of prosecution. The judge noted at the end of his judgment:

87. I can see that the parties have already attempted mediation.

88. Experience shows that it is often in entrenched cases such as this that ADR can make a real difference, often requiring honest conversations with parties as to the merits of their respective cases, and the potential downsides, as well as looking at pragmatic ways forward.

89. As part of the process, mediators might also see the parties together, without their lawyers, to try and explore ways forward.

90. In a case such as this, it might also be possible for agreement to be reached on ancillary matters that help the parties move forward, but which the court may not have the power to order at trial.

91. The parties need to reflect on the reasons why the cases did not settle at mediation, and the costs of continuing this litigation – not just in terms of money, but the personal costs to each party for example from the time and energy spent fighting, the stress and worry the proceedings might cause, particularly in respect of outcomes, and the impact that it is going to have on the wider community in which they live.

No formal stay was ordered, however.

In Conway v Conway [2024] EW Misc 19 (CC) , the County Court judge issued a dire warning to D about the seriousness with which refusal to mediate before the end of the litigation would be viewed. He did not make an ‘ADR order’ or a stay.

Mediation was urged by the judge dealing with possession proceedings over sit-in protests in Birmingham University v XX [2024] 1529 (KB) and in Proctor v Proctor [2024] EWCA Civ 324, a family partnership dispute, the court decided the basis on which a retired partner should be paid, which required resolution over a further valuation of the assets. Peter Jackson LJ said in a postscript:

The older generations may have had an aversion to paying tax, but the younger generation's litigation habit is at least as great a threat to the family's hopes. The remaining disputes cry out for mediation.

In Sherman v Reader Offers [2024] EWCA Civ 412, the Court of Appeal remitted a travel claim back to the County Court for decision on a basis narrowed by the scope of what the trial judge had already found as facts and the extent of liability decided by the appeal. They firmly recommended mediation in view of proportionality in relation to the likely modest damages and the 11 days already spent in litigating such a modest claim.

Both of these cases was remitted for further judicial decision, so there was probably no scope for the Court of Appeal to make an ‘ADR order’. Its own mediation scheme really only deals with cases between the lower and upper courts, though there is perhaps no reason why this should not be changed, as on a number of occasions over many years, the Court of Appeal has had to remit cases to lower courts with a firm recommendation for mediation.

In Klaturov v Revetas [2024] EWHC 495 (Comm) a complex clam for alleged unpaid compensation and/or a share of profits by former employees of a private equity company, the judge dismissed the compensation claim but ordered an account as to the value of the profit shares. Despite this hearing being well after Churchill, he closed his judgment by saying:

I will also invite the parties to consider whether it would be appropriate for there to be a stay for NDR. It seems to me that it would. It may well be the case that a one-day mediation (possibly with the assistance a forensic accountant) might be a more cost effective way to resolve the profit share claim. If the parties do not agree, then any directions for an account will obviously need to take account of and proceed in parallel with the directions already given in respect of Claimants' Buy Out claim.

He gave no sign of knowing that he could order them to do this!

3. Mediation Confidentiality

Two cases demonstrate continuing judicial reluctance to peer behind the veil, and one the reverse, where there is an extraordinary silence about access being given to confidential mediation material.

In Holden v Holden [2024] EWHC 453 (Ch), the judge resisted an invitation to admit evidence about one party’s intransigence during the course of an earlier mediation, saying:

There is no evidence before the court that Robin did not take seriously the need to engage with proposals for settlement. Whilst the court cannot know what happens at mediation, the court is aware that he attended mediation. Whilst a stubborn reluctance to entertain any thought of compromise might be something for the court to take into account in appropriate cases, there is no evidence before me that this is the case.

In WOL (London) v Croydon Investment [2024] EWHC 485 (TCC) a costs hearing following dismissal of D’s strike-out application, the judge said:

There has been some discussion in correspondence and in the written submissions before me as to what happened at a mediation: I do not find those matters to be of any assistance in coming to my conclusions as to the costs of this application.

There was a surprising lack of discussion about the appropriateness of admitting evidence about mediation discussions and settlements in later proceedings between other if related parties in Royal & Sun Alliance (1) AXA (2) v Kroll [2024] EWHC 1255 (C0mm). X and Y were employed by DD and appointed as administrators of a Scottish football club. Extraordinarily they were accused of criminal conduct and DD provided defence costs for them which they recovered under professional indemnity policies with CC. The extent of indemnity was disputed, but DD and CC agreed that DD if X and Y recovered costs or compensation through claims against the Scottish authorities, CC would be refunded to the extent of recovery. X and Y were exonerated and sued the Scottish authorities for malicious prosecution and under the Human Rights Act. Each settled his claim as a result of a confidential mediation. CC asserted against DD that recoveries of criminal defence costs had been embodied in each mediated settlement, but DD disagreed. CC therefore issued applications for non-party disclosure against X and Y, seeking access among other items to the settlement agreements, the pleadings, documents exchanged between the parties before each mediation and any “notes of mediation sessions involving exchanges with the other side”. The judge accepted that some categories of document might not exist, but made the orders sought. There was no discussion at all of whether in principle disclosure of these documents should have been agreed. The Scottish authorities (doubtless hugely embarrassed by the whole affair) did not intervene and no one really seems to have opposed the application on principle. There was no sign of citation of such cases as Briggs v Clay, EMW v Holberg, and Berkeley Square Properties v Lancer, where all these issues have been thoroughly debated in recent years.

4. Loss of "Without Prejudice" Privilege - Unambiguous Impropriety

In FW Aviation v VietJet [2024] EWHC 1823, C sued D in relation to default on an aircraft leasing deal. C relied in its pleading on remarks made by D’s vice-chairman at a without prejudice meeting. D sought to have that allegation struck out because it was privileged, and C argued that the unambiguous impropriety exception applied to permit admission of that evidence. The judge declined to apply the exception, as there was some doubt as to what was actually said, and he did not regard the remarks as threats. He relied on Motorola v Hytera, and commented that oral alleged threats would rarely be caught as unambiguous impropriety, contrasting this case with Ferster v Ferster, where there were written threats in an e-mail.

5. Stay for ADR

In NTT v Goodall [2024] EWHC 445 (C0mm) CC, a group of companies in which D had worked as CEO, brought several sets of proceedings against D alleging breach of fiduciary duty. D sought a stay under the terms of a dispute resolution clause, which would generate mediation and arbitration. The judge balanced out the issues and granted a stay.

6. Future Direction

While some interesting decisions have emerged in the first eight months since Churchill, it is still too early to discern any clear trend or any material change in approach by the courts as a result. Maybe this will change when the proposed CPR rule changes come into effect.

Mediation Legal Landscape Update 2024  - What Lawyers Need to Know

References

[1]   Suggested in Gore v Naheed [2017] EWCA Civ 369 and followed in some subsequent decisions

[2]   [2017] EWCA Civ 117

[3]   For instance Northrop Grumman v BAE Systems [2014] EWHC 3148 (TCC); Garrett-Critchley v Ronnan [2014] EWHC 1774 (Ch); DSN v Blackpool FC [2020] EWHC 595 (QB) is the trial judgment; and [2020] EWHC 670 (QB) the costs judgment; and TMO Renewables v McBraida [[2022] EWCA Civ 1409

[4] For instance in speeches by Sir Gavin Lightman and Lord Phillips of Worth Matravers

[5]   See Andrews v Barclays Bank [2012] EWHC B13 (Merc); Hussein v Chowdury [2020] EWHC 790 (Ch); Abdul-Kadr v LB Kensington [2022] EWHC 2006 (KB) and Hamon v UCL [2023] EEWHC 1812 (KB)