Mediation and the Consequences of a Refusal to Mediate

A mediation which results in a settlement requires participants who are principled yet willing to listen and negotiate in an earnest attempt to resolve the conflict in which they are involved. The process can be frustrating when one side is not prepared to engage in meaningful discussions. Courts in various jurisdictions have attempted to deal with this by awards of costs after trial. English courts have encouraged the use of mediation to resolve litigation and have shown a willingness to penalize parties who do not participate in mediation when invited. Parties successful at trial who refused mediation have received reduced costs which otherwise would have been ordered; similarly parties who were ordered to pay costs have had them increased as a result of a refusal to mediate. In Dunnett v. Railtrack [2002] EWCA Civ 302 the court refused to award costs to a victorious party who refused mediation. In Halsey v. Morton Keynes NHS Trust [2004] EWCA 3006 Civ 576 the English Court of Appeal set out a list of factors to take into account in determining if a party was reasonable in refusing mediation, including:

The nature of the dispute
The merits of the case ( ie. the strength of one party's case)
The extent of any attempts at settlement
Whether the costs of mediation would have been disproportionately high
Whether delay associated with mediation would have been prejudicial
Whether the ADR process had a reasonable prospect of success

The English Court of Appeal in PGFII SA v OMFS Company 1 Limited [2013]EWCA Civ 1288 refused to order costs to the Defendant where it had unreasonably refused to mediate. In that case the court held:

silence in the face of an invitation to participate in ADR is on its face unreasonable;
failure to respond to such an invitation may make a party liable for penalties in costs;
not providing reasons for refusing to mediate leaves the other side unable to accommodate them;
depriving a party successful in court of costs may seem harsh but should encourage participation in ADR.

Recently in Ontario Superior Court the court had an opportunity to consider a similar situation. In Ross v. Bacchus, 2013 ONSC 7773 the plaintiff was awarded $248,00 in damages by a jury in a six day motor vehicle negligence case. The defendant had offered to settle the case for $40,000 and made it clear that that was not negotiable. That offer was withdrawn before trial. The plaintiff offered to settle for $94,000 plus prejudgement interest and costs and requested mediation. The defendant countered with $30,000 plus prejudgement interest and costs. The Plaintiff countered at $79,065 and costs and prejudgement interest. The Court said "Counsel for the defendant agreed to brief mediation at limited cost but wrote, " (the insurer ) are not interested in settling this case". Mediation took place ...but the defendant's insurer stood firm. I infer that it took a six-day trial with all its attendant risks for the sake of $50,000. This is a litigation strategy that the defendant could well afford , but the plaintiff could not. I infer that the insurance company conducted itself this way in the hopes of intimidating the plaintiff and deterring other plaintiffs who have meritorious cases…. It is clear to me that the defendant's participation in mediation was a sham… I would award $140,000 in costs, plus $17,000 in disbursements…. By reason of the refusal to mediate I augment the award by $60,000 plus HST." Note that the trial judge referred several times to provisions in the Ontario Insurance Act which appear to require defendants to attempt expeditious settlement and allow for consequences in costs. Those provisions are not in the British Columbia Insurance Act. Ross v Bacchus went to the Ontario Court of Appeal on several issues including the order for increased costs. (ONCA 347) The judgement was released May 15 2015 but the writer only recently received a copy. In its decision the court reviewed some of the case law relevant to the settlement provisions in the Ontario Insurance Act and said: "An insurer's statement on the eve of trial that it is not prepared to settle a claim cannot be equated with an insurer's failure to 'attempt to settle the claim as expeditiously as possible'. Nor can an insurer who actually participates in a mediation be declared to have failed to participate simply because the insurer indicated prior to the mediation that it was not prepared to settle the claim. A clear statement of the insurer's position going into the mediation , even a strong statement, does not preclude meaningful participation in a mediation." The court also considered the evidentiary issue, and concluded that it need not deal with it: "The respondent failed to adduce any evidence as to the manner in which the mediation proceeded and relied entirely on the insurer's indication that it was not interested in settling the claim some three weeks before trial. If the respondent wanted costs for the insurer's failure to participate in the mediation, it was incumbent on the respondent to lead evidence establishing the failure to participate in the mediation. Had the respondent attempted to do so, the question of the impact of the settlement privilege on the admissibility of evidence relevant to the insurer's participation in the mediation would have come front and centre. On this record, the trial judge's finding that the insurer did not participate in the mediation fails, not because the settlement privilege cloaks the mediation in confidentiality but because the factual finding of the trial judge has no support in the evidence…" The court concluded: "Insurers, like any other defendant, are entitled to take cases to trial. When an insurer rejects a plaintiff's offer and proceeds to trial, the insurer risks both a higher damage award at trial and the imposition of substantial indemnity costs after the date of the rejected offer. Both risks came to pass in this case. The insurer paid a significant financial penalty for its decision to proceed to trial." The court of appeal allowed the appeal and reduced the costs awarded by $60,000. Compare that case with Branco v. Alliance Insurance Co. of Canada, 2004 CanLII 45036(ONSC). This was a case stemming from a motor vehicle collision in which the plaintiff recovered modest damages from the defendant. The case was defended in a number of ways including that it did not meet the Ontario "threshold question": that is, that any injury sustained was not disfiguring or resulting in permanent impairment. The defendant did not deliver an offer to settle prior to trial, and the plaintiff sought increased costs as a result. The trial judge said: "I am not aware of any obligation on the part of an insurer to deliver an offer to settle prior to trial. In this action…it was reasonable for the defendant to proceed on the basis that it had some possibility of being successful on the "threshold motion" and that… the jury award might be negligible. It was also reasonable not to serve an offer to settle in the face of the plaintiffs' offers…"( which varied up and down considerably). The insurer had every right to make its own assessment of the likely jury award and conduct itself accordingly." The application of the principles outlined in Halsey will not necessarily result in costs sanctions being applied against the party which does not engage in mediation. In Northrop Grumman Mission Systems Europe Limited v BAE Systems (Al Diriyah C41) Limited [2014] EWHC 3148 (TCC) the English Technology and Construction Court did not depart from the usual rules on costs. In Northrop, BAE entered into a contract with Northrop for the use of certain software. BAE terminated the contract and Northrop sued claiming 3 million pounds in damages. Discussions between counsel for the parties did not resolve the matter, BAE refused the invitation of Northrop to mediate and an application was made which lead to a decision in favour of BAE . Northrop argued that while BAE was entitled to costs they should be reduced by half to account for the refusal of BAE to mediate. BAE replied by saying that the case was based on contractual interpretation that would lead to an "all or nothing" outcome. Mr. Justice Ramsay applied Halsey :

Nature of the Dispute: the judge found that the nature of the dispute did not make it necessarily unsuitable for mediation and that the position of BAE that it had a strong defence gave only a limited justification for not mediating;
Other Methods of Settlement: the parties reported on a number of meetings and settlement discussions and the judge concluded that those offers and meetings were neutral or marginally in BAE's favour; particularly since BAE was able to show that each time it was asked to come to mediation it considered the offer carefully and did not simply reject it out of hand.
Costs of ADR :The court concluded that anticipated mediation costs of 40,000 English pounds (!) were not unreasonable given the amount in issue
Prospects of resolving the matter at Mediation: notwithstanding the position of BAE the court found that a mediator may have helped the parties reach a resolution of the matter.

In the result, the judge found that BAE's views of the merits of the case provided it with some reason not to mediate. However the court also found that while it was unreasonable in its refusal to mediate ; Northrops' refusal to accept the offer of BAE to walk away with each party bearing its own costs was a factor to consider. In the end the court awarded costs in the usual way without considering the conduct of either party. What these cases do not address is the evidence required to establish them. In British Columbia, all commercial mediations are confidential, and mediators insist on the parties agreeing that the mediators are not compellable witnesses. The evidentiary issue aside, what the writer takes from these cases is developing case law indicating that some jurisdictions are strongly encouraging the use of mediation before trial. The courts are prepared to punish parties, even when successful at trial, when they unreasonably refuse to mediate. If a party does refuse mediation, it had better be able to show a compelling reason why. Where participation is no more than perfunctory, litigants in these jurisdictions may face severe cost consequences. What will happen in BC remains to be seen. I am indebted to Barb Cornish of Singleton Urquhart for bringing some of these cases and the issues raised therein to my attention.