Mediation, costs and whether to waive privilege

In Malmesbury and others v Strutt and Parker not only did the court have to consider the costs position where both parties unreasonably refused to initially enter into a mediation but also where, having finally agreed to mediate, one party then took an unreasonable stance in the mediation. This was the first time the court has had to consider the parties conduct during the mediation itself.

For some time now, the courts have been able to take into account the conduct of parties in refusing to enter into mediation. Halsey v Milton Keynes General NHS Trust sets out the factors to be taken into account in determining whether a refusal to mediate was reasonable or not, which includes the nature of the dispute; the merits of the case, whether the costs of Alternative Dispute Resolution (ADR) would be disproportionately high; whether the delay in setting up and attending the ADR would be prejudicial; and whether there are reasonable prospects of success.

Waiver of privilege

The court was only able to consider the relevant conduct of the parties during the mediation itself in this case because the parties to the mediation had waived their privilege in the without prejudice process. The general rule is that all parties have to agree to such a waiver as the privilege is joint and cannot be waived by one party alone. Generally, the court can not order disclosure of without prejudice negotiations against the wishes of a party and no adverse inferences are to be drawn against a party for its reluctance to give disclosure of such negotiations at any subsequent costs hearing. To do so would be to impose indirect pressure to permit disclosure which is contrary to the public policy basis of without prejudice negotiations.

In this case, the court had to determine the issue of costs where there had been a split trial, an initial refusal to mediate, a subsequent unsuccessful mediation and the claimants had been successful at trial but only to a limited extent.

Costs following refusal to mediate

The court found that both the claimants' and defendant's conduct had been unreasonable in refusing to enter into mediation prior to the split trial on liability. The claimants had insisted on there being a without prejudice meeting between solicitors first to discuss the viability of a mediation. Both sides took unreasonable positions at that meeting. Neither party took account of the difficulties in their own cases both on liability and for the claimants on the assessment of damages. The court found that on the particular facts, neither sides' stance in the negotiations was reasonable and that where the failure to mediate was due to the attitudes taken on either side, it was not open to one party, in the instant case the defendant, to claim that the failure should be taken into account in the order as to costs recoverable by the successful claimant. No costs order was therefore made in relation to the failure to mediate initially.

Conduct at mediation

The court then went on to look at the conduct of the parties at the mediation that followed the trial on liability. At that mediation, the claimants maintained an unreasonable stance and continued to demand a sum in excess of that which they had any reasonable chance of recovering. The defendant had made a reasonable offer which was rejected. The claimants' unreasonable offer was rejected and the mediation got no further. The court considered the claimants' position at the mediation to be plainly unrealistic and unreasonable. Had the claimants made an offer which better reflected the true position, the mediation might have succeeded.

The court held that a party who agrees to mediation but then causes the mediation to fail by taking an unreasonable stance during the mediation is, in reality, in the same position as a party who unreasonably refuses to mediate. The court can and should take such conduct into account in the costs order. The court ordered that the claimants would get only 80% of what the court would otherwise order in relation to their costs of the damages claim by reason of their attitude in the mediation.

Comment

The courts have shown a willingness to take a progressively hard costs line with parties who refuse to mediate. That being the case, the extension of the principles of Halsey re conduct in refusing to enter into a mediation to the conduct during the mediation itself is a logical progression. In the absence of a waiver of privilege though, it will be very difficult to establish any unreasonable conduct such as could give rise to a reduction in costs.

Wragge & Co's legal experts have provided some suggested actions points.