26 Nov 2012
Escaping a costs sanction for refusing to mediate
Halsey applied in ADS Aerospace Ltd v EMS Global Tracking Ltd
by Tony Allen, Solicitor Mediator and Senior Consultant to CEDR
At another recent costs hearing in the Technology and Construction Court - ADS Aerospace Ltd v EMS Global Tracking  EWHC 2904 TCC – the judge (Akenhead J) applied the Halsey principles in declining to sanction a winning defendant for refusing to mediate, primarily for suggesting mediation too late (20 working days before trial).
In August 2011, ADS issued a claim for over $16 million for breach of contract and repudiation relating to the delivery of satellite tracking devices. Funding was by CFA with ATE cover. Directions were made in October 2011, fixing trial for 2 July 2012.
Subsequent facts about privileged exchanged were disclosed to the judge as the parties mutually waived privilege for the purposes of the costs hearing. So the judge was told that in March 2012, EMS raised the possibility of settlement discussions, in response to which ADS said they wanted to await exchange of lay and expert evidence, due respectively in April and the end of May. ADS ignored an offer of £50,000 inclusive made in April and also a further defendant settlement enquiry in mid-May, but on 31 May (having characterised EMS’s £50,000 offer as a nuisance offer) ADS proposed a mediation on or after 11 June. With the Jubilee holiday looming, this suggestion was made less than 20 working days before trial was due. EMS, represented by Hogans Lovell (a firm fully experienced and committed to the use of mediation) replied that they did not think a mediation was likely to be “a worthwhile or successful investment of time and costs” and it would deflect from trial preparation. They suggested a “without prejudice” discussion. ADS commented that with costs said to exceed £1 million, expense was hardly an issue, and argued that mediation would be better than “without prejudice” discussions, but again EMS rejected formal mediation and re-offered a discussion. Before trial, ADS offered to settle for £4.2 million inclusive of costs, and EMS offered £100,000 inclusive.
The trial took 8 days in July and judgment was given in August dismissing ADS’s claim entirely: so EMS were the effective winner. Costs were reserved to a separate hearing. EMS abandoned a claim for indemnity basis costs, but ADS sought a 50% reduction in their liability for EMS’s costs on the basis that EMS had refused to mediate.
Akenhead J declined to penalise EMS for their refusal to mediate. He cited Halsey in placing the burden on ADS to persuade the court not to deprive the winning defendant of its normal expectation of a favourable costs order. His decision concentrated on:
- ADS’s unwillingness to respond to several settlement overtures made by EMS from March 2012 until very shortly before trial;
- ADS’s settlement offer of over £4 million the month before trial indicated its unrealistic expectations and that settlement would have been unlikely;
- Mediation would have been too late to be worthwhile, and more expensive than a “without prejudice” discussion, especially bearing in mind that security for costs of £100,000 had been ordered by Ramsey J because of ADS’s impecuniosity;
- EMS’s belief in the strength of its case was not unreasonable, though the judge commented: “of course, it is easy in the light of a judgment which was strongly in its favour for it to argue that this is the case.” Later, he said: “It might be said that a good mediator would have been able to “work on” the claimant to accept what would in effect be a nuisance offer, but in the context of this case, with the sensible solicitors and counsel (who the claimant did engage in this case) I have no doubt that without prejudice discussions would probably have achieved the same result or at least got to the same stage.” He thought it highly unlikely that anyone would have persuaded the highly committed claimant ‘s director to accept that a nuisance value payment was adequate.
The judge’s decision makes perfect sense on the facts, despite the fact that mediation can be set up very swiftly. The pain over the costs lost by claimant’s legal team, however “sensible” they were, will have been profound. The judge gives a hint that the mediation proposal might perhaps be have been regarded by the claimant as a ploy to generate some costs protection in case the trial went badly, though he made no formal finding as such. As in Halsey and a number of cases since, the judge was not prepared to penalise the winner of litigation when intransigence and unrealistic risk assessment had been demonstrated in the losing claimant’s approach to the litigation. On the other hand, the claimant had reduced his settlement range from $16 million to £4.4 million when proposing the mediation, so the gap had closed appreciably (albeit remaining substantial) and maybe mediation might have closed it further even at that late stage of the litigation.
Looking at the other Halsey factors, there was no suggestion that mediation was inherently unsuitable, and there had been no prior settlement discussions. There was never any risk to the trial date. The cost benefit of mediation, at least by reference to the several millions claimed (albeit not accepted by the defendants as valid) was not of itself a barrier to using mediation. It was simply the lateness of the proposal before an immoveable trial that justified criticism. Mediation does take more setting up than a simple solicitor’s meeting to discuss settlement, though not necessarily much more in an urgent situation. However, without prejudice discussions are unlikely to be as effective as a mediation, where a mediator’s neutrality can make challenges seem more telling, and the mediator can persuade parties to continue engagement long after a theatrical walk-out might have felt tempting to one or other of the parties. Lateness was relied upon by Park J as one of the reasons excusing refusal to mediate in SITA v Watson Wyatt and Maxwell Batley, but again mediations are often convened very shortly before trial.
It is also worth observing that very large gaps between parties, including those where each perceives the other’ position to involve a nuisance value approach to discounting do not of themselves render a mediated settlement impossible. They are harder for parties to close, of course, even with the skilled help of a mediator, but it is never easy to predict in advance which cases will remain stubbornly unsettled and which might uncover a more amenable approach. But certainly it can be no surprise that rejection of a mediation offer made so late in the life of a claim that had been very briskly litigated, and after a number of feelers for settlement had been put out some months before trial by the eventually successful party against whom a sanction was sought, would not lead to a sanction. Before insisting on disclosure of evidence before discussing settlement, perhaps the claimant’s solicitors should have read the judgment of Stephen Furst QC in PGF II S.A. v OFMS,  EWHC 83 TCC, a case in which sanctions were applied on a broadly successful party who refused a genuine mediation invitation, where he said:
any information which was required to evaluate the claim either by way of disclosure or from expert reports are not in my view legitimate reasons in this case to refuse to mediate. Experience suggests that many disputes, even more complex disputes than the present, are resolved before all material necessary for a trial is available. Either parties know or are prepared to assume that certain facts will be established or, during the course of a mediation, such information is made available, often on a without prejudice basis. The rationale behind the Halsey decision is the saving of costs and this is achieved (or at least attempted) by the parties being prepared to compromise without necessarily having as complete a picture of the other parties’ case as would be available at trial.
Mediators are used to seeing highly effective information and opinion exchange during mediations. Why indeed should that not be likely in a jurisdiction where happily cards must be placed on the table? There is no longer premium in ambush at trial – indeed quite the reverse, with the serious risk of judicial disapproval through adjournment and a costs sanction. So frank disclosure of evidence and opinion is typical of mediations. The very setting of a mediation date encourages a level of preparation which makes mutual disclosure both possible and attractive. But there needs to be time to do this properly, and the judge here entirely unsurprisingly thought that ADS left their proposal too late. Whether the courts in such a case and similar cases should have intervened themselves to recommend mediation early in the life of this case is a discussion for another article.