Arnas Urbutis, Trainee Solicitor at Wordley Partnership, summarises a court decision relating to a party’s failure to mediate.

Richards & Anor v Speechly Bircham LLP & Anor (Consequential Matters) [2022] EWHC 1512 (Comm).

Richard Leiper KC (instructed by Cardium Law Limited) for the Claimants. Nigel Tozzi KC and Alexander Wright KC (instructed by Norton Rose Fulbright LLP) for the Defendants.

The Defendants, Charles Russell Speechlys LLP (which had been instructed by the Claimants as Speechly Bircham, shortly before the firm merged with Charles Russell in 2014) were held responsible for compensating for the harm caused by their failure to inform that the wording of a company's Articles of Association, which they had examined during a private equity transaction, posed a significant risk to the protection of the Claimants' shareholdings under the relevant leaver provisions. The Claimants, Mr Paul Richards and Mr Keith Purves argued that a reasonably skilled private equity solicitor should have recognised the risk and recommended taking steps to mitigate such risk. Accordingly, the Claimants sought damages from the Defendants for the losses they allegedly incurred upon selling their 42.95% equity stakes in a technology company (IPS Technology) in December 2014.

The Claimants requested that the Defendants bear the costs of their successful negligence claim on an indemnity basis.

The Claimants also argued that the Defendants should assume responsibility for the expenses incurred during the legal proceedings. They contended that they emerged as the prevailing party in the main judgment and, therefore, sought to have their costs covered on the indemnity basis. The foundation of their argument rested on the assertion that the Defendants unjustifiably declined to participate in mediation.

To strengthen their position, the Claimants presented four 'without prejudice save as to costs' offers they made to the Defendants, proposing mediation to resolve the claim. It is important to highlight that three of these offers were made before the Claim Form was issued.

The Defendants responded to the Claimants' proposals for mediation as follows:

Response to first offer: The Defendants believed mediation would neither be productive nor yield cost-effective outcomes at that stage. They indicated they were willing to explore some form of alternative dispute resolution (ADR) after the Claimants had provided full disclosure.

Response to second offer: The Defendants expressed that engaging in mediation or ADR would be futile as they believed the claim was bound to fail.

Response to third offer: The Defendants reiterated their view that mediation held no value due to the lack of merit in the claim.

Response to fourth offer: The Defendants once again asserted that mediating an unmeritorious claim would be of little benefit. They raised concerns about the costs associated with mediation. They suggested a ‘without prejudice’ discussion between solicitors to address their previous Part 36 offer of £500,000, which they were not inclined to increase.

In court, the Defendants presented two primary arguments against awarding costs on the indemnity basis: (i) their approach to mediation was not unreasonable, and (ii) even if their refusal to mediate was deemed unreasonable, it should be viewed as just one aspect of their overall conduct when determining costs. The Defendants relied on the 'without prejudice save as to costs' correspondence and the Part 36 offers exchanged between both parties to support their case. In addition, they asserted that these documents demonstrated their genuine efforts to settle the claim. The Defendants argued that their response to mediation was reasonable and cited their willingness to consider mediation after disclosure as well as their inclusion of mediation in their costs budget.

However, HH Judge Russen KC ruled the Defendants' approach to mediation unreasonable. He concluded that the Defendants' responses to the Claimants' offers constituted a refusal to mediate and that concerns about disclosure could have been addressed during or prior to mediation. The Judge also noted that the Defendants' assumptions regarding the Claimants' motivations for attending mediation could have been explored during the process.

While agreeing with the Defendants that an unreasonable refusal to mediate is just one factor to consider when determining costs, HH Judge Russen KC stated that the court must consider all circumstances of the case and adhere to the general rule favouring the successful party. The Judge determined that in this case, the Defendants' failure to engage in mediation did not warrant an order for costs on the indemnity basis. The Defendants had successfully contested a significant portion of the £4.3 million claim and achieved a judgment superior to the Claimants' Part 36 offers. Consequently, the appropriate penalty for the Defendants' unreasonable behaviour was to pay the Claimants' costs on the standard basis, including those incurred up to and including the trial.

Comment

Until now, there has been a lack of significant judgments specifically related to the failure to mediate. This ruling will likely serve as a precedent and be referenced in future cases. The ruling underscores the courts' positive stance on mediation and constructive dispute resolution methods and the potential consequences for those who unreasonably refuse to mediate. In this case, the reasons provided by the Defendants for their non-participation in mediation, such as concerns about timing and lack of merit, were deemed insufficient. Nonetheless, the precise criteria for acceptable reasons in similar circumstances remain to be determined.

About the author: Arnas Urbutis is a Trainee Solicitor at Wordley Partnership, a specialist firm in international dispute resolution. With expertise in complex corporate/commercial, insurance, and commercial litigation cases, Arnas is well-versed in international arbitration and alternative dispute resolution proceedings.

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