Can You Refuse To Mediate?

In its recent decision in Swain Mason and others v Mills & Reeve1, the Court of Appeal gave some encouragement to parties wishing to decline to enter into mediation to resolve their disputes.

Background

The courts encourage parties to use Alternative Dispute Resolution (ADR), including mediation, to resolve their disputes. This is derived from the Practice Direction on Pre Action Conduct and Pre Action Protocols, under the Civil Procedure Rules and Court Guides.

The court can penalise in costs a party who in its view has unreasonably refused to mediate. This can include depriving a successful party of an order that the losing party pay its costs. The court can also make case management orders such as a stay granting the parties time to mediate.

Facts of the case

Mr Swain and his family instructed Mills & Reeve solicitors (MR) to assist them in the sale of their shares in their company. Advice was sought as to the sale of the shares and some tax advice given as to how to structure the sale in relation to the proceeds of sale. As matters proceeded Mr Swain indicated he was suffering from an illness and was about to undergo an operation. There was no indication either was life threatening. No request for tax advice in the event of his death was sought or given. The transaction was entered into and completed. Unfortunately shortly afterward, following his operation, Mr Swain unexpectedly died. A claim was made that MR should have advised taking into account Mr Swain's possible death. The suggestion was if he had received proper advice a subtantial saving in inheritance tax would have been made either by deferring the transaction for a short period, so that it took place after his death or that it be arranged that the proceeds be immediately re-invested in qualifying securities.

MR declined to mediate throughout. They were convinced they had a good case.

MR succeeded at trial. They "lost" on various issues but were found overall not to be liable. The trial judge noted MR's refusal to mediate. He ordered that MR only be able to recover 50% of their costs. The parties appealed.

Decision

The Court of Appeal dismissed the claimants' appeal on the substantive merits.

On costs, the Court of Appeal was reluctant to interfere with the trial judge's findings on the issues based decisions, including MR pursuing an extensive and costly disclosure exercise as regards the sellers' accountants.

On refusal to mediate the Court of Appeal took a different view...