Court held that failure to engage in mediation would not lead to a costs penalty

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A judge concluded in a professional negligence dispute that a firm which unreasonably refused mediation would not be required to pay increased costs. After taking other factors into consideration, it was held by the court that costs should instead be paid on the standard basis.

As part of the sale of a communications business to a private equity firm, a redemption premium provision (RPP) was included in the contract. As a result, the founders were only paid a nominal amount for their shares and despite being wrongfully dismissed by the purchasers.  Mr Richards and Mr Purves brought a negligence claim against their former solicitors, Speechly Bircham, for overlooking the consequences that the RPP could potentially have on them as the original owners.

They were successful in their negligence claim and subsequently wanted the court to order that the defendant solicitors pay all the costs which they incurred on an indemnity basis due to the fact that the solicitors rejected their offers to mediate.  This would lead to a greater costs pay-out compared to what they would have been entitled to be paid on the standard costs basis.

There were four offers made by Mr Richards and Mr Purves to engage in mediation or ADR, but Speechly Bircham rejected these numerous times on the basis that the claim being brought against them was unmeritorious.  The claimants initially made a Part 36 offer of £4.25 million and then reduced this to £3.5 million, while the defendant’s offer was to settle at £500,000.

Speechly Bircham were held negligent, and the claimants were awarded £1.5 million in damages.

During the costs hearing, the judge agreed that the defendants had unreasonably declined to enter into mediation. However, he rejected the request by Mr Richards and Mr Purves to be paid costs on an indemnity basis because he was of the view that this was only one factor of the case, and this should not be elevated compared to various other factors that need to be considered in respect of whether higher costs should be ordered. For example, the judge acknowledged that the award made against Speechly Bircham was better than the claimants’ previous offers as they managed to defend a large part of the claim.

Interestingly, the government has since announced its plans to introduce compulsory mediation for all small civil claims up to £10,000. They believe this will result in 20,000 additional cases a year being settled outside the courts.

Clarisse Robbins, Associate Director – Claims & Technical of Brunel Professions said: “This case is a reminder to any party involved in a dispute that the courts are likely to view a refusal to mediate as unreasonable conduct and this could lead to an order of additional costs. However, the judgement in this case interestingly also shows that failure to mediate alone would not necessarily lead to a higher costs penalty as the courts will also have to assess other factors.  It will be interesting to see whether the court’s position will change in the future in particular if compulsory mediation is introduced as recently proposed by the government.”

Beale Law published an article about the indemnity costs claim. There are reports on the original negligence claim by the Law Society Gazette and Hill Dickinson.  The government has also issued a press release on its website about its proposal to make mediation compulsory for small claims.

ProfessionalIndemnity.com is owned by Brunel Professions, which is a leading professional indemnity insurance broker in the UK.  Click here to get a quote or call 0345 450 1074 to speak to a broker.

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