The costs consequences of delaying mediation

Where mediation is obviously appropriate for a case, such as a dilapidations dispute, but a party frustrates the process of mediation by dragging its feet and delaying for no good reason,  the delaying party may face a costs sanction.

The recent decision of the Court of Appeal in Thakker v Patel [2017]¹ illustrates the problems which can arise if a party adopts an evasive approach to mediation. The Court of Appeal dismissed the Defendants' appeal against a costs order which required them to pay 75% of the Claimants' costs, despite the overall outcome of the trial being less advantageous to the Claimants than the Defendants' settlement offer. 

The Claimants granted a lease to the Defendants over a property. Lead was stolen from the roof of the property, causing water damage which meant the property could not be used for a year. When the lease ended, the Claimants claimed for dilapidations totalling over £208,000. The Defendants made a counterclaim for the rent paid while the property was unfit for occupation totalling £41,875. 

Both sides made settlement offers before the trial which were not accepted; the Defendants made a Part 36 offer of £30,000 which they later withdrew (therefore losing the automatic cost protection of Part 36) and the Claimants made an offer for £86,400. At the request of both parties, the proceedings were stayed in order to attempt ADR. For five months, the Claimants proactively attempted to organise mediation including identifying possible mediators. By contrast, the Defendants were "slow to respond to letters and raised all sorts of difficulties". The Claimants then lost confidence in being able to arrange mediation and asked for the stay to be lifted. 

While the trial was adjourned, the Claimants offered to settle for £40,000 plus costs. The Defendants did not accept and the trial resumed. The judge held that the Claimants were entitled to £44,934 and the Defendants entitled to £16,750 in respect of the counterclaim, so there was a resulting net payment from the Defendants to the Claimants of £28,184. The Defendants  were also ordered to pay 75% of the Claimants' costs and the Claimants would pay the costs of the Defendants' counterclaim. 

The Defendants appealed on the basis that the costs order could not be justified as the Claimants' award failed to beat the Defendants' initial offer of £30,000. 

Despite acknowledging that the costs sanction was "tough", the Court of Appeal held that the order was "not so severe that this court should intervene". Both sides initially expressed willingness to mediate and the case was "obviously appropriate" for mediation; the dispute was purely monetary and the eventual offers differed by only £10,000. If the Defendants had not "dragged their feet and delayed for no good reason",  there was a real prospect the case would have settled and avoided the litigation costs exceeding the claim value. The Court of Appeal decided that such behaviour did merit a cost sanction. 

Co-author: Verity Bonney, Associate.