Garritt- Critchley & Ors v Ronnan & Anor

A party’s confidence in its case, the binary nature of liability, distrust between litigants, or a substantial difference in valuation will not ordinarily justify refusing mediation. Most cases are suitable for ADR, particularly fact-sensitive disputes involving uncertain merits and a wide range of possible quantum. The relevant comparison is between the cost of mediation and the cost of the litigation, not mediation and the amount last offered. A continuing and unjustified refusal to engage in mediation may amount to unreasonable conduct warranting indemnity costs. The party seeking that order bears the burden of establishing unreasonableness.

The claimants brought an action concerning an alleged agreement to issue shares. Liability depended on disputed evidence, documents and contractual principles, while quantum required expert opinion and could vary substantially. The claimants repeatedly proposed mediation and other serious ADR. The defendants refused, relying on confidence in their defence, the parties’ hostility, the gap between their valuations and the cost of mediation.

After a four-day trial had begun, the defendants accepted, out of time, the claimants’ Part 36 offer of £10,000 plus costs. The issue was whether the defendants’ refusal to mediate was unreasonable and justified costs on the indemnity basis.

1. Indemnity costs. The defendants’ continuing failure to engage in mediation or other serious ADR was unreasonable. The claimants, who sought indemnity costs, bore the burden of proving that conclusion.
2. Suitability for mediation. Applying Halsey, most cases are not by their nature unsuitable for ADR. A dispute involving a binary question of contract or liability is not thereby unsuitable. Exceptions may arise where a party seeks determination of a point of law, a binding precedent would be useful, or injunctive or other relief is essential. This fact-intensive dispute was eminently suitable for mediation.
3. Merits and hostility. Extreme confidence in success was unreasonable where evidence existed on both sides and no summary judgment application had been made. A belief in a watertight case does not justify refusing mediation. Distrust and emotional history may instead make mediation particularly useful, since a mediator can help the parties reach a commercial settlement.
4. Costs and settlement gap. The proper comparison was between mediation costs and the costs of a trial. The former would have been substantially lower. The parties could not know that they were too far apart without exploring settlement, and the late reduction of the claimants’ offer made ADR especially appropriate.
5. The references to PGF did not assist the defendants: prompt responses and reasons for refusing ADR did not make misconceived reasons reasonable. The judge did not decide the separate issue of late acceptance of the Part 36 offer, or express views on alleged deception. Costs were ordered on an indemnity basis, subject to detailed assessment, with a 50 per cent limit on the claimants’ trial-bundle preparation costs. The defendants were ordered to pay £80,000 plus VAT on account and the day’s costs on the standard basis.