Fri 28 Mar 2014

The Legal Consequences of a Refusal to Mediate

Posted by Heverton.Oliveira

In the last issue of Briefly we looked at the steps necessary to prepare your plaintiff-client for trial. One of the steps in many litigated files is mediation. Mediation may be voluntary, in which case the parties are agreed it is a good idea, or by a Notice to Mediate in which one party requires a mediation.

Whether it is voluntary or conducted under a Notice, the steps you take to prepare your client for trial are also the steps you need to take to prepare your client for mediation. There is no substitute for preparation. To achieve your goals of obtaining adequate compensation for your client and having him satisfied with the result you and the plaintiff need to be well prepared for what you will face at mediation.

What happens if one side comes to mediate and the other does not participate in a meaningful way? Some recent case law has come out from Ontario and the UK on this topic.

English courts have encouraged the use of mediation to resolve litigation and have shown a willingness to penalize parties who do not participate in mediation when invited. Parties successful at trial who refused mediation have received reduced costs which otherwise would have been ordered; similarly parties who were ordered to pay costs have had them increased as a result of a refusal to mediate.

In Dunnett v Railtrack [2002] EWCA Civ 302 the court refused to order costs to a victorious party who refused mediation.

In Halsey  v Morton Keynes NHS Trust [2004] EWCA 3006 Civ 576 the English Court of Appeal set out a list of factors to take into account in determining if a party was reasonable in refusing mediation, including:

• The nature of the dispute
• The merits of the case ( ie. the strength of one party's case)
• The extent of any attempts at settlement
• Whether the costs of mediation would have been disproportionately high
• Whether delay associated with mediation would have been prejudicial
• Whether the ADR process had a reasonable prospect of success

The English Court of Appeal in PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288 refused to order costs to the Defendant where it had unreasonably refused to mediate.

In the PGF II Sa case the Court of appeal held:

• silence in the face of an invitation to participate in ADR is on its face unreasonable;
• failure to respond to such an invitation may make a party liable for penalties in costs;
• not providing reasons for refusing to mediate leaves the other side unable to accommodate them;
• depriving a party successful in court of costs may seem harsh but should encourage participation in ADR.

Recently, the Ontario Superior Court had an opportunity to consider a similar situation. In Ross v. Bacchus, 2013 ONSC 7773 the plaintiff was awarded $248,000 in damages by a jury in a six day motor vehicle negligence case.

The defendant had offered to settle the case for $40,000 and made it clear that that was not negotiable. That offer was withdrawn before trial. The plaintiff offered to settle for $94,000 plus prejudgement interest and costs and requested mediation.  The defendant countered with $30,000 plus PJI and costs. The Plaintiff countered at $79,065 and costs and PJI.

The Court said:

Counsel for the defendant agreed to brief mediation at limited cost but wrote, " (the insurer ) are not interested in settling this case". Mediation took place...but the defendant's insurer stood firm. I infer that it took a six-day trial with all its attendant risks for the sake of $50,000. This is a litigation strategy that the defendant could well afford, but the plaintiff could not. I infer that the insurance company conducted itself this way in the hopes of intimidating the plaintiff and deterring other plaintiffs who have meritorious cases….

It is clear to me that the defendant's participation in mediation was a sham…

I would award $140,000 in costs, plus $17,000 in disbursements….By reason of the refusal to mediate I augment the award by $60,000 plus HST.

Note that the trial judge referred several times to provisions in the Ontario Insurance Act which appear to require defendants to attempt expeditious settlement and allow for consequences in costs.

Compare that case with Branco v Alliance Insurance Co. of Canada 2004 CanLII 45036 (ONSC). This was a case stemming from a motor vehicle collision in which the plaintiff recovered modest damages from the defendant. The case was defended in a number of ways including that it did not meet the Ontario "threshold question": that is, that any injury sustained was not disfiguring or resulting in permanent impairment.

The defendant did not deliver an offer to settle prior to trial, and the plaintiff sought increased costs as a result.

The trial judge said:

I am not aware of any obligation on the part of an insurer to deliver an offer to settle prior to trial. In this action…it was reasonable for the defendant to proceed on the basis that it had some possibility of being successful on the "threshold motion" and that… the jury award might be negligible. It was also reasonable not to serve an offer to settle in the face of the plaintiffs' offers…"(which varied up and down considerably).

The insurer had every right to make its own assessment of the likely jury award and conduct itself accordingly.

What these cases do not address is the evidence required to establish them. In British Columbia, all commercial mediations are confidential, and mediators insist on the parties agreeing that the mediators are not compellable witnesses.

The evidentiary issue aside, what the writer takes from these cases is developing case law indicating that some jurisdictions are strongly encouraging the use of mediation before trial. The courts are prepared to punish parties, even when successful at trial,when they unreasonably refuse to mediate. If a party does refuse mediation, it had better be able to show a legitimate reason why.

Where participation is no more than perfunctory, litigants in these jurisdictions may face severe cost consequences.

What will happen in BC remains to be seen.

I am indebted to Barb Cornish of Singleton Urquhart for bringing most of these cases and the issues raised therein to my attention.

Our special guest blogger today is Brian Gibbard, experienced lawyer and mediator and a member of the Board of Directors of Mediate BC Society. He recently published an article in Briefly!, the newsletter published by the Law Courts Centre (thank you Dom) and kindly agreed to allow us to reproduce it here.