Splendid isolation

Hardly ever these days do I take part in mediation without both teams turning up with a squad of lawyers. That doesn’t trouble me one jot. If it leads to a mediated settlement, all’s well that ends well. The hiccup arrives when the mediation gets nowhere and the parties press on to court or arbitration. The judge announces the winner, and the winner asks for his costs, those of the action and the failed mediation. Mediation, by the way, can give rise to a whopping bill.

Mr Justice Coulson dealt with all this in a Technology and Construction court case called Lobster Group vs Heidelberg Graphic and Close Asset Finance. The overall claim was for machinery that was said to be defective and that caused losses. The judge gave guidance on pre-action costs. Well before court proceedings began the disputants employed a mediator, but the magic dust fell on deaf ears. The pre-action costs, said the judge, were not ordinarily recoverable.

The rule is that the court has power to award “the costs of and incidental to the proceedings”. But pre-action mediation is not “incidental”. It is the opposite; it is an alternative, and a jolly good one, to court proceedings. Valid methods of alternative dispute resolution which take place before proceedings have no connection with them. So a claim to be compensated for mediation costs doesn’t get off the ground. In any case, if there was a notion that the costs of pre-action mediation could be recovered, you can bet your bottom dollar that the court would have to hear arguments about why the mediation failed, and that would bump straight into a key feature of mediation – secrecy. Mediation takes place under the cloak of what lawyers call “privilege”. The idea is to coax the parties in private to do a deal, be frank, be willing to seek compromise, even drop their guard. Any opportunity to rake over the mediation ashes in a court would stifle free negotiations. So pre-action mediation costs are not claimable.

But suppose the arbitration or litigation is already under way? Nowadays, judges are required to “manage cases actively” and may politely tell parties to try mediation first. During this, the tribunal may pause within its timetable. Are the pause and mediation endeavours “incidental to the proceedings”?

Mediation takes place under the cloak of ‘privilege’. Any opportunity to rake over the mediation ashes in court would stifle free negotiations.

It is much easier to see that such mediations are “work done in connection with a view to settlement”. Such costs awards are within the ordinary powers of a court, but there are uncomfortable edges about all this. In Chantry Vellacott vs Convergence, the court was persuaded that mediation that started after litigation started was incidental to the proceedings, so an inquiry began into why the mediation failed and who should bear the wasted costs. On the table in the mediation was a £1m offer to settle. The other side wanted £20m. The judge said £20m was unreasonable but £1m was generous. So the generous party will have its costs. The uncomfortable edge is that the court is conducting an inquiry into this otherwise privileged arena. Wouldn’t it be more sensible to leave alternative dispute resolution and mediation alone altogether?

Earlier I said pre-action mediation costs were not ordinarily recoverable. There could be exceptions. Say, for example, an expert report has been compiled, at some expense, for the mediation, but the expert report is also used in the court or arbitration; wouldn’t that be costs incidental to the court proceedings? It’s used for both arenas … It’s messy again, isn’t it?

The temptation is to have a written mediation agreement explaining the hows and whys and what-ifs, but we’d end up with a 20, no, 40-page, mediation contract.

Depressing, isn’t it? On the other hand there is a lot of pressure put on disputants not to trouble the public purse. And it’s ordinary to see a party to a developing dispute bully the other to mediate. It spends thousands only to find the bully had a hopeless case. “Costs!” shouts the injured party, and a court may be tempted to agree even if it is well before the action begins. The conclusion? Leave mediation to its own devices. It is an alternative. Keep it, by keeping it that way.