Recent Court of Appeal case shows how courts will penalise a party should it decide not to mediate when involved in litigation

In Rolf v De Guerin [2011] EWCA Civ 78, a recent Court of Appeal case, the Judge penalised the parties by making no order as to costs due to the parties’ failure to mediate. The case highlights the importance of at least attempting mediation, especially in small cases where the costs of resolving the dispute can easily outweigh the amounts at stake.

Mediation is voluntary and provides a flexible and confidential form of resolving disputes. The parties retain control by deciding whether or not to settle and on what terms. As opposed to a judge or an arbitrator, who decide a case on its merits, a mediator will attempt to engineer an agreement between the parties.

The Facts
This case concerned a dispute over incomplete building works. A building contract was entered into between a homeowner, Mrs Rolf, and a builder, Mr Guerin. The job was left incomplete following disagreement over Mrs Rolf’s husband’s interference with the works. Mrs Rolf issued a claim in the County Court, which stood at around £70,000. Mrs Rolf wrote letters expressing a desire for settlement negotiations, followed by an offer to settle pursuant to Part 36 of the Civil Procedure Rules. This included a suggestion for mediation. Mr Guerin rejected all of the offers, but then offered to settle a week before trial. Mrs Rolf then made a subsequent offer to settle but at a higher value than Mr Guerin’s offer.

The Award
Mrs Rolf was ultimately successful in her claim yet was awarded only £2,500 out of a claim which was valued at £92,515.90 at its highest. The Judge at first instance made no order as to costs up to the date of Mrs Rolf’s first Part 36 offer but ordered that she should pay Mr Guerin’s costs incurred after the offer was made. The Court of Appeal Judge ruled that no costs should be awarded at all.

Practical Points to Note

• The Court will not look favourably on parties who decide not to mediate, especially in cases such as building disputes where the value is low in comparison to the costs of litigating the dispute.
• Refusing a party’s offer to mediate is not a decision to be taken lightly. Even if the refusing party is successful in its claim, it is more than likely it will have to shoulder a larger proportion of the costs than they would have done otherwise.
• When making an offer to settle, the offeror can be safe in the knowledge that it will not be penalised for expressing a willingness to settle for less than its open position.
• Parties should always seek to mediate, if deemed appropriate. The following situations are ones in which mediation might be appropriate:

1. where both parties are willing to participate and want to reach a mutual agreement;
2. where there is poor communication between parties;
3. where parties hold conflicting views of the facts;
4. where parties wish to maintain confidentiality; and
5. where parties wish to maintain control over the outcome.