The Judgment in the recent case of Earl of Malmesbury v Strutt and Parker has shown both the dangers of waiving confidentiality in mediation and the possible penalties for taking up an 'unreasonable' position.
Imagine the following scenario. During the course of mediation you believe the other party acts so unreasonably that there cannot be any prospect of settlement and therefore the mediation fails.
The CEDR Model Mediation Agreement provides that parties:"...agree to attempt in good faith to settle the dispute at Mediation" and the Chartered Institute of Arbitrators Mediation Rules state: "Throughout the mediation the parties and their representatives shall use their reasonable best efforts to co-operate with each other and with the mediator to settle their differences and enable the mediation to proceed expeditiously."
You feel that the other party did not make any realistic attempt at reaching a settlement and that they were merely "going through the process". Consequently you are tempted to ask the court to exercise its costs sanctions against the other party pursuant to Part 44.3 of the Civil Procedure Rules, which gives it a discretion to make an Order as to costs in respect of the parties' conduct before as well as during the proceedings.
The problem is that you have signed a mediation agreement in which you agreed that you will keep all statements and other matters, whether oral or written relating to the mediation, confidential. You have also acknowledged that all documents, submissions and statements made or produced for the purposes of mediation shall be inadmissible and not subject to discovery. Furthermore, the mediator cannot be called as a witness in any proceedings relating to any of the issues in the mediation and their opinion (for example, as to the other party's conduct), even if expressed to you, will be inadmissible.
Such standard clauses are regarded as key to the whole concept of mediation as they reassure participants that they are protected from subsequent judicial scrutiny and therefore enable them to adopt positions and strategies which they might not otherwise adopt in ordinary negotiations.
However, the recent case of the Earl of Malmesbury v Strutt & Parker (2008) EWHC424(QB) illustrates that it may not necessarily be right to assume this protection and that, in certain circumstances, it is possible to invite a judge to go behind the cloak of confidentiality.
The claim for alleged negligence in advice about rents for land leased as airport car parking at Bournemouth Airport was in excess of £100m plus claimant's costs of £1.84m and defendant's of £2,4m. In the event, the claimant recovered slightly less than £1m plus interest and the defendant consequently argued that any entitlement that the claimant may have to costs should be reduced because the recovery was only about 1% of the claim.
As part of its submissions, the defendant invited the court to examine the conduct of the claimant and his advisors both before and during the mediation and the court subsequently reviewed the without prejudice correspondence and attendance notes of without prejudice conversations. These showed that the claimant's solicitors had indicated they would not mediate unless there was a prior without prejudice meeting between solicitors. At that meeting the claimant said that their bottom line was £70m. The defendant refused to indicate that they would pay anything.
After the trial on liability at which the claimant succeeded, a mediation took place. During the course of the mediation the defendant offered £1m inclusive of interest and costs, the claimant indicated that they would accept £9m plus 80% of their costs.
In respect of the parties' conduct during the mediation Mr Justice Jack said:-
"The claimant's position at the mediation was plainly unrealistic and unreasonable. Had they made an offer which better reflected their true position, the mediation might have succeeded. It would be wrong to say any more."&..As far as I am aware the courts have not had to consider the situation where a party has agreed to mediate but has then taken an unreasonable position in the mediation. It is not dissimilar in effect to an unreasonable refusal to engage in mediation. For a party who agrees to a mediation but then causes the mediation to fail by reason of an unreasonable position in the mediation is in reality in the same position as a party who unreasonably refuses to mediate. In my view it is something which the courts can and should take into account in the Costs Order."
The judge thought that the offer of £9m was "plainly unrealistic and unreasonable". It should of course be borne in mind that this was the judge's opinion having tried the issues on liability - if a trial has not taken place the parties are not in the luxurious position of having the benefit of the judges attitude and approach towards the claim. Furthermore, the judge's attitude to any costs application will be coloured by the views that they have reached during the course of the case.
Curiously, both parties chose to waive confidentiality so as to enable the judge to examine the issues. In the event, because of what he heard, the judge deprived the claimant of 20% of the otherwise recoverable costs.
Key lessons from the case
- The parties' lawyers must be aware that they
should give suitable advice to their clients as to the
necessity to consider mediation. This is a point that has
been emphasised routinely by the courts.
- Lawyers must also make certain that any mediation does
not consist merely of going through the process so as to
"tick the box".
- The adoption of an unreasonable position in any mediation
may lead to a party being deprived of all or at least part of
its costs.
- Parties should not waive confidentiality about what takes
place in a mediation unless they are certain that it is to
their benefit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.