In Northamber PLC v Genee World Ltd & Ors (Rev1) [2024] EWCA Civ 428, the Court of Appeal considered the costs consequences for parties who remain silent in the face of an offer to mediate. What the High Court described as a "half-hearted attempt" the Court of Appeal has rebranded a "clear offer to mediate". On costs, the Judge erred in failing to consider: (i) that the defendants' silence constituted unreasonable conduct, and (ii) breaches of a previous order requiring any party not engaging in ADR offered by the other side to serve a witness statement setting out reasons for the refusal.
Background
The claimant IT equipment supplier, Northamber ("Northamber"), entered into two agreements with the first defendant company, Genee ("Genee") (the "Reseller Agreement" and the "Exclusivity Agreement") to become the distributor and exclusive source of "Genee World Products" in the UK (save for four "excluded" accounts).
The third defendant, IES ("IES") was controlled by the same director as Genee, Mr Singh ("Mr Singh"). IES was involved in selling IT equipment to schools, a large proportion of which were Genee World Products. Northamber alleged that IES acted in concert with Genee and Mr Singh to induce Genee to breach the Exclusivity Agreement.
Judgment was entered against Genee for breach of the Exclusivity Agreement in the sum of £1,419,046.62 (later reduced on application by Mr Singh to £664,351.77).
Mr Singh was found to have induced Genee's breaches of the agreement, acting outside the scope of his bona fide duty as director. The claims against IES for inducing breach of contract and of unlawful means conspiracy against both Mr Singh and IES were dismissed.
In the interim, Northamber had obtained an injunction requiring Genee to refrain from selling Genee World Products to resellers in the UK (save for the excluded accounts), and for it to provide facilities for an audit. In breach of the injunction, Mr Singh was subsequently fined £25,000 for contempt of court, escaping a custodial sentence "by a very narrow margin". The Court ordered him to pay 70% of the claimant's costs as well as ordering the claimant to pay 80% of its claim against IES [16 and 112].
The mediation offer
A 9-day trial took place in October 2022.
On 5 October 2021, a case management order ("the Order") was made requiring the parties to consider settling by means of ADR "at all stages". It went on to say: "any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal" [99].
On 16 February 2022, Northamber's solicitors wrote to solicitors for Mr Singh and IES reminding them of the order:
"Whilst the Claimant remains committed to pursuing the action it also remains open to mediation as a method of resolving the dispute.
We would ask you to take instructions from your clients and for an indication, by return, as to their willingness to mediate. You will be aware of the consequences if a party refuses to mediate. Please note we are willing to mediate separately or jointly" [100].
Solicitors for IES responded that they were "taking instructions". There was no response from Mr Singh's solicitors. Neither party served a witness statement as required by the Order [101].
In his judgment on costs, the Judge rejected the argument that the failure by IES and Mr Singh to mediate and to comply with the Order should result in a costs sanction, pointing to the lack of evidence before him that Northamber ever chased a response from either. The Judge described the proposal in the letter dated 16 February 2022 as a "half-hearted attempt" to suggest mediation at a late stage after "very considerable costs" had already been incurred [102].
Northamber appealed against, inter alia, the costs order, contending that the Judge had erred in principle. It cited Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 and PGF II SA v OMFS 1 Ltd [2013] EWCA Civ 1288 in support of the contention that the judge should have held that Mr Singh's and IES's silence in response to its offer to mediate was unreasonable conduct which should have been reflected in the judge's costs order [103].
What did the Court of Appeal decide?
The Court recommended mediation, noting that it was unfortunate that the parties have not been able to settle their differences [1]. It held that the Judge had erred in ignoring the unreasonable behaviour and breaches of the Order:
"I agree that the judge fell into error. Mr Singh and IES were silent in the face of an offer to mediate. That was in itself unreasonable. To compound matters, they breached an order of the court requiring them to explain their failure to agree to mediation. If breaches of such orders are ignored by courts when deciding costs, parties will have no incentive to comply with them. That would undermine the purpose of making them, which is robustly to encourage parties to mediate" [104].
The claimant had made a "clear offer to mediate", after that point, the ball was in Mr Singh's and IES' court. The Judge had wrongly placed the onus on the claimant to chase a response from either defendant. As regards the absence of reasons given by either defendant for their refusal to mediate, the Court held that whilst the Judge stated that he took this breach of court order into account, "in reality he did the opposite" [105].
The fact that substantial costs had been incurred by the time a mediation proposal was made was certainly relevant to the exercise of the court's discretion as regards the defendants' conduct, but also relevant was that proceedings continued for a further eight months following the offer. Substantial further costs were incurred, including the trial, which "could have been avoided by a successful mediation" [105].
The Court then turned to the question of how Mr Singh's and IES's conduct should be reflected in costs:
"Although costs sanctions have been imposed in a number of cases for an unreasonable refusal to mediate or for silence in response to an offer of mediation, it does not automatically follow that a costs penalty should be imposed: see Gore v Naheed [2017] EWCA Civ 369, [2017] 3 Costs LR 509 at [49] (Patten LJ). Rather, it is a factor to be taken into account among the other circumstances of the case" [106].
As the claimant had successfully challenged the dismissal of the claim against IES for inducement of breach of contract, the Court held this claim needed to be reconsidered anyway. It confined its attention to the judge's order that Mr Singh pay 70% of the claimant's costs of the claim against him [98] and [107].
While Northamber sought an order that Mr Singh pay 100% of its costs, the Court noted that this could not "possibly be justified by Mr Singh's failure to respond to Northamber's offer to mediate". Equally, neither was the Court convinced that no sanction at all was appropriate. Rather the Court considered that the correct approach was to "impose a modest, but not insignificant" costs penalty against Mr Singh by increasing the claimant's costs recovery by an additional 5% to 75% [107].
Conclusion
The case is a useful reminder that silence in the face of an invitation to participate in mediation, as a general rule, will be of itself unreasonable even if a refusal might have been justified by the identification of reasonable grounds. The fact that considerable costs have already been incurred should not discourage parties from proposing ADR at a late stage, especially if further substantial costs are likely to be saved.
Further, practitioners will want to note the importance of filing evidence where there is a justification for any refusal to mediate. The costs consequences in this case (on the facts) were modest but there is no guarantee that this will be the uniform approach in the future.
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