The Civil Procedure Rules (CPR) require parties to conduct litigation in a reasonable and proportionate manner, and the courts have the power to award sanctions to those who unreasonably refuse to participate in meaningful alternative dispute resolution (ADR).
The decision in Northamber PLC v Genee World Limited is a good example of the stance the courts may take.
In this case, the parties had entered into an exclusivity agreement where Northamber became the sole distributor of Genee’s products in the UK. Northamber later discovered that Genee had been distributing equipment to resellers in breach of the agreement. They issued a variety of claims, including a claim against a reseller called Interactive Educational Solutions Limited (IES) and a claim against a director of Genee (who was married to the sole director of IES) for inducing the breach.
During the course of litigation, the parties were given a court order which required any decision not to agree to ADR to be explained in a witness statement and sent to the court and the other party. In breach of this court order, the director of Genee failed to respond to an offer to mediate by Northamber.
The High Court decided not to impose costs on the director of Genee for breaching the court order on the basis that Northamber’s offer to mediate was a “half-hearted attempt” as they had only sent one letter requesting mediation and never chased for a response.
Northamber appealed this decision to the Court of Appeal which disagreed with the High Court’s decision. Instead, they took the view that silence in the face of an offer to mediate coupled with breaching a court order was unreasonable conduct and should be reflected in a subsequent costs order. On that basis, they applied a penalty of 5% which increased Northamber’s cost recovery to 75%. The Court of Appeal also confirmed that Northamber were under no obligation to chase for a response to their mediation offer as it became his responsibility to engage on receipt of the letter
It is clear from the Court of Appeal’s decision in this case, that failing to respond to an offer of ADR is likely to be considered unreasonable by the courts. Although not every case will have a court order requiring the parties to set out their reasons for not agreeing to ADR, the courts still have power to enforce sanctions against a party who has unreasonably refused to engage in ADR in the absence of a court order.
Therefore, parties involved in litigation should seek to respond to any offer to engage in ADR promptly, and if the response is to refuse to engage, it is best practice to set out the reasons for this in writing and ensure it is made available to the other party and the court. Likewise, parties should consider ADR at all stages of litigation to avoid incurring unnecessary and disproportionate costs, as well as minimising the risk of their behaviour being deemed unreasonable by the courts.
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