Sanctions – not just for the winners!
Reid v Buckinghamshire Healthcare NHS Trust  EWHC
On the second day of a costs assessment hearing following a clinical negligence action against Buckinghamshire NHS Trust, the costs to be allowed to the claimant were agreed. However, an argument over the costs of the assessment ended up before Master O’Hare.
The defendant had failed to beat a Part 36 offer in relations to all costs and a Part 36 offer confined to counsel’s fees, and the claimant sought remedies under CPR 36.17. The Master duly awarded a sum equivalent to 10% of the costs assessed. However, the Master also considered the defendant’s refusal of the claimant’s offer to mediate.
The Master considered that the only sanctions available in respect of the defendant’s refusal to mediate was to award costs on the indemnity basis and to award interest on those costs from a date earlier than the norm. But first he needed to decide if the refusal was unreasonable. This is what he said:
‘I am persuaded that the defendant’s refusal to mediate in this case was unreasonable. It took them six weeks to reply to the offer and they then replied in the negative. But nevertheless I do not think I should impose the indemnity basis penalty from a date earlier than the date the defendants are likely to have received the claimant’s offer, and that is why…… interest should run from 27 July, that is, some three days after the offer was sent. I do not think I have any power to award a percentage penalty as I can in respect of a Part 36 offer. In my view I do not have power to alter the rate of interest payable and I do not think it proportionate to add interest penalties on top of an award on the indemnity basis from a date earlier than today’.
The Master ended his judgment with a few comments on mediation and sanctions, noting that the case law so far is largely about penalties imposed on parties who are in other respects the successful party, rather than the imposition of further penalties upon losers. He concluded his judgment by saying that ‘If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct. I do disapprove of this defendant’s conduct but only as from the date they are likely to have received the July offer to mediate’.
A further reminder on the need for clarity in post-mediation negotiations
Bieber and others v Teathers Limited (in liquidation)  EWHC 4205 (11 December 2014)
The February 2015 Update looked at an earlier case on post-mediation negotiations, namely Mrs AB and Mr AB v CD Limited  EWHC 1376 (TCC). That case concerned a settlement brokered through a mediator, but subsequent to the day of mediation. Satellite litigation arose as to whether a binding settlement had come into existence as a result of the mediator’s continuing efforts. The Judge was taken to the terms of the mediation agreement, which provided (as is usual) that a settlement will not be legally enforceable until committed to writing and signed. However, it was held that the mediation had come to an end by the time of acceptance of the offer said to constitute the agreement. Accordingly, the mediation agreement (including the ‘subject to contract’ provisions) no longer governed the dealings between the parties.
In the present case of Bieber, a mediation took place on 21 May 2014. It failed to produce a settlement. With a trial fast approaching, further settlement discussions took place the following month. These were between lawyers only; the mediator was not involved. The discussions culminated in an exchange of e-mails on 29 June 2014, by which the defendant agreed to pay the claimants £2 million. A draft settlement agreement was produced which, as is fairly usual, contained some additional terms. The parties could not agree on all terms and the claimants applied for a declaration that a binding settlement had been reached by way of the e-mail exchange on 29 June.
The Judge set out a very useful summary of the principles that apply when determining whether or not a binding settlement has come into existence. For the purposes of this Update, it is worth mentioning just a few of them.
Where the parties wish to make sure that a contract that is otherwise capable of being made orally, can only be made in a formal document, they may expressly provide that their negotiations will be ‘subject to contract’, in which case there will be no binding agreement until a formal written agreement has been executed. However, it is not essential that there be an express stipulation that negotiations are conducted ‘subject to contract’, if that was nevertheless the mutual understanding of the parties (which is a question of fact in each case).
So, what about the mediation agreement and the usual ‘subject to contract’ provisions? The point appears to have been considered but not seen through. This is what the Judge said:
‘The mediation agreement between the parties contained a provision by which the parties agreed that terms of settlement agreed at the mediation would not be binding until set out in writing and signed by the parties. Although there was a suggestion that the Defendant relied on that provision as preventing a settlement agreement being concluded as alleged by the claimants that was not pursued in the end. In my judgment that concession was sound for at least two reasons – first, the term was expressly confined to a settlement reached at the mediation. The settlement that is relied on by the claimants was allegedly arrived at long after the mediation had come to an end. Secondly I consider it at least arguable that an exchange of emails by the parties’ solicitors would have satisfied the requirements of the term in any event’.
A number of important practical points can be drawn from the judgment. Where claims are driven by money, there is a natural tendency to focus on ‘how much’. Often, however, there are other points that need to be addressed (for instance, as in Bieber, indemnities in favour of the paying party covering any further claims). If that is the case, parties need to take steps to avoid it being alleged that any agreement confined simply to ‘how much’ is the binding agreement. This can be done by being explicit as to the basis of negotiations.
The fact that it is anticipated that an all singing, all dancing document will at some later point be produced, doesn’t mean (absent an appropriate clause) that there can be no binding agreement until that has happened. Bieber illustrates this clearly, the Judge concluding….
‘In my judgment for the reasons set out above, the parties settled these proceedings by an agreement contained in or evidenced by an exchange of emails on 29 of June 2014 whereby it was agreed that the claimants collectively would accept the sum of £2 million in full and final settlement…..The settlement contemplated that there would be a consent order in order to carry that agreement into effect but settlement was not conditional upon the agreement of the terms of that consent order or the terms of a settlement agreement. The exchange of emails constituted the agreement between the parties’.
As to how best to make the basis of negotiations explicit, in the case of negotiations following a failed mediation, one obvious way is to agree that the ground rules set out in the mediation agreement continue to apply. This may be coupled with an agreement that the mediation is adjourned, rather than at an end. That doesn’t mean the mediator has to be involved in all further negotiations between the parties. But it does underscore the fact that the parties are abiding by the rules of the mediation, importantly, in this context, the ‘subject to contract’ provisions. Of course, the wording of that clause needs to be sufficiently broad to cover future negotiations, with or without the mediator, particularly given the Judge’s express finding in Bieber that ‘the term was expressly confined to a settlement reached at the mediation’. It might also be prudent to think again about how explicit parties need to be when describing what is required for a binding settlement to come into existence. As mentioned earlier, the Judge in Bieber thought it ‘at least arguable that an exchange of emails by the parties’ solicitors would have satisfied’ the requirement (of the mediation agreement) that any ‘…settlement agreed at the mediation would not be binding until set out in writing and signed by the parties’.
Perhaps it’s time again to review our mediation agreements!