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Refusal to Mediate: The Costs of Refusing Mediation

The Advocate Files: Refusing Mediation

 

Toronto Settlement Counsel and Dispute Resolution Mediator Mitchell Rose

Refusal to Mediate:
– The Costs of Refusing Mediation

By Mitchell Rose
– Toronto Mediator and settlement counsel

A recent Ontario Court decision demonstrates why refusing to participate in mediation in a civil proceeding, where mediation is not mandatory, can be expensive in the end.

This decision of Mew J. respecting costs followed a seven-day jury trial in Belleville of a (non-MVA) personal injury matter. Liability and damages were in issue. After the jury found that the plaintiff was 25 per cent contributorily negligent, damages were assessed at $212,000 including interest. The plaintiff sought costs on a partial indemnity basis of $269,371 plus tax. The defendant argued that $150,000 inclusive of HST was appropriate.

In his reasons, the judge considered the various criteria and general principles relevant to the fixing of costs, including that “the usual rule in Ontario is that costs follow the event…subject to the overarching discretion of the court to determine by whom and to what extent costs should be paid.” Reference was made to R. 57.01, which provides guidance on the exercise of that discretion.

Costs are usually payable on a partial indemnity scale unless the Rules of Civil Procedure provide for, or the circumstances of the case warrant, costs on an enhanced (substantial indemnity or full indemnity) scale. Among other things, the court considered proportionality, offers to settle (here, “although the parties did not make offers to settle which would engage the costs consequences of [R]. 49.10…the outcome achieved by the plaintiff was significantly better than the last offer of the defendant, which was little more than a nuisance offer”) and the other factors set out below — including a refusal by the defendant to mediate.

  • the judge stated that “[o]verall…I agree with the defendant that the number of hours spent, and the fees generated as a result – even applying the reduced rates I have indicated – are disproportionately high and would be beyond the reasonable expectations of the defendants.’
  • No costs consequences, positive or negative, should arise from the fact that “until the commencement of trial, the prayer for relief was $100,000. That was amended to $400,000.”
  • “[T]he apportionment of liability against the plaintiff is not of a sufficient magnitude that it should have an impact on the recovery of costs.
  • The late withdrawal of a Family Law Act claim (in light of the facts) and the existence of a contingency fee agreement had no bearing on costs.
  • The existence of adverse costs insurance coverage or the amount of coverage obtained was not relevant.
  • With regard to engaging in jury focus groups, the court commented that “it comes down to a question of proportionality”, and the court took issue with the amount of time spent here.

Turning to the mediation issue, the reasons for judgment are worth reading in full:

“[41] The plaintiff argues that the refusal of the defendant, or more specifically, the defendant’s insurer, to participate in mediation, should be a factor in determining costs. [Plaintiff’s counsel] argues that this case would likely have settled with the assistance of a skillful mediator, thereby avoiding significant costs. He points to various exchanges that occurred between counsel on the subject of mediation. In April 2015, [Plaintiff’s counsel] wrote to [Defence counsel] to confirm a telephone conversation in which the latter had advised that the defendant and its insurer were not willing to engage in a mediation settlement process. This was following delivery by the plaintiff of its offer to settle of $300,000.

[42] In July 2017, the plaintiff suggested mediation again. The availability of a number of mediators was provided. No mediation resulted.

[43] In situations where participation in mediation is mandatory, a failure to mediate may be relevant. For example, section 258.6(2) of the Insurance Act, R.S.O. 1990, c.I.8, provides that a person’s failure to comply with the mediation requirements of the Act “shall be considered by the court in awarding costs”. In [this case], at para. 25, it was held that where a party repeatedly requested mediation and the insurer never agreed to participate, despite its statutory obligation to do so, “an augmented costs award was warranted”.

[44] Unlike actions commenced in Toronto, Ottawa or Essex County, actions brought in Belleville are not subject to the mandatory mediation provisions of rule 24.1 of the Rules of Civil Procedure. There is, accordingly, no requirement that a party mediate.

[45] In [this case] at para. 12, Spence J. declined to consider a refusal to mediate as a factor in the exercise of his costs discretion:

The plaintiffs say that the defendants refused the request of the plaintiffs to mediate and thereby caused the motion to proceed with its attendant costs, which a successful mediation would have avoided. The defendants say they considered they had a good defence and were not obliged to mediate. Mediation is most likely to be successful where each party considers it has something material to gain from a settlement and appreciates that to achieve a settlement it will need to accept a compromise of its position. Where one litigant is confident that its position will succeed in court, it has little reason to take part in a process that would yield it a lesser result and it is not bound to do so. Indeed, to take part in a mediation in such circumstances could simply prolong the process and add to the cost.

[46] However, in [this case] at para. 97, Price J. took a different approach, saying this concerning the costs consequences of an insurer’s refusal to participate in a mediation over disputed insurance proceeds:

In cases where each of the parties has an arguable case, and each faces a risk of loss in the proceeding, mediation can offer a reasonable prospect of settlement. In such cases, a refusal to participate in mediation is a factor that the court can properly consider in determining whether the party has engaged in unreasonable conduct that has caused unnecessary costs to be incurred and that warrants rebuke by means of a costs sanction. This determination requires a case-by-case analysis. [Emphasis mine]

[47] I agree with Price J.

[48] Following the initial costs hearing, I provided counsel with the opportunity to comment on the practice that has developed in England and Wales which, while not binding on a court in Ontario, is nevertheless worthy of consideration given some the similarities in practice and procedure between the jurisdictions and, in particular, what in England and Wales is called the “overriding objective” of the rules which is to enable the court to deal with cases justly and at proportionate cost, which can be compared with the general principle in rule 1.04 of the Rules of Civil Procedure that the rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits and, that in applying the rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding.

[49] The position in England and Wales is conveniently summarised by Professor Zuckerman (Adrian Zuckerman, Zuckerman on Civil Procedure, 3ed (London): Sweet & Maxwell, 2013 at p.1335) as follows:

The court may take the view that had the parties engaged in ADR, the dispute would have settled without proceedings and therefore disallow all or some of the costs of the party who declined ADR even if that party was successful. Experience shows, as Brooke L.J. explained in [this case] at para. 14], that:

When the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live.

[50] Professor Zuckerman does, however, go on to note, again, consistent with the sentiments expressed by Price J. in [this case]:

The Court of Appeal has accepted, however, that not all disputes are suitable for mediation and that a refusal of mediation may well be justified. It was held [in] [this case] that before making an adverse costs award for a refusal to participate in mediation the court must consider whether the refusal was justified. Depriving a successful party of his costs is justified only if the unsuccessful party shows that the successful party acted unreasonably in refusing to agree to ADR. The reasonableness of ADR refusal, Dyson L.J. explained, must be judged by reference to all of the circumstance [sic.], including the following: (i) the nature of the dispute; (ii) the merits of the case (the factor that a party reasonably believes that he has a strong case is relevant to the question of whether he has acted reasonably in refusing ADR); (iii) whether other methods of settlement have been attempted; (iv) whether the costs of the ADR would be disproportionately high; (v) delay in suggesting mediation which may have the effect of delaying the trial of the action; and (vi) whether the mediation had a reasonable prospect of success. [Emphasis mine]

[51] The court in [this case] was concerned that plaintiffs should not be able to use the threat of a costs sanction to extract a settlement from defendants even when the claim was without merit.

[52] The defendant in the present case maintains the position, which it argues is consistent with the English practice and with [this case], that it genuinely believed it had a strong position on liability and, hence, that its refusal to participate in mediation was not unreasonable.

[53] I disagree. Although juries are not required to give detailed reasons, the jury in this case did provide…particulars in response to the question of whether the [Defendant] had breached its legal duty to take such care as in all the circumstances of the case was reasonable to see that [the plaintiff] was reasonably safe while on its…premises:….

[54] With the respect to the contributory negligence of [the plaintiff], the [jury also provided] particulars…

[55] Not only were these findings [sic] that it was open to the jury to make based on the evidence at trial, but more importantly, they underscore that neither side had such a strong position on liability that it would have been reasonable to decline an offer to mediate. Although, in [this case], Dyson L.J. stressed that the court should be sensitive to the fact that large organisations are vulnerable to pressure from plaintiffs who, having weak cases, invite mediation as a tactical ploy, the converse also applies. Courts should be aware that insurers, who are in the business of litigating, can, and do, take hardball positions against economically more vulnerable opponents.

[56] The present case is not one of those circumstances where a plaintiff was trying to shake down an insurer by demanding mediation of a wholly unmeritorious case. To the contrary, it is a case where the insurer took a tough and uncompromising stance. That, of course, is a defendant’s prerogative. Defendants do not have to settle. But if reasonable opportunities to mediate are spurned, that can be a relevant factor when fixing costs.

[57] It was, in my view, unreasonable for the insurer to decline mediation in this case. That should be reflected in the disposition of costs. Had a mediation occurred in 2015 or even in 2017, substantial costs would have been avoided.” [Emphasis mine]…..

Conclusions

[66] The time spent on this case was, as previously stated, significant. There is no doubt that the case was extremely well prepared.

[67] It would be churlish of the court to criticise a party for preparing too thoroughly. But, on the other hand, from a costs perspective, the party paying costs should only be responsible for indemnifying reasonable costs that are proportionate, having regard to the nature of the dispute.

[68] Accordingly, the defendant should not be required to indemnify the plaintiff for all of the time spent on jury research. And, as indicated, the hourly rates used to calculate the claim for fees need to be adjusted.

[69] Weighing these elements and the other factors discussed as best I can, without embarking upon a full scale assessment of the plaintiff’s fees, an appropriate downward adjustment to the plaintiff’s claim for $269,371 (plus H.S.T.) would be in the order of 30%, or $80,000.

[70] However, as I have also indicated, the defendant’s refusal to mediate is a relevant factor. That refusal was unreasonable. It deprived the parties of an opportunity to settle the case without the necessity for a trial.

[71] As a result, instead of adjusting the plaintiff’s claim for costs downward by $80,000, I have made the adjustment a little under $60,000 and have therefore concluded that an appropriate award of costs in this case is $210,000 plus applicable taxes.” [Emphasis mine]

Takeaways:

In the end, the defendant insurer’s refusal to mediate cost it approximately $20,000. Had the mediation resulted in a settlement, the overall savings would have likely been far in excess of that amount. Even if the mediation had not resulted in a settlement, the estimated mediation expense for both sides, mediator and lawyer fees included, would, in most cases, have been a fraction of the financial penalty for not mediating based on the court’s costs order.

In my opinion, there are two takeaways from this decision:

  • Treat all mediation as if it is mandatory

Even if mediation is not, technically, mandatory in the jurisdiction where the action is commenced, the potential costs consequences of refusing to mediate in Ontario mean that it would be wise to treat mediation as mandatory, as a practical matter.

After all,

  • In almost every dispute, the merits are always in issue and each side strongly believes in the rightness of its position, and that the other side is simply wrong. In the end, the judge or jury decides. It’s often a mixed result – but someone nominally wins or loses.
  • Other forms of ADR or settlement are not normally attempted (save for an exchange of offers, and even that is not always the case until much closer to trial).
  • The costs of mediation are rarely disproportionately high (especially if mediation is one day or less, the mediator is reasonably priced, and the parties are facing a multi-day trial – or still have months or years of discovery and then a pre-trial and trial ahead of them).
  • Delay is almost never a factor as it is difficult to conceive how a single day mediation could delay a proceeding that normally takes years to wind its way to trial.
  • Finally, pre-judging the prospect of success (if success is to be judged only by a full settlement – which is not always the case) is virtually impossible in any event: All experienced lawyers, mediators, insurance adjusters, and other professionals who are regularly involved in litigation, can attest to the settlement of cases, after some hours of mediation, which they never thought could settle when they first arrived. This is the nature of the mediation process. As well, often a case that does not settle on the day of mediation will settle soon afterwards.

In the end, I suggest that, instead of putting too much weight on the factors set out by the English Court of Appeal, the comments of Price J. of the Ontario Superior Court, with which Mew J. explicitly agreed, constitute the best reason to mediate – and why, except for the rarest of disputes, refusing to mediate is a poor litigation strategy:

“In cases where each of the parties has an arguable case, and each faces a risk of loss in the proceeding, mediation can offer a reasonable prospect of settlement.”

This is enough.

  • Mediate like you mean it

It’s all well and good to be convinced, or compelled, to attend mediation. However, it is what happens at mediation that really matters in the end, even if you escape negative costs consequences by merely attending. Mew J. took an optimistic approach to mediation and likely assumed that the parties would have put their “best feet forward” — and a skilled mediator would take care of the rest.

The reality is, especially in personal injury maters in the last few years (and especially in those jurisdictions where mediation is mandatory), that mediation is often just something to ‘get out of the way’. In this regard, I am not pointing fingers at any one side. For every defendant arriving without flexibility or someone with ultimate authority to settle, there is a plaintiff with unrealistic expectations and who serves too thin a brief, too late.

While I would not want to see mediation conduct to generally become the subject of judicial scrutiny regarding costs, for reasons of privilege and the public interest, it bears mentioning that, at a mediation, it is imperative that both sides treat it as if it were the key event in the proceeding. After all, seven-day jury trials, like in the decision discussed above, are the exception and not the norm (just like any form of hearing). Most cases settle in the end, and it is far more efficient if they settle at mediation — especially one held early in the proceeding before too much time, money and emotion have been invested so as to make settlement, in any forum, extremely difficult.

 

Does this article speak to you? Was it helpful?

The points discussed above are from a lawyer that focuses his practice on mediation. If you require a Mediator in Toronto or Southern Ontario or wish to discuss how a mediator can help you, call Mitchell Rose for details.

View the profile of this Toronto Mediator

 

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