Irish High Court imposes a costs penalty for solicitors' failure to comply with section 14 Mediation Act 2017 obligation to advise about mediation.

Irish High Court imposes a costs penalty for failure to comply with the section 14 Mediation Act statutory duty of solicitors to advise clients about the advantages and benefits of mediation before commencing legal proceedings - Byrne v. Arnold [2024] IEHC 308 .

An interesting decision on the costs implications of failing to comply with what were described by Mr Justice Kennedy of the Irish High Court as the "not unreasonable or burdensome" obligations of a solicitor under section 14 of the Mediation Act 2017 to advise a client about the advantages and benefits of mediation before commencing legal proceedings was delivered by Mr Justice Kennedy last week in the High Court in the case of Byrne v. Arnold [2024] IEHC 308 .

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A 5% penalty.

Kennedy J directed that the Plaintiffs suffer a 5% penalty in terms of recoverable costs in that they would only be entitled to recover 95% of party and party costs, because of the failure of the Plaintiffs’ solicitors to comply with the statutory section 14 Mediation Act 2017 requirement to advise the client before commencing proceedings about the advantages and benefits of mediation.

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Filing of a Statutory Declaration as to advices.

Kennedy J also highlighted the fact that:

"a plaintiff's solicitor must advise the client to consider mediation. The statutory duty is to explain the option, facilitating an informed decision by the client, allowing them to consider alternatives to litigation…".

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Prohibition on a court dealing with proceedings in the absence of the declaration.

He also pointed out that unless and until such time as the required statutory declaration by the solicitor as to having so advised is filed, the court cannot proceed to deal with the proceedings. Kennedy J pointed out that the 2017 Act:

"obliges the Court to adjourn proceedings in the event of any failure to meet the requirement. In order to comply with the statutory requirement without subjecting the parties to the delay and expense involved in a wasted hearing (including a costs order at the Plaintiffs’ expense as the party in default), I rose to allow the advices to be provided in accordance with section 14 (but litigants should note that the courts will not necessarily extend such latitude in future if such situations were to recur)."

While in this particular case Kennedy J rose for long enough to allow for section 14 to be complied with and the statutory declaration to be filed, he specifically stated that:

"if such a failure to comply with section 14 were to occur in future, the Court may adjourn a hearing (at the Plaintiffs’ expense) and stay the proceedings until the obligations had been discharged. Significant cost sanctions will be likely in any event."

He also warned that:

"Courts may be less lenient in future".

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Clients making informed decisions.

As to section 14 advices enabling clients to make informed decisions Kennedy J stated that:

"Section 14 protects clients by ensuring that they are fully informed as to options which may, inter alia, reduce their exposure to cost and risk. The provision also advances the public interest, discouraging unnecessary recourse to the courts (and legal expense) and promoting alternatives which may lead to outcomes which can be in the interests of all parties. The provision thus facilitates the earlier, cheaper, resolution of disputes. The public interest is demonstrated by the fact that the Oireachtas has imposed the extraordinary requirement of a statutory declaration by the Plaintiff’s solicitor confirming compliance and the stipulation that litigation subject to the provision (i.e. most civil claims) cannot proceed without the declaration."

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Urgency not excusing failure.

Kennedy J also stated that he did not accept that urgency could ever justify default stating that even in the injunction scenarios such as in the particular case, "the advice should be given at the earliest opportunity".

The suggestion of possible futility of offering mediation also rejected.

Kennedy J also rejected the plaintiff's argument that an offer to mediate might not have been accepted and in particular case would have been rebuffed. He stated:

"the chances of the parties actually engaging at that point may have been low. However, the chances were not zero. Even if there was a 5% chance of such engagement at the outset, then the Plaintiffs should have been encouraged to at least consider an option which, if successfully pursued, could offer significant benefits for the parties and for the Courts, prior to significant costs being incurred. Secondly, there is a benefit to providing such advice at the outset. Even if the time is not right at that point for the plaintiff to propose mediation or for the defendant to engage, a seed is planted. Most cases eventually settle before trial – even if the suggestion of negotiation or mediation at an early stage does not bear fruit immediately it may ultimately help the parties engage sooner than would otherwise be the case."

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A comment on reluctance to propose mediation.

Kelly J also made an interesting comment about the statutory provision overcoming possible reluctance of parties to "show weakness" by proposing mediation. He said:

"In my view, sophisticated litigators are less inclined to consider a nuanced willingness to negotiate or mediate as a sign of weakness. If all parties refused to make the first move, then no dispute would ever settle. However, if there is any such nervousness, then section 14 offers an ideal basis for an overture which can legitimately be presented as compliance with statutory and professional requirements. This should counter any such sensitivity.”

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A comment on the timing of mediation.

Kennedy J also had interesting comments to make about the timing of mediation when he said:

"In any case, there will always be “known unknowns”, which can influence the timing of any negotiation or mediation. Sometimes, in order to assess their legal position, parties may genuinely need to await the close of pleadings, the exchange of discovery or of witness statements or expert reports, the opening of the case or the cross examination of each side’s witnesses. Such points may or may not be legitimate reasons to refrain from prematurely committing to mediation in particular cases or at particular points. IEGP Management CLG v Cosgrave [2023] IECA 128 is an example of a case in which mediation was deemed premature or inappropriate at a particular point. Whether mediation is premature will depend on the circumstances, but it would be wrong to rule out negotiations or mediations early in proceedings solely because the parties have only limited visibility of their strengths and weaknesses. That could be said in almost every case. The counterargument is that rejecting or delaying opportunities to negotiate or mediate could also have unpredictable costs, risks and adverse consequences. Most negotiated settlements involve a leap in the dark to some degree. Litigants, like businesspeople, must sometimes reach a decision based on the best available information, knowing that the outcome at trial could be better (or worse) but that there are also costs and risks associated with delaying such engagement. In some cases - but perhaps not as many as might be thought - waiting for more information may be prudent. The essential dynamic is that earlier negotiations offer greater potential cost savings, but each side may be less informed as to the merits (and their position may improve – or disimprove – if they delay in engaging). Other factors may affect the optimum timing in particular situations. Clients and lawyers must balance such competing factors when deciding whether and when to mediate. However, even if mediation would be premature, the Plaintiff’s solicitors must still comply with section 14."

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Obligations to fully inform the court.

As to the Plaintiff's argument that a previous Order as to directions (O'Moore J) had not referenced the 2017 Act obligations and requirements, Kennedy J responded stating that the High court's directions could not be:

"taken as excusing the breach of section 14. The Court was dealing with the busy Chancery List and concerned with the immediate interim application. There is no suggestion that its attention was drawn to the breach of section 14 (although, if the Plaintiffs’ legal team had themselves been aware of the issue, then they would have been bound to draw the Court’s attention to the issue). The fact that the issue was not identified earlier in the proceedings is the Plaintiffs’ responsibility and does not excuse the noncompliance. Indeed, such a submission is inconsistent with the terms of section 14. If the issue had been raised, the Court would have insisted on immediate compliance before the matter progressed. It would have had no jurisdiction to do otherwise."

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Kennedy J stated clearly that:

"I consider that the Courts should take some account of a material breach of section 14 and that I should thus have regard to the failure to comply with the statutory precondition to issuing proceedings, a provision introduced as a public interest measure to avoid unnecessary litigation and to avoid unnecessary recourse to the courts. Such a default is a relevant consideration when exercising the statutory discretion as to costs. I am entitled to have regard to the breach of the legislation either in the exercise of the Court’s inherent jurisdiction or as an element of Section 169(a) (conduct before and during the proceedings) or (c) (the manner in which the parties conducted all or any part of their cases). I consider that the situation in this case is similar to the Word Perfect scenario, in which Twomey J. concluded that, although s. 169(1)(g) did not apply, the Court could take into account the party’s conduct before and during the proceedings pursuant to ss. 169(1)(a) and (c) of the 2015 Act."

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Calculating the costs penalty.

Kennedy J specifically stated that he had contemplated a 15% penalty but decided on this occasion, in the particular circumstances of this case, to limit the penalty to 5%. However, he specifically warned that: "Courts may be less lenient in future".

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Encouragement to consider mediation.

Kennedy J concluded his judgement with the following wise words:

“Finally, to return to the subject of mediation, I would still encourage the parties in this case to consider mediation or negotiation. Without ascribing blame to either side, it seems to me that the current lack of engagement may be partly due to a mutual misunderstanding of each side’s position, with megaphone diplomacy shedding more heat than light. While I make no direction, I do consider that each side and their advisors would be wise to reflect at this stage on the possibility of a mediation or similar process (without preconditions) before even more significant costs are incurred.

Indeed, in most disputes, prudent litigants - plaintiffs or defendants - and their advisors, will reflect upon the alternatives before proceedings are issued. This is particularly important in family, business and partnership disputes, but it is always wise for parties and their advisors to consider the alternatives before assuming the costs and risks of litigation. Section 14 simply underscores the importance of good professional practice in this regard.”