Costs Penalty Applied For Silence In The Face Of An Invitation To Mediate | Court Of Appeal Decision

Northamber plc v Genee World Limited and others [2024] EWCA Civ 428 arose from a distribution and exclusivity agreement between Northamber, an IT equipment distributor, and Genee World Limited, an importer of audio/visual displays. In July 2017, they entered into an agreement making Northamber the sole source of Genee’s UK products, subject to some limited exceptions.

In 2018, Northamber became aware Genee was breaching the agreement. Proceedings were commenced in August 2018 by Northamber against Genee for breach of the exclusivity agreement, and against Ranjit Singh (Genee’s director) and Interactive Educational Solutions Limited (IES) for inducing breach of contract and unlawful means conspiracy.

Chronology of Relevant Events

• September 2018: Northamber obtained an injunction restraining Genee from supplying its goods in breach of the exclusivity agreement.
• November 2018: Genee entered creditors’ voluntary liquidation.
• January 2019: Northamber obtained judgment against Genee for breach of the agreement and interim payment orders. Genee’s liquidators later accepted Northamber’s proof of debt.
• January 2020: Mr Singh was found in contempt for Genee’s failure to comply with court orders and fined.

Following a trial in October 2022, the judge held that Genee had breached the exclusivity agreement, IES had not induced the breaches, and Mr Singh was liable for inducing breaches only after the September 2018 injunction.

The judge ordered Mr Singh to pay 70% of Northamber’s costs and Northamber to pay 80% of IES’s costs.

Appeal

Northamber’s Grounds of Appeal (on costs)

5. The judge’s costs orders failed to adequately reflect Mr Singh’s and IES’s unreasonable failure to engage in mediation.

• • In February 2022, Northamber sent a letter to Mr Singh and IES inviting them to mediate and reminding them of a prior court order requiring parties to consider ADR. Mr Singh and IES did not respond or provide witness statements explaining their refusal, in breach of the court order.
  • Northamber argued the judge erred in effectively imposing no sanction for the defendants’ unreasonable conduct in this regard. The judge should have held their silence in the face of Northamber’s offer was itself unreasonable, compounded by their breach of the ADR order.
  • Northamber contended the judge’s reasoning ignored key points, wrongly put the onus on Northamber to chase the defendants for a response, and failed to properly account for the defendants’ breach of the ADR order.
  • Northamber submitted that Mr Singh’s liability for its costs should be increased from 70% to 100% to reflect his conduct.

The judge’s decision on failure to mediate:

“25. … I have no evidence before me that the claimant ever chased either the second or third defendant’s solicitors for a reply. I would describe the letter of 16 February 2022 appearing as it did after very considerable costs had been incurred and a long way through the litigation as a half-hearted attempt – if indeed it was an attempt at all – by the claimant to suggest a mediation, enabling the claimant to say at the end of the trial, as it does, that it had suggested mediation but without any expectation that there would be a mediation, but it did not follow it up at all when the second [and third] defendant’s solicitors did not reply.

26. I do take into account the fact that no witness statement has been provided which explains why the second [and third] defendant did not engage in mediation and that there was a direction of DJ Rouine that they should do so.”

The other grounds of appeal, while not specifically costs grounds, were relevant to costs as follows:

1. If IES was liable for inducing Genee’s breaches (as the Court of Appeal found), this would impact the costs orders as between IES and Northamber. The Court held the judge’s order that Northamber pay 80% of IES’s costs would need to be reconsidered.
2. & 4. The extent of Mr Singh’s liability for inducing breaches and the quantum of damages against Genee were relevant to the amount of any adverse costs orders against Mr Singh.

Mr Singh’s Grounds of Appeal

2. Mr Singh argued the judge’s findings on inducement for the period after the September 2018 injunction were unjust because Northamber had not pleaded that Mr Singh acted in bad faith / outside his authority. This was relevant to whether those findings could justify the judge’s costs order against Mr Singh. (The Court of Appeal rejected this, holding the procedural point was waived before the judge.)

Judge’s Findings

In allowing the substantive appeal in part, Lord Justice Arnold found that IES had induced Genee’s breaches, as its involvement went beyond mere facilitation and amounted to active participation. The Court also found that Mr Singh’s conduct in causing Genee to breach the injunction was a serious breach of his duties as a director, depriving him of the protection of the ‘Said v Butt’ rule.

In relation to costs, he held that the judge below fell into error in relation to the costs orders by ignoring key points about the defendants’ failure to respond to an offer to mediate and breach of the ADR order:

“Northamber contends that this reasoning amounts to an error of principle. It is almost 20 years since this Court held in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002 that an unreasonable refusal to participate in alternative dispute resolution constitutes a form of unreasonable litigation conduct to which the court may properly respond by applying a costs sanction. It is over 10 years since this Court held in PGF II SA v OMFS 1 Ltd [2013] EWCA Civ 1288, [2014] 1 WLR 1386 that silence in the face of an invitation to participate in mediate [sic] is, as a general rule, of itself unreasonable even if a refusal might have been justified by the identification of reasonable grounds. Furthermore, in the present case, DJ Rouine’s order required both Mr Singh and IES to explain their reasons for refusing to mediate, but neither did so. In those circumstances Northamber contends that the judge should have held that Mr Singh’s and IES’s silence in response to its offer to mediate was unreasonable conduct and that this should have been reflected in the judge’s costs order.” [103]

“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 judge’s reasoning ignores these points. The facts that the litigation had been underway for a long time by 14 February 2022 and that substantial costs had already been incurred were certainly relevant to the exercise of the court’s discretion as to how to respond to Mr Singh’s and IES’s conduct, but the litigation continued for more than eight months after that, including a nine-day trial, and substantial further costs were incurred which could have been avoided by a successful mediation. The judge seems to have considered that the onus lay on Northamber to chase Mr Singh and IES for a response, but I do not see why that should be so. They made a clear offer to mediate and reminded Mr Singh and IES of DJ Rouine’s order. After that, the ball was in Mr Singh’s and IES’s court. That was particularly so in the case of IES given that its solicitors said that they were taking instructions, but did not reply substantively. Northamber was entitled to assume that a chasing letter would not have met with a positive response. Nor do I see why the offer to mediate should be castigated as “half-hearted”, particularly in the absence of any reasons whatsoever from Mr Singh and IES explaining their refusal to mediate. Finally, although the judge stated that he was taking the breach of DJ Rouine’s order into account, in reality he did the opposite.” [105]

“The more difficult question is how Mr Singh’s and IES’s conduct should properly 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]

“Given that the costs order in respect of Northamber’s claim against IES must reconsidered anyway, I shall confine attention at this stage to the judge’s order that Mr Singh pay 70% of Northamber’s costs of the claim against him. He reached this decision taking into account the extent of Northamber’s success, the extent to which costs had been incurred on issues where Northamber had succeeded and Mr Singh’s conduct. Northamber contends that Mr Singh should be ordered to pay 100% of its costs. In my judgment this cannot possibly be justified by Mr Singh’s failure to respond to Northamber’s offer to mediate. Equally, however, I do not think that it would be right to impose no sanction at all for Mr Singh’s conduct. I consider that the correct response would be to impose a modest, but not insignificant, costs penalty by increasing Northamber’s costs recovery by an additional 5% to 75%.” [107]