Virani Ltd v Manuel Revert y CIA SA

[2003] EWCA Civ 1651 (Court of Appeal)

When the defendant refuses the offer of court mediation

Facts

This concerned a contract between two large textile buyers for the purchase of 350,000 metres of cloth. The defendant buyer subsequently refused to take delivery and eventually had judgment entered against him. The claimants sued for the difference between the contract price and the price they had been able to obtain in mitigation of the loss, through sale to a third party. The claimant’s practice was to protect itself against fluctuations in the currency market by forward buying US dollars in exchange contracts. The claimants claimed the damages in US dollars.

In granting leave to appeal to the Court of Appeal, the single Lord Justice expressly offered the court mediation service. The defendant refused to take it up or to negotiate.

Issues

Whether the damages should be assessed in US Dollars or Euros, as contended for by the defendant. Whether the claimant was entitled to its costs on the indemnity basis due to the defendant’s refusal to enter into mediation.

Decision

The Court of Appeal (Ward LJ, Tuckey LJ, Lightman J) held that the damages were to be in US Dollars – such was the overwhelming inference to be drawn from the evidence. It would have reasonably been in the anticipation of both parties. The defendant’s failure to enter into mediation despite it being offered attracted an award of costs to the claimant on the indemnity basis.

Comment

This is a major decision showing the adverse effect of a refusal to mediate on a losing party and the benefit to a successful party. In practice the difference between costs assessed on the standard basis and costs assessed on the indemnity basis can be considerable.

The significance of what may happen in the event of there being an unreasonable refusal to mediate should be kept in perspective. For instance, the worst that can happen to a successful party on the merits that unreasonably refuses to mediate is not to be awarded costs against the unsuccessful party and hence to pay its own costs. Those costs may be substantial in major litigation. There is, however, no reported case in England of a successful party on the merits being ordered to pay the costs of the losing party.

The flexible discretion of the courts on the question of costs and the importance attached to the benefits of ADR, has led to the example of this case, which shows that a party who loses a case on the merits, and who additionally has unreasonably declined to mediate, can end up paying a significantly greater sum of costs (by reason of them being assessed on the indemnity basis which is more sympathetic to the claiming party).