Can Conduct Relating To A Mediation Lead To A Higher Costs Award?

In Ross v. Bacchus, the Ontario Court of Appeal recently set aside an order of the trial judge awarding a higher level of costs because of the defendant’s conduct at the mediation. This decision emphasizes that, absent proof of bad faith, courts will be reluctant, at least in Ontario, to impose costs awards relating to the conduct of parties during settlement discussions.

The decision also opens up interesting questions about how participation in mediation and settlement discussion may be proven and how a standing offer to settle affects the court’s decision about the reasonableness of a party’s conduct at mediation.


In a personal injury case arising from a traffic accident, the jury awarded the plaintiff $248,000 and the judge ordered costs in favour of the plaintiff in the amount of $217,000. That costs award included $60,000 because the trial judge found that the defendant’s insurer had failed to attempt to settle the claim as expeditiously as possible, and had refused to participate in the mediation of the claim, as required by sections 258.5 and 258.6 of the Ontario Insurance Act. Those sections provide that a trial judge can take the insurer’s failure to perform those obligations into consideration when awarding costs.

The action was started in September 2010. The defendant’s insurer offered to settle for $40,000 in August 2011 and withdrew the offer in March 2012. About three weeks before the trial in November 2013, the plaintiff offered to settle for $94,065 plus prejudgment interest and costs and, for the first time, offered to participate in mediation. The defendant then offered to settle for $30,000 plus interest and costs and to participate in a half-day mediation, but counsel for the defendant stated that the insurers were “not interested” in settling the case. The plaintiff responded with an offer to settle for $79,065 plus prejudgment interest and costs.

A half-day mediation occurred four days before trial. After the six day trial and the jury’s award of $248,000, the trial judge ordered costs in favour of the plaintiff on a partial indemnity basis up to the plaintiff’s pre-trial offer and substantial indemnity costs after that offer. The trial judge awarded an additional $60,000 in costs in favour of the plaintiff by reason of the failure of the defendant’s insurer to comply with sections 258.5(5) and 258.6(2) of the Ontario Insurance Act.

Four points emerge from the Court of Appeal’s decision over-turning the judgment of the trial judge:

  1. The statement by the defendant’s counsel before the mediation that the defendant’s insurer was “not interested in settlement” was not a sufficient basis to conclude that the insurer would not make a bona fide effort to settle at the mediation. Effectively, the Court of Appeal said that posturing of that sort is part of the litigation and settlement process:

“An insurer’s statement on the eve of trial that it is not prepared to settle a claim cannot be equated with an insurer’s failure to “attempt to settle the claim as expeditiously as possible.” Nor can an insurer who actually participates in a mediation be declared to have failed to participate simply because the insurer indicated prior to the mediation that it was not prepared to settle the claim. A clear statement of the insurer’s position going into the mediation, even a strong statement, does not preclude meaningful participation in a mediation….. The trial judge assumed that because the insurer’s counsel advised that his client was “not interested” in settling the case, the insurer’s subsequent participation in the mediation was “a sham.” The assumption was unwarranted. A firm position strongly put going into mediation does not preclude meaningful participation in the mediation.”

  1. The plaintiff did not tender any evidence that the defendant had not participated meaningfully in the mediation. In writing for the court, Justice Doherty ducked the question as to whether evidence about the conduct of the mediation would have been admissible. He said that this question “raises an interesting legal issue. I need not get into that issue.” Rather, the court held that the plaintiff’s position failed because there was no evidence on the issue:

“If the respondent wanted costs for the insurer’s failure to participate in the mediation, it was incumbent on the respondent to lead evidence establishing the failure to participate in the mediation. Had the respondent attempted to do so, the question of the impact of the settlement privilege on the admissibility of evidence relevant to the insurer’s participation in the mediation may have come front and centre. On this record, the trial judge’s finding that the insurer did not participate in the mediation fails, not because the settlement privilege cloaks the mediation in confidentiality, but because the factual finding of the trial judge has no support in the evidence.”

  1. The fact that the defendant’s insurer had made offers to settle which was of considerable importance to the Court of Appeal. It referred to this fact several times in its judgment:

“There is no evidence that the appellant’s insurer failed to attempt to settle this claim as expeditiously as possible. The appellant made an “all-in” offer to settle for $40,000 in August 2011, less than one year after the action was commenced……. In any event, the insurer had made a settlement offer which was not revoked before trial…..

  1. The Court of Appeal held that the trial judge’s finding about the insurer’s motivation in rejecting the plaintiff’s offer and proceeding to trial were unsupported and irrelevant:

“…the trial judge was also influenced by what he saw as the insurer’s attempt to intimidate the respondent by refusing to make a counteroffer after the respondent’s last offer. The trial judge described the insurer as risking a trial for the sake of $50,000, the difference between the two offers…..Insurers, like any other defendant, are entitled to take cases to trial. When an insurer rejects a plaintiff’s offer and proceeds to trial, the insurer risks both a higher damage award at trial and the imposition of substantial indemnity costs after the date of the rejected offer. Both risks came to pass in this case. The insurer paid a significant financial penalty for its decision to proceed to trial. The costs provisions in ss. 258.5 and 258.6 do not address those risks, but instead address the failure to meet the specific obligations identified in those provisions. The trial judge’s assumptions about the insurer’s motivation for rejecting the respondent’s offer and proceeding to trial had no relevance to the determination of whether augmented costs should be awarded under the Insurance Act provisions.”


A number of lessons can be learned from this decision.

The first lesson is that a standing offer to settle can be powerful evidence of a bona fide intention to settle. So parties to litigation are well advised to make the best offer they can, if for no other reason than to avoid an order of costs based upon an unreasonable refusal to discuss settlement.

The second lesson is that it requires evidence to establish that a party has failed or refused to participate in mediation. This lesson may ultimately require a court to decide whether the conduct of a party at the mediation is admissible in evidence. It seems unlikely that such evidence will be admissible. Section 9 of the Ontario Commercial Mediation Act, 2010 states that mediations are confidential, unless the parties otherwise agree. The recent decision of the Supreme Court of Canada in Bombardier v Union Carbide emphasized the confidential nature of mediation, although it did find that, if a settlement is alleged to have been made during mediation, that fact can normally be proven.

The Bombardier v. Union Carbide case opens up the question of whether evidence of a total failure to mediate would be admissible. Say, the defendant attends the mediation with its insurer, and the insurer announces to the mediator: “We’re here but we decline to make or respond to any offer by the plaintiff or to engage in settlement discussions.” Would those facts be admission in evidence? There seems to be a powerful argument that they would be, and that the settlement privilege should not apply to a refusal to participate in settlement discussions. The mere fact that this conduct occurred in the mediation room rather than before the parties came to that room does not logically seem to make that conduct part of the mediation and preclude it from being proven. Rather, it would appear to be conduct which “preclude[s] meaningful participation in a mediation” as referred to by the Court of Appeal.

However, it seems unlikely that evidence about the conduct of a mediation itself, if a real mediation does commence, will be admissible in evidence. Accordingly, if a party does actually participate in mediation, it will be difficult to prove that it failed to do so in a bona fide manner, especially if it has made an offer to settle which was open until trial.

While this decision arose in the context of sections 285.5 and 285.6 of the Ontario Insurance Act, these issues could arise in any litigation or arbitration in which a party’s failure to make reasonable efforts to settle is an issue and, as a result, a higher amount of costs is sought by the other party.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 11, part 13(d).

Ross v. Bacchus, 2015 ONCA 347

Alternate Dispute Resolution – mediation – offer to settle – costs- insurance

Thomas G. Heintzman O.C., Q.C., FCIArb                                                   November 8, 2015

English Courts Enforce An Obligation To Mediate And Negotiate

The articles on this site have often alerted the readers to the hidden dangers of mediation and negotiation clauses in construction contracts. The principle danger is that these sorts of clauses may be unenforceable, for two reasons.

The wording of the particular clause may be drafted in such a way as to create no enforceable agreement to mediate or negotiate.

Or the court may hold that an obligation to negotiate or mediate is too indefinite to enforce as a contractual obligation.

Two recent English decisions hold out the prospect that a clause in an existing contract requiring the parties to mediate or negotiate may be enforceable, at least for some purposes.

In Emirates Trading Agency LLC v Prime Mineral Exports Private Limited, the contract between the parties stated as follows:

“11.1 In case of any dispute or claim arising out of or in connection with or under this LTC … the Parties shall first seek to resolve the dispute or claim by friendly discussion….. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration.

11.2 All disputes arising out of or in connection with this LTC shall be finally resolved by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (“ICC”)….

The arbitrators held that clause 11.1 did not contain an enforceable obligation but that if it did, it had been complied with – and that the tribunal therefore had jurisdiction.

Mr. Justice Teare of the English High Court held that the obligation to undertake “friendly discussions” was enforceable. He held that friendly discussions to resolve the claim were “a condition precedent to the right to refer a claim to arbitration.” The clause did not require that those discussions continue for four weeks but that a period of four weeks must elapse from the commencement of friendly discussions before arbitration could be commenced.

Justice Tear distinguished other English cases which have held that an obligation to negotiate is not enforceable. He distinguished the leading English case holding that an agreement to negotiate is not enforceable – Walford v Miles, [1992] 2 AC 128 – on the basis that in that case there was no existing contract with an obligation to negotiate in it. In the present case, the obligation to undertake friendly discussions was in the parties’ binding and enforceable contract. He distinguished SulAmerica v Enesa Engenharis [2012] 1 Lloyd’s Reports 671on the basis that in that case, the obligation was to mediate, not have friendly discussions. In Justice Teare’s view, an obligation to mediate could well be unenforceable if the parties were unable to agree on the identity of the mediator or the mediation process. But he could see no good reason why an obligation in an existing contract to have friendly discussions before arbitration was not enforceable. He summarized his views as follows:

“The agreement is not incomplete; no term is missing. Nor is it uncertain; an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacks certainty. In the context of a dispute resolution clause pursuant to which the parties have voluntarily accepted a restriction upon their freedom not to negotiate it is not appropriate to suggest that the obligation is inconsistent with the position of a negotiating party. Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time consuming arbitration.”

On the facts, he agreed with the arbitrator that such discussions had occurred.

In Garritt-Critchley v Ronnan, the English High court ordered the defendants to pay costs on an indemnity basis when the defendant accepted the claimants’ offer to settle during trial, but the defendant had failed to engage in mediation after repeated offers by the clamant to mediate during the action.

The four day trial took place in January, 2014. After the trial concluded and while judgment was reserved, the defendants sought the claimants’ agreement to accept out of time the claimants’ pre-trial offer to pay £10,000 and all of the claimants’ costs.

The claimants submitted that the court should order costs payable on a full indemnity basis, instead of the standard scale of costs. The court held that the action was based on questions of fact involving credibility and expert evidence and was a “classic matter” for mediation or negotiation. It described the action as follows:

“This was an action of a fairly typical kind where the allegation was whether a binding agreement had been made or not…. this was essentially a question of fact applying well-known contractual principles, in relation to a contract which did not itself require to be in writing. It therefore, was a very fact intensive and evidence intensive exercise where the court would have to judge the credibility of their witnesses and look at the importance or otherwise of contemporaneous documents and the commercial sense or otherwise of each side’s case. That is classically a case where both parties needed to engage in a risk analysis as to whether their side of the coin would be accepted or not…..The second aspect of this claim was that there was an obvious sliding scale of a compensatory award if the claimants succeeded. This was not an all or nothing case on quantum where the parties would have to agree that if liability was established the obvious amount of damages would be X. This was a case where the services of an expert, therefore a matter of opinion, was required, in order to see what the range of awards would be and as was apparent to me in the course of the trial and the points being taken, the range was really very considerable indeed…. That again is a classic matter where mediation should be considered because there is ample room for manoeuvre within the wide range of possible quantum scenarios.”

The defendants submitted two reasons why it had been justified in not mediating, both of which were rejected by the court.

First, the defendants said they reasonably believed that no settlement agreement would be reached. The court said that it was not “realistic for someone in the position of Mr. Ronnan to say that all the odds are so stacked in his favour that there is really no conceivable point in talking about settlement.” Moreover, “if that had been his view then it is surprising that no application for summary judgment was ever made, which it was not. Of course the reason why it was not is because there was evidence going both sides: both sides were relying on documents and the inferences which could or could not be reasonably drawn there from. So to say “extreme confidence”, does not, in my judgment, seem to be a reasonable position to take.”

Second, the court rejected the proposition that the “considerable dislike and mistrust between the parties” was such that mediation was bound to fail. The claimants had been willing to mediate from the beginning, and acrimony is just the sort of barrier to settlement that a skilled mediator can overcome.


Canadian courts have not yet determined whether an obligation to mediate or negotiate is enforceable. When they do, the decision in Emirates Trading will be useful to consider on three points whether the obligation should be enforced. According to the decision in this case, the obligation to mediate or negotiate should be enforced if:

1. The agreement is in an existing and enforceable contract;

2. The obligation is stated in common sense terms that a layman can understand; and

3. The obligation contains a reasonable time period during which it may be carried out,        not in the sense that the parties are bound to negotiate throughout that period, but that the period provides them with an opportunity to do so and comes to an end after a defined period so that the parties and the court may know that the period has come to an end.

The decision in Garritt-Critchley is significant for any jurisdiction, like most common law provinces and territories in Canada, which has a loser pay rule in which the court has a discretion to set a higher or lower cost order depending on the parties’ conduct. Under such a rule, the Garritt-Critchley decision says that, in setting the costs to be paid at the end of the proceeding, the court may take into account a party’s failure to negotiate or mediate, in the following circumstances:

  1. The nature of the dispute is such that there was no good reason not to negotiate;
  1. A party’s view that it had a very high probability of winning is no good reason not to negotiate, particularly if that party has not brought a summary judgment motion;
  1. An atmosphere of ill will between the parties or their counsel will not be a reason not to mediate.

Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2014

Garritt-Critchley v Ronnan [2014] EWHC 1774 (Ch)

Mediation – Negotiation – Enforceability – Costs – Limitation Periods – Certainty of Contract

Thomas G. Heintzman O.C., Q.C., FCIArb                                                           July 28, 2014