ADR – Case law update regarding costs consequences caused by failing to engage

2020 has already been busy for cases relating to costs consequences for parties failing to engage in ADR.  It’s worth noting these for what can be the consequences, both for the ultimate paying party and in terms of the risks to costs recovery should your client be successful.

First up there is BXB v Watch Tower & Bible Tract Society of Pennsylvania and Anor [2020] EWHC 656 (BB)[1].   The Claimant succeeded against the Second Defendant and damages were later agreed at £69,500.  The Second Defendant accepted that the Claimant was entitled to indemnity costs following the expiry of a Part 36 offer the Claimant had made which was later bettered, but the Claimant wanted all of her costs paid on the indemnity basis.  A standard form direction had previously been made requiring the parties to ‘must consider’ ADR at all stages and by any means, and any party not engaging being required to serve a witness statement relating.  The Defendant advanced various seemingly good reasons why an award of indemnity costs was not appropriate, but to no avail.  Mr Justice Chamberlain commented that:

“In any event, the possibility of agreeing quantum subject to liability provides a good reason to engage in discussions even in a case where the defendant is confident about its case on liability. In this case, that would have shortened the trial and avoided some of the intrusive questioning which in the event was necessary.”

The  Claimant was awarded indemnity basis costs from the date of the Defendant’s refusal to engage with the invitation to attend a joint settlement meeting.  It is worth noting the Defendant had also failed in its obligation to file the written explanation as to why they were not engaging in mediation at any point.

Then we have DSN v Blackpool Football Club Limited [2020] EWHC 670 (QB)[2], where the Claimant was successful in bettering a Part 36 offer made.  After an unsuccessful argument from the Defendant that indemnity costs from expiry of the offer should not be awarded the court then considered the Claimant’s request for indemnity costs on a broader basis and for a longer period as a result of the Defendant’s failure to engage in ADR.  Directions had been given that included ADR provisions, the Defendant did not respond to Part 36 offers made by the Claimant, the Claimant specifically invited the Defendant to engage in settlement discussions and the Defendant responded with a statement detailing why it did not intend to engage in settlement discussions and referenced the strong defence and there being no purpose served by ADR.  Unsurprisingly, the Defendant’s reasons for failing to engage were found inadequate.

Whilst the Claimant did not recover indemnity costs for the entire case they were awarded from a month after the Order containing the ADR provisions, with the earlier costs payable on the standard basis.  This meant a further years’ worth of costs payable on the indemnity basis.

In Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd & Aviva Administration Limited [2020] EWHC 1050 (Comm)[3] the Claimant’s claim was dismissed after trial.  The Claimant argued that the First Defendant should not be awarded costs, or should be deprived of a substantial proportion of costs.  The court agreed, finding that the First Defendant “repeatedly declined and, indeed, refused to participate in mediation” both pre and post issue.

The First Defendant lost 50% of its costs for one period and lost 20% of its costs for another period as a result of their conduct.

The Second Defendant was prepared to participate in ADR, but were not prepared to do so without the participation therein of the First Defendant.  The Second Defendant’s position in relation to ADR was not found to be unreasonable, but they were still deprived of a proportion of their costs for a period as a result of other issues relating to their conduct of the case.

Comment

Indemnity costs are the predominant risk for the unsuccessful paying party, which crucially means that proportionality does not apply to the opponent’s costs they then need to pay, and the benefit of the doubt is not resolved in the paying party’s favour.  No sensible litigant would want to be facing an adverse costs award on the indemnity basis.

However, the Wales case provides a reminder that even where a case is won that conduct in terms of approach to ADR can be taken into account when it comes to whether costs relating to the action are recovered – with a party deprived of some of all of their costs.

There has been a movement in favour of ADR for some time now, which is particularly apt in the current climate.  There are many advantages of such for parties; such can be far quicker and cheaper than going through the courts.  There are many ADR options out there to choose from, such as opinions, binding/non binding decisions, mediation, joint settlement meetings, early neutral evaluation [ENE][4] and so forth.

On either side of a dispute it is worth suggesting ADR as a way forward.  It may be that the particular case needs to be further progressed before such is appropriate, but if that is applicable the best thing to do is to engage with the opposition and look toward getting to the point when ADR would be appropriate.  It is important that a response justifies the party’s position, and that a party does not make the mistakes identified in the above cases.

What not to do is ignore any requests for ADR.  Always look to respond constructively.  There may be cases where the parties are very entrenched in their position, but this should not prohibit ADR taking place.  There could always be other issues that could be narrowed by this process.  If mediation is the chosen ADR form then it is a confidential process in on-going litigation, but it is worth remembering that mediation privilege can be lost[5].

Not to be forgotten is that ADR can apply to either the substantive proceedings or costs proceedings, and with the present court delays in assessment (even before the current coronavirus position) it is always worth considering alternative settlements to disputes and we would seek to consider/advise upon the same.

 

Caroline Cousins, Costs Lawyer of A & M Bacon Limited

 

[1] https://www.bailii.org/ew/cases/EWHC/QB/2020/656.html

[2] https://www.bailii.org/ew/cases/EWHC/QB/2020/670.html

[3] https://www.bailii.org/ew/cases/EWHC/Comm/2020/1050.html

[4] See CPR 3.1(2)(m)

[5] For example, see Interactive Technology Corporation Ltd v Ferster & Ors [2015] EWHC 3895 (Ch) https://www.bailii.org/ew/cases/EWHC/Ch/2015/3895.html

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