The issue of legal costs is often high on most clients' agendas when deciding whether to litigate to resolve their dispute. Not only their own costs, but also their liability to pay the other party's costs.
General Costs Rule
The general rule in litigation is that the loser pays the winners costs. As with many rules, there are exceptions and variations. If, for example, a party offers to settle court proceedings by paying £100,000, the other party refuses that offer, wins at trial but only recovers £50,000 then that party will be penalised and the usual rule will be disapplied to a certain extent.
Costs Penalty for Refusing Mediation?
Another situation in which the usual costs rule can be disapplied is if one party wins at trial but it transpires that they have unreasonably refused an offer by the other party during proceedings to enter into a form of alternative dispute resolution (ADR), usually mediation, the voluntary process whereby a third party mediator meets with the parties and acts as a facilitator to settlement discussions. A party can win a case and then suffer a substantial penalty by having a proportion of their costs disallowed so that they cannot be recovered from the losing party.
Until recently, courts thought that they could force parties to mediate, relying on the overriding objective in the civil procedure rules and the court's obligation to deal with cases in ways proportionate to a number of factors including the amount of money involved.
This forced mediation didn't sit well with parties who felt that they were being denied their day in court and that they were being pushed into a process of dispute resolution that was supposed to be voluntary. But courts continued to compel parties to mediate.
Importance of ADR
Some litigators believed, and continue to believe that ADR is superfluous to the requirements of dispute resolution, sure that litigation is the only effective mechanism by which to resolve their client's problems. They advise their clients accordingly. In certain circumstances, not only can this be counter-productive, it can also lead to devastating costs consequences for the client. It should always be considered as a possible option.
Recent Cases
Two cases heard by the Court of Appeal in late spring 2004 have shed some light on these two issues - firstly the factors to be taken into account when deciding if a party has unreasonably refused mediation and secondly whether the courts should compel parties to take part in mediation.
In the cases of Halsey v Milton Keynes General NHS Trust and Steel v Joy and Halliday [2004] EWCA (Civ) 576 when deciding the first issue, the court gave useful guidance as to the factors it will take into account when making an award of costs where a party has refused to mediate:-
- Nature of the dispute - the court recognized that some cases are simply not suitable for ADR, for example where a question of law needs to be decided.
- Merits of the case - if a party reasonably believes that they have a watertight case, that belief may be sufficient to justify a refusal to mediate.
- Whether costs of mediation would be disproportionately high - if sums at stake are small, ADR costs can sometimes be as high as litigation.
- Extent to which other settlement avenues have been explored - if a party has made offers to settle that have been rejected, that shows the willingness to settle and may show the other party's unrealistic belief in the merits of their own case.
- Whether the delay involved by ADR would be prejudicial - if mediation is suggested close to the trial date, this may be a factor if the trial is delayed.
- Whether ADR had a reasonable prospect of success - the burden of showing it would fall on the losing party. The court commented that if the court has encouraged the parties to attempt mediation, the stronger the encouragement, the easier the losing party's job in discharging the burden
Turning to the second issue, the court found that it was its role to encourage rather than compel mediation. If a party expresses opposition to ADR, the court should explore the basis for that submission. In the forefront of their Lordship's minds was a very real possibility that compulsion would infringe Article 6 of the European Convention on Human Rights by unfairly obstructing a party's right of access to the court.
These cases are of great assistance in not only deciding whether to enter into the process of mediation but also what the court will consider in deciding who pays the legal costs and how much they will pay. The decisions do not hinder courts from encouraging parties to mediate, indeed that is now the new focus for judges and parties should be wary of refusing any offer of ADR in all but the most reasonable of circumstances with the most watertight case - although even that might not be enough to fully protect them when the issue of costs falls to be decided.
Our aim
When advising a client on a dispute we consider a variety of options so that the client can make an informed choice as to the best way of achieving a cost effective solution. Our aim is to meet your needs by adopting a commercial and pragmatic approach to problem solving using the appropriate means for the situation whether it be by taking or defending Court proceedings, negotiation, ADR or a combination.If you would like to find out about the most suitable method of dispute resolution for your commercial needs, please contact Alan Massenhove in our commercial litigation team.
Please note that this area of the law is a complex subject and you should not take or refrain from taking any step without full legal advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it or if any reliance is placed on it.
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