Pursuant to CPR 44.2, the court may exercise its discretion to order one party to a claim to pay the costs incurred by another. While the general rule is that “the unsuccessful party will be ordered to pay the costs of the successful party”, the court may depart from this if it so chooses.
When determining costs, the court will have regard to the conduct of the parties, including (but not limited to) their willingness to participate in alternative dispute resolution (ADR), and their engagement with any relevant pre-action protocol.
The Halsey principles
In Halsey v Milton Keynes General NHS Trust (Halsey), the Court of Appeal established that an unsuccessful litigant has the burden of demonstrating why the court should depart from the general rule set out in CPR 44.2. It considered the following non-exhaustive factors to be relevant to the court’s assessment of the parties’ conduct and, in particular, whether a party has unreasonably refused to engage in ADR (having regard to all the circumstances of the case):
- The nature of the dispute.
- The merits of the case.
- The extent to which other settlement methods had been attempted.
- Whether the costs of ADR would be disproportionately high.
- Whether any delay in setting up and attending the ADR would have been prejudicial.
- Whether the ADR had a reasonable prospect of success.
- Whether a party has refused to enter into ADR despite the court’s encouragement.
16 years on, the principles established in Halsey continue to resonate.
The need to engage from the outset
In Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd and another, the court ruled against the claimant, who had sought damages arising from the defendant’s decision to move its employees to a new pensions platform and, in so doing, dispense with the claimant’s services.
Despite the claim being unsuccessful, the claimant argued that the defendant should not be entitled to recover its costs or, at least, should be deprived of a substantial proportion of them.
The claimant had sent a letter of claim to the defendant on 29 June 2016, which confirmed their willingness to mediate. The court found that the defendant’s unreasonable refusal to engage with those ADR proposals “meant that the parties were denied the opportunity to fully canvass and engage with the underlying issues”, and that, had they been willing, “there would in all likelihood have been a… mediation in which all the material issues were properly considered and addressed”.
While the defendant subsequently made a subject to contract settlement offer in February 2019 (almost three years after the claimant had advanced its initial ADR proposal), its limited and delayed engagement in ADR cost it dearly. The court disallowed 50% of the defendant’s costs from 11 November 2016 (the date it confirmed that it would not take part in ADR) up to 14 February 2019 (the date of its offer). It further penalised the defendant for refusing to engage with a subsequent request for mediation advanced by the claimant in June 2019.
In making its ruling by reference to Halsey, the court found that the claimant “did not bring the claim as a tactical ploy to buy off the cost of a mediation and, to the extent that [the defendant] encouraged his sense of grievance by failing to engage properly with the pre-action correspondence, it brought the litigation on itself”.
The court’s ruling, among other things, serves as a reminder of the importance of complying with pre-action protocols, of which ADR is a fundamental aspect. It also reinforces the Halsey principle that any delay in engaging in ADR may carry a heavy price.
Over-emphasis on the merits of the case
The court’s ruling in DSN v Blackpool Football Club Ltd shows the danger of parties unreasonably relying upon the perceived strength of their own case as justification for refusing to engage in ADR. As we explain above, a party’s reasonable belief in the merits of its case was recognised in Halsey as being relevant to the court’s assessment of its conduct.
In DSN, the question was not whether costs should be awarded, but rather whether the successful claimant was entitled to recover its costs on an indemnity basis. During the proceedings, the defendant had failed to respond to three Part 36 offers and repeatedly rejected mediation proposals on the basis that it “continue[d] to believe that it ha[d] a strong defence”.
Ruling in the claimant’s favour, the judge stated that:
“… [n]o defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded.”
The court applied a similar approach in BXB v Watch Tower and Bible Tract Society of Pennsylvania and others. As with DSN, the successful claimant was awarded its costs on the indemnity basis, following the defendant’s refusal to mediate. Significantly, in both of these cases, the court had issued an Ungley order explicitly directing the parties to consider ADR, and to file evidence to justify any objections that they had to engaging in ADR, for consideration on the question of costs after trial. As explained above, a party’s refusal to engage in ADR in spite of the court’s encouragement that they do so is of relevance to the court’s assessment of a party’s conduct on the issue of costs.
This recent flurry of cases serves as a reminder of the continuing relevance of the principles established in Halsey and, in particular, the court’s willingness to penalise in costs those parties who unreasonably refuse to engage in ADR, regardless of whether they are the “winner” or “loser” of the claim. While the Halsey principles do not compel participation in ADR, litigants should always give careful thought as to the benefits of any such proposals. If a party wishes to decline an offer to engage in ADR, it should have good grounds for doing so.
It seems likely that these issues will rise to the fore with increasing regularity. In any event, these cases highlight the importance of commercial and pragmatic analysis when assessing the potential benefits of ADR in the round, both at the outset of the matter and during the course of proceedings.