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Recent decisions on the costs consequences of refusing to enter into ADR

In February this year, the High Court overturned the decision of Master James in Briggs v First Choice Holidays and Flights. The case had been seen by many as a high point for paying parties in achieving significant costs reductions as a result of a failure to engage in alternative dispute resolution. In brief:

  • The case was concerned with group litigation brought by over 500 claimants for damages arising from illness suffered during holidays in Turkey.
  •  At first instance, Master James was determining a number of preliminary issues that had arisen for determination in the detailed assessment proceedings. In their points of dispute, the defendant had asserted that the claimants should have used the Association of British Travel Agents (ABTA) mediation scheme rather than litigating. The costs judge agreed and limited the claimant’s costs to those that would have been incurred had the ABTA scheme been used.
  • On appeal, Singh J overturned Master James’ decision on two bases. First, because the effect of the Master’s order was to undermine the costs order that the claimants had in their favour, it was caught by the principle established in Lahey v Pirelli Tyres. Second, and more importantly for our purposes, it was overturned because the judge held that the master had gone too far in reducing costs where no offer of alternative dispute resolution (ADR) had been made by the defendants. Singh J held that the position had not yet been reached where the mere presence of ADR meant that it was not reasonable to litigate.

It would seem, therefore, that we are back to the position as set out by the Court of Appeal:

  • Silence in the face of an offer to mediate amounts to unreasonable conduct, which merits a costs sanction (absent exceptional circumstances), even in cases where mediation is unlikely to succeed (PGF II SA v OMFS Company 1 Ltd).
  • More recently, in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction (Thakkar v Patel).

As the decision of Master O’ Hare in Reid v Buckinghamshire Healthcare NHS Trust confirms, the court’s disapproval of a party’s failure to mediate is not confined to imposing sanctions on the winning party:

“If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct.”

Parties will do well to remember that the case of Reid was concerned with the failure to mediate the costs aspect of the case. Ten years ago it would have been almost unthinkable to penalise a party for failing to mediate a costs dispute. Now, the position is quite different. There is a growing market of experienced costs mediators, including a number of retired costs masters to choose from. This, coupled with the growing disapproval from costs judges as to the amount of costs spent on detailed assessment (who of us has not spent two days fighting hard over a costs bill in the Senior Courts Costs Office (SCCO) only to have a summary assessment of the costs of the detailed assessment which rival those of the substantive dispute?), means that these kinds of points are being taken (and won) with increasing frequency.

However, parties can rest assured (at least for the present) that the mere fact that there is a form of ADR available to them is not, of itself, sufficient to found an application to reduce their costs, absent an invitation to do so from the other side which is unreasonably refused.

39 Essex Chambers Katharine Scott

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