In the September 2019 blog, we featured alternative dispute resolution (ADR), placing emphasis on the advance of guidance at High Court level and above, that parties to litigation, who ignore invitations to engage in ADR, do so at their peril as to the costs of the action, even if they win (see the blog and Halsey v Milton Keynes General NHS Trust and PGF II SA v OMFS). An unreasonable refusal to use ADR (described in the glossary to the CPR as a “Collective description of methods of resolving disputes otherwise than through the normal trial process”), is likely to lead to the imposition of penalties on the offender. This usually occurs in relation to mediation, the best known form of ADR, but it can also arise where there has been a failure to engage in early neutral evaluation (ENE) or a “without prejudice” joint settlement meeting (JSM).
These matters in mind, the September 2019 blog featured two new decisions (Burgess v Penny and Lomax v Lomax) in which the court had once again taken the opportunity to stress the importance of engaging in ADR and we concluded the blog with the sentiment:
“The message is clear: mediate or evaluate: do not litigate except where all else has failed”.
A useful sentiment? Even if it was, the message imparted by the decisions in Burgess and Lomax appear not to have found favour with a good proportion of the legal profession. There have been no fewer than four decisions at High Court level in the past three months in which parties have been penalised (yet again it could be said) for unreasonably refusing to use ADR, and have instead battled on to trial!
Before looking at these cases, it should be pointed out that the “offences” in question all took place before the COVID-19 pandemic closed down the country and daily life was very different. However, with many of the civil court centres still shut save for remote business conducted on platforms such as Zoom and Microsoft Teams, the opportunity for parties to settle their differences by ADR, rather than continuing to wait until the courts to re-open, is even more telling. The puzzle is the apparent reluctance of the profession (or is it their clients?) to do so, in circumstances where the National Health Service may be bucking the trend in this respect (see below).
If the ADR parameters have been set for many a long year, why do parties continue to ignore them? The four featured cases are classic examples of how costs penalties could have been avoided had the parties kept within them.
BXB v Watch Tower and Bible Tract Society of Pennsylvania
In BXB v Watch Tower and Bible Tract Society of Pennsylvania, the issue in deciding what costs order should be made revolved round what effect the claimant’s Part 36 offer should have. The point was exaggeration: the claim had been pleaded at £541,000, the claimant had offered to accept £25,000 and the trial judge had awarded damages of £69,500. Having beaten his own Part 36 offer, it followed that CPR 36.17(4) was engaged, including the requirement that the defendant pay indemnity basis costs from 30 July 2019, the last date on which the offer could have been accepted.
“Definitely not so,” was Chamberlain J’s riposte. The damages had been awarded at that level because the court had rejected the claim in relation to better paid employment, but that was not the end of the story. The defendant had failed to follow a court direction to consider ADR (including mediation) at all stages. It had also refused to attend a JSM without explaining why, even though the possibility of agreeing quantum subject to liability had provided a good reason to engage in discussions. For that reason, there would be a further penalty: indemnity costs would be ordered not from 30 July 2019 but earlier, from 25 February 2019, when the defendant had first unreasonably refused to engage in ADR.
The result: on detailed assessment of the claimant’s costs, any doubt will be given to the claimant. He will longer be tied to his last agreed or approved budget (see Lejonvarn v Burgess at paragraph 93) nor will there be any CPR 44.3(5) issues to worry about, such as by comparing the costs with level of the recovery, as the proportionality test only applies to standard costs. It follows that by not agreeing either to ADR or to the JSM, in all likelihood the defendant will have given the claimant a clear run to its bankers for his costs. A totally avoidable outcome had the guidance in Halsey and its successor cases been followed.
DSN v Blackpool Football Club
DSN v Blackpool Football Club is also principally about Part 36. Again, the claimant had beaten his own Part 36 offer at trial so that CPR 36.17(4) was engaged. The offer (dated 2 December 2019) had been £10,000, the damages recovered £17,000 and the claim pleaded at not less than £50,000.
Once again, the defendant piped up with: “M’Lud. The claim was inflated. It would be unjust to award indemnity costs. The standard basis should apply.”
Once again, the defendant was disappointed. Griffiths J held that the purpose of an award of indemnity costs was to compensate the claimant for an offer which should have been accepted against the risk of continuing with the action. It was also to bring home to the defendant the risks being run by not accepting it, so it was not unjust for the indemnity basis to apply. Not only that. The defendant had failed to engage in mediation without advancing an adequate reason. That merited another penalty. Indemnity costs would start to apply before 2 December 2019. They would begin a year earlier, namely on 1 December 2018, which was one month after the court had given a direction about mediation. Another hard lesson for the party failing to engage in ADR.
Wales v (1) CBRE Managed Services Ltd and (2) Aviva
Next in the firing line were the claimant and first defendant in Wales v (1) CBRE Managed Services Ltd and (2) Aviva, in which HHJ Halliwell imposed penalties for unreasonably refusing to mediate or otherwise engage in settlement discussions. Mr Wales had lost his breach of contract claim so that, in the usual course of events, he would have to pay the defendants’ costs. However, CBRE had refused to participate in a three-way mediation eight months before the proceedings had even been issued, and again on 17 June 2019, a month before trial. However, on the credit side, on 14 February 2019, it had proposed a “drop hands” settlement which the claimant had ignored.
To express the court’s displeasure, the judge deprived CBRE of 50% of its costs up to 14 February 2019, but allowed 100% of the costs after that to reflect Mr Wales’s decision to ignore the drop hands offer, but then only until 17 June 2019 when the allowance was reduced to 20% for the refusal to mediate before the trial. Given that CBRE’s costs exceeded £100,000, the refusal to mediate is likely to have cost the company sums in the tens of thousands, and the position would have been worse but for Mr Wales’ failure to follow up the drop-hands offer. Another hard lesson for the two parties who had offended.
Jagger v Holland and others
Lastly, Jagger v Holland and others. The principal aspect concerned the order that it was appropriate to make after the claimant had sued three defendants (who all blamed each other) for causing the injuries she had suffered. At trial, judgment had been given against the first and second defendants. The third defendant was found to have been blameless. It sought indemnity costs on the grounds that it had made a pre-trial offer not to seek any costs had the other defendants agreed to withdraw their allegations.
That application failed. The judge found that some of the third defendant’s evidence had been unsatisfactory but in addition, he took into account a failure to follow a court direction to consider settling the litigation by ADR and to explain its refusal to do so in a witness statement. For those reasons, the third defendant had to be satisfied with standard costs, possibly an expensive error since this was a big claim in which it had taken the court seven days to decide the issue of liability. Another demonstration, if one were needed, that those who fail unreasonably to engage in ADR do so at their peril as to costs.
Two general observations need to be made about this quartet of cases. First, there was no common identity of subject matter in each of the four claims. In fact, they were diverse, ranging from sexual abuse including vicarious liability, to breach of contract, to damages for rape, to catastrophic personal injury following an RTA. Second, none of the cases involved clinical negligence against NHS trusts.
What can be discerned from that? Perhaps, it is that NHS Resolution (the arm’s-length body of the Department of Health and Social Care with responsibility for providing expertise to the NHS for resolving disputes fairly) is further forward in its understanding about how ADR can assist parties in resolving clinical negligence claims than the legal profession as a whole. Since 2016, NHS Resolution has adopted a pro-ADR strategy to deal with the many claims which are brought against the NHS each year. To advance this aim, on 2 June 2020, it announced the appointment (and re-appointment in some cases) of four specialist mediation providers to deal with mediating the claim (CEDR and Trust Mediation) and, if that succeeds, specialist costs mediators (Costs Alternative Dispute Resolution and St John’s Building) to mediate the legal costs in order to avoid the expense of a detailed assessment.
If in, say, a year’s time, this blog has had no cause to write “Another round to ADR (Part 3)”, perhaps we shall be able to conclude at last that the ADR penny has dropped and that the courts will no longer need to penalise parties for failing to mediate or otherwise engage in non-court processes, as was the case in the four High Court cases featured above.