Mediating The Costs Of The Action: ADR’s Alternative To Detailed Assessment

A Chapter on ADR in Costs written in April 2016 for “Costs Law : A Practitioner’s Guide” (published Canon(UK) Ltd) by Colin Campbell (Formerly a Costs Judge of the Senior Courts Costs Office and a Consultant at Kain Knight Costs Lawyers: accredited mediator at Costs Alternative Dispute Resolution (CADR).

There is nothing new about mediation as a method of settling disputes.
Alternative Dispute Resolution (“ADR”), which encompasses mediation, has
long been a means by which protagonists have settled their differences as an alternative to going to court. It is defined in the Glossary to the Civil Procedure Rules (“CPR”) as a “collective description of methods of resolving disputes otherwise than through the normal trial process “.

Judicial encouragement to do so has gathered strength over the years and in particular since Halsey v Milton Keynes General Hospital [2004] 3 Costs LR 393 was decided. It is now trite law that an unreasonable refusal to participate in mediation will lead to an adjustment in the costs award which otherwise would be made. In Halsey, Dyson LJ (as the Master of the Rolls then was) expressed the position thus :-

“In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is known (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR”.

A decade on, Briggs LJ put it more forcefully in PGF II SA v OMFS [2013] 6 Costs LR 973 :-
“In my judgment, the time has now come for this court firmly to endorse the advice given in chapter 11.56 of the ADR handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal or refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds”.

Thus in Laporte v The Commissioner of Police of the Metropolis [2015] 3 Costs LR 471, in which Turner J had decided the case in favour of the Commissioner on every substantive issue pleaded against him, his failure without adequate (or adequately articulated) justification to engage in a mediation that had had a reasonable prospect of success, resulted in his award of costs being reduced by one third. In a bill which amounted to over £200,000, that was a substantial sum.

It follows that in the rough and tumble of general litigation, the position thus could not be more clear : a party who refuses without reasonable excuse to engage in mediation does so at his, her or its peril as to the costs of the action, win or lose. If paying costs, the unreasonable refusenik runs the risk of being subject to an indemnity basis costs order. If receiving, the “guilty “party will be awarded less by way of costs, as the Commissioner found out to his chagrin in Laporte. The fact that mediation might have had no hope of success is irrelevant save in exceptional circumstances, such as that the party offering mediation has accepted that his case is hopeless and that the process would have no realistic prospect of success - (see judgment of Lightman J in Hurst v Leeming [2001] EWHC 1051 (Ch) at paragraphs 13 and 14).

It is not only in settling the underlying litigation that matters have moved on since Halsey and PGF II. Mediating the costs of the action is now a burgeoning business which is developing a jurisprudence of its own. Rather than fight it out at a detailed assessment, parties are now using mediation as a cost-effective alternative to an all-out battle under CPR 47.14. The impetus to do so is becoming stronger following two decisions by Costs Judges in detailed assessments, where the party receiving the costs had invited the party paying the costs to engage in mediation as an alternative to detailed assessment, but this had been refused.

In Reid v Buckinghamshire Healthcare NHS Trust, [2015] EWHC B21 (Costs),
judicial disapproval by Master O ’Hare was expressed in the following terms :-
“I want to end with a brief note of caution about sanctions imposed on parties who unreasonably refuse to mediate. Case law on this topic is largely about penalties imposed on parties who are in other respects the successful party. In Halsey and in other cases, penalties

were imposed upon winners... 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 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. I do disapprove of this defendant’s conduct but only as from the date they are likely to have received the July offer to mediate.”

In Bristow v the Princess Alexander Hospital NHS Trust [2015] EWHC B22
(Costs), Master Simon’s followed this lead :-
“The parties should be encouraged to enter into mediation and if one party fails to enter into mediation and that failure is unreasonable then there should be a sanction. It took three months for them [the defendants] to reject and they gave no good reason other than the fact that the case had already been set down for a detailed assessment”. Going further than Master O’Hare had done, the costs of the detailed assessment were ordered to be paid on the indemnity basis from the start of the costs proceedings themselves and not just from the moment that the offer should have been accepted.

In both cases, the defendant was our very own National Health Service and its conduct drew heavy criticism from Sir Henry Brooke, a former vice-president of the Court of Appeal and a strong advocate of mediation :-
“In each case the defendants were ordered to pay the claimant on an indemnity basis, not the usual standard basis…. They also had to pay interest at the rate of 8% PA on the unpaid costs until the date of judgment. They also had to pay their own costs of the detailed assessment: in the first case, where they failed to ”beat” a part 36 offer, they had to pay the
claimant a 10% uplift of £13,000 on the award of costs as well. …..If, by way of illustration, the taxpayer had to pay £50,000 in each case more than he would have had to pay if those representing the NHSLA had behaved prudently and reasonably, that would mean £100,000 of public money went down the drain for no real purpose. Oh dear.”

Little wonder that mediation is now being used as an alternative to detailed
assessment. How does it differ? The contrast could scarcely be more marked. In detailed assessment proceedings, once the receiving party has served his bill, exchanged points of dispute and replies under CPR 47.9 and paid the court fee, control of the case is transferred almost exclusively to the court. It is the court which fixes the hearing date, it is the court which allocates the judge, it is the court which decides the materials that are to be deployed, it is the court which conducts the assessment, it is the court which dictates who should say what and when and it is the court which makes decisions that will bind the parties.

Mediation is strikingly different. It is the participants who control events. They decide whether there should be a mediation, they decide who will be the mediator, they decide where the mediation will take place, they decide how long the mediation will last, they decide how much they want to spend and perhaps most importantly, they decide whether they wish to settle the claim or take their chances later on in court, the mediator himself having no power to impose a solution even if he is invited to give an evaluation of the merits and de-merits of the case.

There are other differences. In court, the judge runs the show, everything is
tape-recorded and it all takes place in public. In mediation, the show goes on in private, the participants decide what documentation (if any) they wish to use, everything said and done is in confidence and if the mediation does not result in an agreement, nothing that has gone on can thereafter be used or referred to in court. However if a settlement is reached (the percentages are high), there can be no subsequent change of heart. The agreement is binding and enforceable, just as it would be if made by order of the judge after a contested hearing .

And a final nuance, unlike the judge, the mediator can be told of offers made and refused. Knowing the amount it will take to bridge the gap is an important feature of any mediation, a matter about which a judge must be kept in complete ignorance when offers have been made under Part 36 until the detailed assessment has been completed. He “knows nothing” until that point. Of course, not every mediation results in a settlement and those sceptical about its use are quick to point to the fact that if there is a failed mediation, two sets of assessment costs will have been incurred where there would only have been one had mediation not been attempted in the first place. That is beside the point. If the parties put their minds to mediation early enough, that is to say before the court fee has been paid and the mediation succeeds, the overall saving (no court fee, no detailed assessment costs, no appeals) will be substantial. For the receiving party anxious for payment, receipt of the money will be accelerated, an all important factor when cash flow is tight and delays in obtaining dates for detailed assessment can be up to a year.

Good mediation practice is also helpful in increasing the prospects of
settlement. No purpose is served where one party is keen to engage in the
process and the other is simply “going through the motions” as a means to
avoid being on the wrong end of an indemnity basis costs order, or as a tactical step (see judgment of Park J in Societe Internationale de Telecommunications Aeronautiques SC v Wyatt Co (UK) Ltd [2002] EWHC 2401 (Ch)). For that reason, Position Statements which set out the areas of contention in broad and simple terms, are helpful. Under CPR 47.20, the party receiving costs is entitled to the costs of the detailed assessment and as mediation is a cost of the assessment just as a roundtable meeting would be during the conduct of the action, it is also beneficial if a statement of the costs to date is available. That way, not only can the principal sum for the costs of the action be agreed, but the costs of the assessment process itself can be wrapped up as well. If that happens, the line is drawn, the dispute is over and there is, at last, finality. No more litigation. No appeals.
Quod erat Demonstrandum!

View the UK's Leading 
Mediation Panel

‘Highly Commended’ 

Costs Company of the Year at the Modern Claims Awards

Get In Touch

Live Form CADR