Cost News

Matthew Luckhurst

Mediation, mediation, mediation, the incessant drumbeat of the Courts for a number of years, with the threat of costs sanctions for failing to mediate. However, the recent case of Richards & Anor –and- Speechly Bircham LLP & Anor  [2022] EWHC 1512 (Comm) has seemingly poured cold water on the parade.

Richards related to a professional negligence claim against former lawyers Speechly Bircham LLP (who later became the Second Defendant, Charles Russell Speechlys LLP), following the sale of a cloud based communications company.

The Court found that the Defendants were negligent in their advice and awarded damages of £1.454m. Following Judgment in favour of the Claimants, the question of costs arose. The parties were in agreement that the Defendants should bear the costs of the action, but there was a disagreement as to the basis of assessment, standard or indemnity.

The Claimants’ principal argument as to why an indemnity basis costs order would be appropriate, related to four offers to mediate the claim within a two year period, all of which were refused. Of the four offers to mediate, three were made prior to the issuance of the claim.

The first offer was refused on the basis that the Defendants stated that it did not consider mediation would be productive or costs effective at that stage. The second offer was refused on the basis that the claim “was doomed to fail”. Draft Particulars of Claim were provided with the third offer. This offer was rejected on the basis that the claim was “entirely without merit”. The fourth and final offer was made following the service of the Defence, again, this offer was rejected on the basis that the claim was “unmeritorious” and referenced the costs of mediation.

The Claimants’ submissions were based on the often cited case of Garritt-Critchley –and- Ronnan [2014] EWHC 1774 (Ch), where the Court found in favour of the argument that indemnity basis costs should be awarded following the unreasonable refusal to mediate. In addition, extracts of the White Book were cited where mediation is heavily encouraged.

Whereas, the Defendants relied on Northrop Grumman Mission Systems Europe Ltd –and- BAE Systems [2014] EWHC 3148 (TCC) and Gore –and- Naheed [2017] EWCA Civ 369. The Defendants’ stance was in part that refusal to mediate was only one of the factors that should be taken into account when the basis of costs are determined.

Whilst the Court found that the Defendants’ refusal to mediate on the reasons provided was unreasonable, it agreed that refusal to mediate is only one of the factors which the Court should bear in mind when determining the basis of assessment. Furthermore, the Court found that if an order for costs to be assessed on the indemnity basis due to refusal to mediate alone, it would elevate the unreasonable refusal to mediate to the status of failing to beat a Claimant’s Part 36 offer.

The Court’s approach in the refusal to award costs on the indemnity basis due to the unreasonable refusal to mediate, is a significant shift away previous findings of the Court. In PGF II –and- OMFS Company 1 Limited [2013] EWCA Civ 1288, the Court found that silence following a request to mediate was itself unreasonable and the ‘usual’ costs consequences of failing to accept a Part 36 offer in time should be dis-applied.   In BXB –and- Watch Tower [2020] EWHC 656 (QB), the Court awarded indemnity basis costs to the Claimant following the Defendant’s unreasonable refusal to engage with the Claimant’s invitation to attend a joint settlement meeting. The Court’s approach was based on the fact that “at all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation)”

In DSN –and- Blackpool Football Club Limited [2020] EWHC 670 (QB), the Court awarded the Claimant costs on the indemnity basis for roughly a year prior to the expiry of a Claimant’s Part 36 offer which was beaten at trial, on the basis that the Defendant refused to mediate the claim.

It seems, for now at least, the Court has reversed its march towards costs sanctions for unreasonable refusing to mediate, but for how long? Given the continued pressure from the Courts and the Master of Rolls well known feelings towards mediation, it appears the drumbeat of mediation, mediation, mediation could shortly become deafening.