The hidden costs of refusing ADR

What is the cost of refusing negotiation/mediation/adjudication?

Although Adjudication has to a large extent replaced the necessity for litigation or arbitration it is a modern fact of life that, if for any reason you have to litigate your construction dispute, before proceeding to litigation, you should at the very least considered and preferably engaged in Alternative Dispute Resolution (‘ADR’). The major form of ADR is mediation.

The compelling reason for this is the courts encourage ADR, in fact they expect the parties to have attempted it. The courts will consider whether a party has unreasonably refused to engage in ADR and penalise them in costs if they have done so. The fact is therefore that a refusal to engage in ADR can reduce a costs award even if successful at a trial.

There have been numerous cases on this point. In the case of Laporte and another v The Commissioner of Police of the Metropolis (2015) Turner J provided an explanation of the approach the courts will take when assessing whether a refusal to engage in mediation by one party should lead to a reduction in a costs award.

The Civil Procedure Rules sets out the usual rule that costs follow the event but with the court having discretion to amend the award because of the conduct of a party – and that discretion includes whether or not a party was willing or not to engage in ADR.

In Laporte the Police won the case on every substantive issue. The Claimants however requested that the standard approach of costs following the event should not be followed because the Defendant had been unwilling to engage in ADR. In this case mediation was suggested in September 2013 but it took the Defendant until June 2014 to confirm they would not agree to mediate.

Turner J considered the foremost authority in this area, Halsey v Milton Keynes General NHS Trust (2004), which had set out six issues to be considered when making an order for costs:

  • the nature of the dispute;
  • the merits of the case;
  • whether other settlement methods have been attempted;
  • the cost of mediation would be disproportionately high;
  • delay to the trial; and
  • whether the mediation had a reasonable prospect of success.

 

In considering these issues Turner J said that the most important question was whether there was a reasonable prospect of a mediation being successful. In argument the Defendant alluded to the Claimant’s view that they would require a sum of money to settle. However the Judge found that this had not been formally required nor had the Defendant excluded the possibility of making an offer in negotiations. He decided this was not adequate justification.  In fact it was the case that the Defendant had on the procedural backfoot for trial preparation and this was the reason it had failed to engage in ADR.

Given the refusal to mediate and following Halsey the Defendant was awarded only two thirds of its costs – the failure to engage in ADR in this instance was not deemed sufficient cause to prevent recovery of any costs.