The general principle on costs in civil litigation is clear: the unsuccessful party will be ordered to pay the costs of the successful party, albeit that the court has discretion to order otherwise (Civil Procedure Rule 44.3 (2)).

The court may exercise its discretion where a party (whether claimant or defendant) refuses, without legitimate excuse, to engage in an alternative dispute resolution process (ADR). That refusal may be seen as evidence of unreasonable behaviour and a court may penalise that party in costs. However, it does not follow that such a party will automatically be considered to have acted unreasonably in refusing to engage in ADR. In assessing unreasonable behaviour in this context, the court will seek to apply the criteria set out in Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576.

ADS Aerospace Ltd v EMS Global Tracking LtdThe approach taken by the courts when assessing unreasonable behaviour is well illustrated by the recent case of ADS Aerospace Ltd v EMS Global Tracking Ltd [2012] EWHC 2904 (TCC).

The claimant’s $16m claim, which was for breach and repudiation of an agreement between the parties for the exclusive distribution of satellite tracking devices for aeroplanes or helicopters, was dismissed. The court was required to decide on the issue of costs.

The claimant maintained that there should be a substantial reduction in the defendant’s costs entitlement (of at least 50%) to reflect the unwillingness of the defendant to enter into mediation to seek to resolve the issues between the parties.

The parties provided the court with information about what was going on behind the scenes with regard to trying to settle the case. The defendant’s solicitors had proposed that the parties engage in settlement discussions but the claimant wanted to wait until exchange of witness statements.

The defendant later offered to settle the claim on a without-prejudice basis but the claimant failed to provide a response and later, during a telephone discussion with the defendant, the claimant did not demonstrate any intention to settle the matter.

Later, the claimant rejected the settlement offer which had been made and suggested that the parties engage in mediation. The defendant wrote back and referred to the previous history and stated that: it did not feel that mediation would be worthwhile and that both parties were now aware of each other’s case; the time and cost of mediation would be wasted; and that the claimant was not likely to accept less than $16m.

Despite this, the defendant indicated that it would consider any reasonable offer which the claimant may make on a without-prejudice basis. The claimant replied by stating that there was a reasonable prospect of settling the claim and that a skilled mediator would be capable of settling the matter. The defendant wrote back reiterating its previous position that a formal mediation was not necessary, especially given the fact that it was now three weeks before the commencement of the trial. The claimant then offered to settle the matter and repeated its invitation for the parties to engage in mediation. The defendant replied with a counter offer which was substantially less than the claimant’s offer. Neither of the offers were accepted and the matter proceeded to trial.

The claimant accepted that prima facie the defendant is entitled to its costs, but said that the defendant acted unreasonably in refusing its request to attempt to settle the dispute in mediation. The defendant said that it acted reasonably in all the circumstances.

Akenhead J made reference to Halsey in which Dyson LJ (as he then was) held the following:Applying the above criteria to the circumstances of the case before him, Akenhead J held that the claimant had failed to demonstrate that the defendant had acted unreasonably in refusing to engage in mediation on the following grounds:

  • There had been no willingness on the part of the claimant to engage even in a without-prejudice discussion until quite late in the litigation process, notwithstanding at least various attempts on the part of the defendant to initiate the same earlier on.
  • It was clear from the offer to settle which was made by it that the claimant, for good or bad reason, had a strong view that it was entitled to substantial compensation, and that was clear also to the defendant. The claimant gave every appearance that it was simply not interested in a nominal payment.
  • The defendant was at all times prepared to engage in without-prejudice discussions with the claimant and there appeared to have been little or no good reason why that approach should not have been tried earlier on in the litigation process.
  • The lateness within the trial programme of the mediation suggestion coming from the claimant was a material factor. Without-prejudice discussions would have been quicker, cheaper and less intrusive into trial preparation than a mediation which, even if it lasted only a day in itself, would have diverted solicitors and counsel by more than one day because they would have had to prepare for the mediation.
  • The defendant did not act unreasonably in believing that it had a very strong case both on liability, causation and quantum. There were very real difficulties apparent in the claimant’s case on repudiation and the damages claim was demonstrably overstated (worth no more than about $400,000 rather than the $16m claimed). Akenhead J was of the opinion that a good mediator would have been able to ‘work on’ the claimant to accept what would in effect be a nominal offer. However, Akenhead J stated that he did not have any doubt that without-prejudice discussions would probably have achieved the same result or at least got to the same stage as mediation.
Masood Ahmed, Birmingham City University

  • In deciding whether to deprive a successful party of some or all of its costs on the grounds that it has refused to agree to ADR, the burden is on the unsuccessful party to show why there should be a departure from the general rule.
  • Mediation has a number of advantages over the court process. Mediation provides litigants with a wider range of solutions than those available in litigation. For example: an apology; an explanation; or the continuation of an existing professional or business relationship.
  • The question of whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case.
  • The question whether a party has unreasonably refused ADR will include (but is not limited to) the following: (a) the nature of the dispute; (b) the merits of the case; (c) the extent to which other settlement methods have been attempted; (d) whether the costs of the ADR would be disproportionately high; (e) whether any delay in setting up and attending the ADR would have been prejudicial; and (f) whether the ADR had a reasonable prospect of success.
  • The fact that a party unreasonably believes that its case is watertight is no justification for refusing mediation. But the fact that a party reasonably believes that it has a watertight case may well be sufficient justification for a refusal to mediate.