Should the court make an adverse costs order against a party whose conduct is said to have contributed to the failure of an early neutral evaluation (ENE)? That was the question before HHJ Pearce in 3173 Bidco Ltd & Anor v Christopher James Roberts & Anor [2026] EWHC 2312 (Comm).
The decision provides guidance on the relationship between ENE, the court’s general costs jurisdiction under CPR Part 44, and the wider policy objective of encouraging constructive engagement in alternative dispute resolution (ADR). The decision is particularly notable for the court’s reluctance to allow a dispute about the costs of an unsuccessful ENE to develop into satellite litigation. Where the court cannot safely conclude that particular conduct caused identifiable wasted costs, the starting point will ordinarily be that the costs remain costs in the case.
Background and the costs application
The dispute arose following the departure of the first defendant, CR, from the claimants’ professional pension‑trustee business. After his employment ended under a settlement agreement, CR and his wife incorporated CJR Pensions Limited to provide services to the pensions industry. The claimants alleged that CR breached restrictive covenants and sought damages, injunctive and declaratory relief, and restitution; CR counterclaimed.
At the case management conference, the claim was transferred to the Shorter Trials Scheme and an ENE was ordered before HHJ Pearce. The ENE took place before witness statements were exchanged. During the ENE, the defendants raised an unpleaded argument that they operated in a different market, to which the claimants objected. HHJ Pearce adjourned the ENE, and the claimants declined to resume it. The issue then became who should bear its costs.
The claimants sought an order requiring the defendants to pay the costs of the ENE on the indemnity basis, arguing that their case was straightforward and that the defendants had advanced a new argument which should have been raised earlier. That failure, they said, rendered the ENE unproductive. The defendants argued that an adverse costs order would amount to satellite litigation and risk undermining the ethos of ADR. They also noted that the ENE had taken place before witness statements were exchanged and argued that responsibility for that timing could not fairly be placed solely on them. The issues required the court to confront a tension between two competing considerations: (i) costs orders are an important mechanism for encouraging parties to conduct litigation properly and efficiently; and (ii) the imposition of costs sanctions following an unsuccessful ADR process could have a chilling effect on parties’ willingness to participate in ADR at all.
Power to make a costs order
HHJ Pearce held that, pursuant to CPR Part 44, he had jurisdiction to deal with the costs of the ENE. The fact that previous orders had stated that costs were ‘in the case’ did not prevent him from determining ENE costs separately. Those earlier orders related to the costs of hearings and directions, not the ultimate incidence of ENE costs.
The more difficult question was how that discretion should be exercised and whether an indemnity costs order was justified. Before such an order can be made, there must be conduct or circumstances taking the case ‘out of the normal’ (Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston [2002] EWCA Civ 879). HHJ Pearce explained that dishonesty or moral condemnation is not required, but there must be something outside ordinary and reasonable conduct. That threshold was not, however, the principal difficulty. The real issue was whether the circumstances of the failed ENE justified any adverse costs order at all.
Costs in the case
HHJ Pearce identified the following reasons for beginning from a presumption that the costs of a failed ENE should be costs in the case, unless compelling factors point elsewhere.
(i) Policy favouring ADR
The courts have repeatedly emphasised the importance of ADR. Judicial ENE is an established form of ADR and has received strong judicial approval (Lomax v Lomax [2019] EWCA Civ 1467). A routine practice of penalising one party whenever an ENE fails would create obvious difficulties. Parties might become reluctant to participate for fear that an unsuccessful ENE would later be scrutinised through the lens of costs. A failed ADR process is not necessarily evidence of unreasonable conduct; indeed, failure is inherent in ADR. Routine costs orders following failed ENEs could discourage participation.
(ii) Causation may be difficult to establish
There may be cases where the court can confidently say that, but for one party’s conduct, the ENE would have succeeded, or costs would have been avoided. However, such cases may be rare. Often, the court will simply not know what would have happened.
Although the claimants sought to attribute wasted costs to the defendants’ failure to plead their case fully, it was impossible to say with sufficient confidence that, had they done so, the ENE would have succeeded or costs would have been saved. The ENE had also taken place before witness statements were exchanged, and the claimants had agreed to that timing. Against that background, it was difficult to identify a sufficiently secure causal connection between the defendants’ conduct and the costs incurred.
(iii) The court should avoid satellite litigation
A dispute about the costs of an unsuccessful ENE can itself become substantial litigation. Parties may find themselves debating whether the ENE should have taken place, whether one party was adequately prepared, whether an argument should have been pleaded earlier, whether the ENE would have succeeded had it been pleaded, whether the timing was appropriate, and whether particular conduct caused identifiable costs. A mechanism intended to reduce the cost and duration of litigation can generate a further dispute about its own costs. HHJ Pearce considered that an adverse costs application in circumstances such as these risked drawing the court into satellite litigation on matters it was not well placed to determine.
(iv) Timing matters
An ENE conducted before proceedings are issued will necessarily be based on a less developed evidential and legal landscape. An ENE shortly before trial will ordinarily benefit from a more developed case. However, attaching costs consequences too readily to the degree of preparation may deter parties from engaging in ENE early. If parties fear that an inadequately prepared ENE may expose them to adverse costs, they may simply delay ADR until litigation is fully developed, which is contrary to ADR’s purpose.
HHJ Pearce accepted that the defendants’ inadequate pleading caused the ENE to fail, but uncertainty over the claimants’ own amendments and the early timing of the ENE meant the court could not conclude the ENE would have succeeded in any event. The claimants’ application therefore failed, and the ENE costs were ordered as costs in the case. The defendants’ bid for their own application‑related costs was rejected.
Commentary
The decision makes clear that ENE is not a costs‑free exercise: adverse orders remain possible, but a failed ENE is not itself unreasonable conduct. Parties must prepare their cases thoroughly and plead arguments clearly. They should also be cautious about holding an ENE before evidence or issues have crystallised, as a separate costs dispute after a failed ENE may prove disproportionate given the difficulty of determining why the ENE failed and what would otherwise have happened.
HHJ Pearce emphasised that ADR should not be subjected to intense costs scrutiny. Treating every failed ENE as an inquiry into fault risks creating the very satellite litigation ADR is meant to avoid. The default position should be that ENE costs fall as costs in the case, unless conduct is clearly unreasonable. ADR’s value often lies in narrowing issues even without settlement, and a failed ENE is not necessarily wasted. The real danger is allowing the costs of failed dispute resolution to become a second dispute requiring resolution.
Masood Ahmed is an associate professor of law at the University of Leicester and co‑author of Arbitration of Commercial Disputes: English and International Law and Practice (Oxford University Press 2025)
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