Costs News

17 December 2015
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Defendant penalised for refusing to mediate costs dispute

An unsuccessful defendant’s unreasonable failure to agree to try and mediate a detailed assessment has led to what is believed to be the first costs penalty of its kind.

Master O’Hare’s award of indemnity costs from three days after the invitation to mediate was sent was the first penalty against an unsuccessful defendant that refused to mediate, according to the claimant’s lawyer, Irwin Mitchell partner Tom Blackburn. Previously, it has been successful claimants who have been hit in costs through refusing to mediate.

Master O’Hare ruled in Reid v Buckinghamshire Healthcare NHS Trust [2015] EWHC B21 (Costs): “In respect of the defendant’s failure to mediate, I think the only sanctions available for me to impose are to award costs on the indemnity basis and to award interest on those costs from a date earlier than today, today being the normal date.

“I am persuaded that the defendant’s refusal to mediate in this case was unreasonable. It took them six weeks to reply to the offer and they then replied in the negative. Nevertheless, I do not think I should impose the indemnity basis penalty from a date earlier than the date the defendants are likely to have received the claimant’s offer, and that is why… I said interest should run from 27 July, that is, some three days after the offer was sent.

“I do not think I have any power to award a percentage penalty as I can in respect of a part 36 offer. In my view, I do not have power to alter the rate of interest payable and I do not think it proportionate to add interest penalties on top of an award on the indemnity basis from a date earlier than today.”

Master O’Hare ended 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… They do not involve the imposition of further penalties upon losers…

“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 that 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.”

Mr Blackburn said the ruling applied to all areas of litigation. “It’s a stark and heavy warning to unsuccessful parties who refuse ADR that they will be punished in costs – more so than simply paying the costs of the action that they would be liable for in any event.

“Irwin Mitchell has invited the NHSLA to use mediation/ADR in tens of cases but in only one case – even after this judgment – have they accepted this offer.”

ACL chairman Sue Nash added: “It is in both parties’ interests to consider mediation in all disputes and I welcome this judgmentconfirming that this applies to costs disputes as well. The ACL has now run three mediation courses, with more to follow in 2016, and trainee Costs Lawyers will cover the use of ADR in costs disputes in their third year. Many Costs Lawyers now offer a costs mediation service and the founding of CADR – a dedicated costs dispute resolution service – earlier this year is further evidence that costs practitioners understand the added value that this service can bring to their professional and lay clients.”

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