Alternative dispute resolution and costs

The usual rule in litigation is that the winner takes it all, including their costs.¹ 

The actual amount of costs awarded is subject to assessment by the Court which will consider a number of factors, including the following:

• the parties’ conduct in the litigation process
• whether the parties complied with directions and any delays
• offers of settlement
• any willingness to engage in mediation and the parties’ conduct at the mediation.

ADR has been actively encouraged by the Courts in order to avoid the time and expense of trial, where disputes could be resolved at a much earlier stage. Should a successful party in litigation refuse to engage in ADR, the Court may, on occasion, deprive the successful party of some or all of its costs.

In the leading Court of Appeal case of Halsey v Milton Keynes General NHS Trust, Steel v Joy and another [2004] EWCA Civ 576, the Court set out various criteria for a Judge to consider when deciding whether there should be an exception to the general rule that costs should follow the event. The burden is on the unsuccessful party in the litigation to show that the successful party has been unreasonable in refusing to agree to ADR.

The criteria set out in Halsey as referred to above are as follows:

• the nature of the dispute
• the merits of the respective parties’ cases
• the extent to which ADR had been attempted
• whether the costs of ADR would be disproportionately high
• whether there has been any delay in setting up and attending the ADR and whether this has prejudiced the prospects of settlement
• whether ADR had a reasonable prospect of success.

The Court emphasised that this was not an exhaustive list and all the circumstances of the case should be taken into consideration. However, if the Court has encouraged ADR, this is another factor to take into account. The stronger the encouragement from the Court, the easier it will be for the unsuccessful party to show the successful party’s refusal was unreasonable.

In Vale of Glamorgan Council v Roberts [2008] EWHC 2911 (Ch) (a trial concerning a boundary dispute) the trial Judge stated that “It would, I think, be going too far to disallow costs incurred by a local or public authority because that authority did not initiate suggestions for a mediation”. Therefore the successful party was not penalised simply because it did not suggest ADR, especially when the other side had not made the suggestion either.

Furthermore, in Seventh Earl of Malmesbury and Others v Strutt & Parker (a partnership) [2008] EWHC 424 (QB) the Court considered the position regarding what costs, if any, were payable when the successful party had behaved unreasonably in mediation. In the above case, the Judge found that although the parties had sought to resolve their disputes by way of mediation, both parties had adopted an unreasonable stance in the mediation. The Judge found that adopting an unreasonable position in mediation was not dissimilar to an unreasonable refusal to engage in mediation. As such, he found that this was a factor that the Court can and should take into consideration when making a costs order in accordance with the Halsey principles. However, on the facts, as both parties in this case had adopted an unreasonable stance in the mediation, the Defendant could not rely upon the Claimant’s unreasonable conduct to prevent costs from following the event.

Conclusion

ADR, such as mediation, is an effective and potentially beneficial way of resolving property disputes. Further, by exploring this option, a party will improve its position on costs. The Court will consider all the circumstances and apply the Halsey principles when making a decision. Although a successful litigant will not be penalised by way of costs for failing to suggest mediation, the parties’ conduct during mediation and any refusal to engage in mediation are important considerations when awarding costs. This is especially the case when the Court has suggested that the matter is suitable for mediation. Such encouragement will be ignored at the parties’ peril!

^{1 Except in lower value, small claims matters of less than £10,000.}