Alternative dispute resolution and costs sanctions – Three recent High Court judgments

By Ailsa Anderson and Kate Williams

Well advised parties to litigation will engage in alternative dispute resolution (“ADR”).

Three recent High Court judgments act as a reminder that the Court will use its powers to sanction parties if they unreasonably refuse to do so. However, the Court’s approach is not always straightforward and litigants should seek expert advice if they have any reservations about engaging in ADR.

DSN v Blackpool Football Club Ltd [2020] EWHC 670 (QB)

The defendant refused to engage in settlement negotiations and failed to properly respond to a number of formal settlement proposals (known as “Part 36” offers) put forward by the claimant. When rejecting the claimant’s invitation to engage in settlement negotiations, the defendant told the claimant that its refusal was on the basis that it had “a strong defence to the claim”.

The claimant was successful and the Court awarded indemnity costs in his favour. When doing so, the Court confirmed that:

“No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution.”

The Court also confirmed that indemnity costs were payable in relation to the defendants approach to the Part 36 offers. It ordered an interim costs payment in favour of the claimant of £200,000. This award is all the more remarkable as damages and interest in the claim were just over £20,000.

BXB v Watch Tower and Bible Tract Society of Pennslyannia [2020] EWHC 656 (QB)

This was another case where the defendant failed to engage in ADR because it was confident about its defence of the claim. Again the Court confirmed that this was not a good excuse for refusing to engage in ADR, in this case a joint settlement meeting. ADR could have allowed both parties to narrow the issues in dispute, which would have shortened the trial time.

The Court also criticised the defendant for failing to provide a written explanation for its refusal to participate in ADR. The Court awarded an indemnity costs order from the date of the defendant’s unreasoned refusal to participate in ADR.

Wales t/a Selective Investment Services v CBRE Management Services & Anor [2020] EWHC 1050 (Comm)

In this case, the claimant proposed mediation on a number of occasions. The first defendant refused, on a number of bases including, for example, that there were substantial factual issues in dispute and that a proposed date for the mediation provided insufficient time for it to prepare for the mediation.

Whilst the first defendant had engaged in ADR by making what is known as a “Without Prejudice” offer, its refusal to mediate was unreasonable. The Court disallowed 50% of its costs up to the date it made the Without Prejudice offer and 20% of its costs from that date onward.

Interestingly, the second defendant was not penalised for refusing to engage in mediation as it had been willing to participate but not without participation of the first defendant. The Court considered this a reasonable ground for refusal.

Summary 

Win or lose, parties are obliged to conduct litigation collaboratively and to engage constructively in ADR. Parties that unreasonably refuse to engage in ADR should expect to be penalised in costs.