We are all familiar with provisions in contracts encouraging parties to mediate before turning to the courts. Since the decision of Halsey in 2004, the courts have been willing to reduce a successful party’s recoverable costs where that party has unreasonably failed to engage in alternative dispute resolution methods. The pre-action protocols dictate that parties need to consider alternative dispute resolution, with a failure to comply possibly resulting in adverse cost orders. The pre-action protocol specific to construction disputes goes one step further and requires parties to meet at least once on a without prejudice basis before commencing litigation. Whilst we have not yet reached a stage where mediation is mandated prior to starting a court action (despite the Civil Justice Council publishing a report last July concluding that compulsory alternative dispute resolution is lawful), a couple of recent cases explore the factors which the court might take into account when determining costs in circumstances where mediation was not attempted.

In Richards and another v. Speechly Bircham LLP and another [2022] EWHC 1512 (Comm), HHJ Russen QC (sitting as a Judge of the High Court) decided that an order for costs on an indemnity basis in favour of the claimant was not justified despite the defendant having refused four requests to participate in a mediation. Prior to the action being raised, the defendant argued that mediation would not be productive or cost-effective at that stage. Once the claim was raised, the defendant continued to refuse to mediate on the grounds that the claim was without merit and doomed to fail. Although HHJ Russen QC did decide that the defendant’s repeated refusal to mediate was unreasonable, he stated that the refusal was only one aspect of conduct to be considered when exercising the court’s discretion to determine the level of costs payable by a party. HHJ Russen QC was of the view that any finding on costs based on the defendant’s failure to engage in mediation would involve “elevating that factor” over others, such as successfully defending an element of the claim and bettering the claimant’s Part 36 offers. On this occasion, HHJ Russen QC decided that an order for the defendant to pay costs on a standard basis was an adequate response to the defendant unreasonably refusing to mediate.

In another case decided slightly earlier in the year (Epoq Legal Ltd v. DAS Legal Expenses Insurance Co Ltd [2022] EWHC 1577 (Comm)), the losing party (the claimant) argued that the defendant’s costs should be reduced following its refusal to participate in mediation. Nicholas Vineall QC (sitting as a Deputy Judge of the High Court) took the view that, whilst there may have been some “foot-dragging” by the defendant in relation to engaging with mediation (the defendant did not seek to engage in mediation until late in the court proceedings), it was not the equivalent of a refusal to mediate and nor was the defendant’s behaviour in this regard held to be unreasonable. The defendant’s costs were not therefore reduced on that basis. However, the defendant was only awarded costs on the standard basis, as opposed to the indemnity basis upon which it sought, as a result of the foot-dragging and tactical use of mediation at a late stage.

The message from the courts remains that parties should engage in alternative dispute resolution procedures as early as possible in order to save time and costs. Where a party unreasonably refuses to engage in a process such as mediation, the court will likely penalise that party by reducing the costs recoverable in an action, even when that party has been successful.

This article was first published in Construction Law on 3 October 2022. You can sign up to Construction Law's newsletters here.