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Paul Edwards

Paul Edwards

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Defendants who fail to co-operate with Alternative Dispute Resolution (ADR) at a greater risk of Indemnity Cost Orders

Client Alerts14/05/2020

Two recent High Court decisions have put defendants who decline ADR and want to defend claims at trial at a far higher and unfair risk of an Indemnity Costs Order being made against them.

When deciding which party is entitled to costs and the basis of assessment the court is to consider, as per CPR 44.2(5), the conduct of the parties. The Court has a wide discretion and it is established law an unreasonable refusal to engage in ADR may amount to unreasonable conduct resulting in an Indemnity Costs Order. Similarly, a party’s silence in the face of an invitation can lead to the same result.

These issues usually arise where a party invites the other to a joint settlement meeting (JSM) and this is refused. What makes these two cases an interesting, and serious, development is that they use as a starting point standard directions issued by the court and relate to cases where the defendants, reasonably, felt that they could successfully defend the claims at trial. As such, these cases represent a development of the law to a position where a defendant’s rights to take a claim to trial are now unfairly infringed by the additional risk of facing an Indemnity Costs Order. Arguably this could be seen as an erosion of their access to justice.

The two cases were heard within days of each other and their facts are similar, but not identical.

BXB v Watch Tower and Bible Tract Society of Pennsylvannia & Ors [2020] EWHC 656 was a historic abuse claim where the claimant succeeded on vicarious liability. Standard directions had been issued by the court including provision that “at all stages” the parties must consider settling the claim and that any party that did not wish to engage in ADR should provide a witness statement explaining why.

Following limited negotiations the claimant requested the parties meet for a JSM. The defendant refused. Chamberlain J held that the defendant was unreasonable in their refusal to meet, and in their non-compliance with the court order that had required them to provide a witness statement to explain the refusal. The Judge noted that the parties could have met “even in a case where the defendant is confident about its case on liability”. It was suggested that quantum could possibly be agreed, subject to liability, with the benefit of reducing the length of the trial and the questioning of the claimant.

Indemnity costs were awarded from the date that attendance at a JSM was refused.

DSN v Blackpool Football Club Ltd (Rev 1) [2020] EWHC 670 (QB) was a similar claim and the same standard directions were given. The claimant invited the defendant to attend a JSM, however the defendant declined on the basis, as set out in a witness statement, that the defendant felt a JSM would not achieve anything as it had a strong Defence.

The defendant wished to fully defend the matter. It lost at trial and in awarding the claimant indemnity costs ruled that: “No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution.”

The court’s decisions on liability and costs are being appealed so the outcomes will be eagerly awaited.

The decisions in both cases seem to ignore established guidance, such as in Gore v Naheed and Ahmed [2017] EWCA Civ 369 where the court commented that it had "some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct" and Kiam v MGN Ltd (No 2) [2002] EWCA Civ 66 where Simon Brown LJ set a high bar for indemnity costs being awarded, “To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Part 44 (unlike one made under Part 36) does, I think, carry at least some stigma. …

Indemnity costs have several important differences to Standard Basis costs. As well as the benefit of the doubt being exercised in favour of the receiving party, proportionality cannot be raised and the successful party would be able to depart upwards from any Costs Budget that is in place. In some cases the consequences for a paying party could be substantial.

The implications for defendants, if the decision is not overturned, are serious. Even on cases where they reasonably believe they have good prospects of success there will be increased pressure to engage in what may well be non-productive ADR, which can be expensive, just to ensure that if they do lose at trial they negated the risk of indemnity costs.

Defendants in such situations will need to carefully engage in some form of ADR, or JSM, that is costs efficient and which will negate the risk of an unfair order for indemnity costs.