In the recent case of Thakkar v Patel (2017), the courts considered an appeal against a costs order in a case where there had been failure to fully engage in alternative dispute resolution (ADR).
The costs order revolved around a claim for dilapidations of £210,000 and a counterclaim for over £40,000.
During the case management process, both parties set out in their allocation questionnaires that they would be happy to request a stay of proceedings to allow them to take part in ADR. The court noted that both parties were, at an early stage, willing to mediate and that the claimants were proactive in trying to settle matters and had started to make arrangements for a mediation, including putting forward names of potential mediators for the defendant to consider.
In contrast, the court noted that the defendant was “slow to respond" to the claimant's correspondence and created a number of difficulties. The claimants had made numerous attempts to mediate to no avail. They wrote to the defendants setting out that their attempts had been “thwarted” by the defendant's conduct and the claimant “no longer [had] any confidence that the mediation [could] be arranged”.
The court therefore lifted the stay of proceedings. At the hearing, the claimant was awarded £45,000 and the defendant was awarded £17,000 leaving a balance of £28,000 owing to the claimant.
As to the matter of costs, the judge stated that, even though the defendant had been unenthusiastic and inflexible, it had been the claimant that had closed down the ADR procedure bringing the matter back before the court. The court stated that the claimant had done so despite there being real prospects of a successful mediation had one proceeded.
The judge order that, upon weighing up the facts of the matter at hand, the defendant pay 75% of the claimant’s costs in bringing the claim and that the claimant pay the defendant’s costs of the counterclaim.
The defendant appealed this decision.
The appeal judge agreed with the first instance costs decision. He held that there had been real prospects of settlement and a mediator would have been able to deal with the purely commercial issues. The appeal judge stated that although it was a “tough order”, it was “within the proper ambit of the trial judge’s discretion”.
The appeal judge also stated that “where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it” and that where one party is at fault in failing to comply with the process, this will “merit a costs sanction”.
This case shows that the courts expect parties to, at first, consider whether or not ADR would be suitable and, where ADR is likely to be successful, take it seriously and comply with the processes to the best of their ability.
Failure to do so will, inevitably, lead to cost sanctions leaving the defaulting party at a loss even if they are successful in the overall proceedings. This case highlights that the courts, at the first instance, are not afraid to make “tough” orders and will sanction parties who do not comply and that on appeal, the courts will be unwilling to alter decisions where they are made “within the proper ambit” of the judge’s discretion.
Practically, parties must take stock of their positions and, at the earliest stage possible, determine whether or not ADR would be an option to resolve their claim. Parties that fail to consider or comply with ADR could be left with a significant costs implication at a later stage of the process.
For more information, please contact Alexandra Withers.