The (indemnity) cost of hubris - Mediator and Counsel Stephen Barker comments
Stephen Barker, leading CMC Registered Commercial Mediator and barrister at 4-5 Gray’s Inn Square reviews an important development in mediation costs law – Mr Justice Griffiths’ costs judgment in DSN v Blackpool Football Club  EWHC 670 (QB) (handed down on 20th March 2020).
- lack of proportionality in indemnity costs does not make indemnity costs order under CPR 36.17(4) “unjust”.
- confidence in the strength of your defence (even if correct) is not good reason to refuse to mediate.
“No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution.” Griffiths J
In the eighteen years since Dunnett v Railtrack plc  EWCA Civ 303, its “refuse to mediate at your own risk” message may have been lost. In a world where being on page 2 of Google is as good as being dead and buried, it is time to “bump” Lord Justice Brooke’s warnings in Dunnett back into the consciousness of those conducting litigation. In DSN v Blackpool Football Club Limited  EWHC 670 (QB) Griffiths J does just that.
As a seasoned civil mediator, it comes as little surprise to me that parties are still falling short of their duty to further the overriding objective in CPR Part 1, and refusing to engage in settlement negotiations. It is all too easy for a party and its legal team to close their eyes to risk. It is also easy to lose sight of the solicitor’s duty to support the court in its duty managing their case.
CPR Pt 1.3 makes the parties’ duty clear:
“The parties are required to help the court to further the overriding objective.”
CPR Pt 1.4 sets out the court’s duty to manage cases, including:
“(e) encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure;
(f) helping the parties to settle the whole or part of the case;”
Quite plainly, any refusal to enter into negotiation that amounts to a hand held with the palm in the other party’s face is not helping the court to further the overriding objective CPR 1.4 (e) and (f). DSN v Blackpool FC makes it clear that, for the purpose of considering “conduct of all the parties” when exercising discretion to order indemnity costs under
CPR Pt 44.4, blunt refusal to mediate based on a party’s assessment of the merits “takes it out of the norm” (to quote Lord Woolf in para 19: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston (Costs)  EWCA Civ 879). It is also "outside the ordinary and reasonable conduct of proceedings" (Esure Services Ltd v Quarcoo  EWCA Civ 595 per Waller LJ at para 25).
For those of us who cut our teeth pre-Woolf, pre-CPR, the overriding objective was intended to be a game-changer – to make it the duty of those conducting litigation to assist the court in managing their cases. The new world was all about co-operation. I am now in the minority - most lawyers have come to the law post-CPR.
In his landmark judgment, at para 15 of Dunnett, Brooke LJ intended punitive costs to be noteworthy pour encourager les autres. At the time, any case about ADR was still news:
“It is to be hoped that any publicity given to this part of the judgment of the court will draw the attention of lawyers to their duties to further the overriding objective in the way that is set out in Part 1 of the Rules and to the possibility that, if they turn down out of hand the chance of alternative dispute resolution when suggested by the court, as happened on this occasion, they may have to face uncomfortable costs consequence.”
This week marks the 21st birthday of the coming into effect of the Civil Procedure Rules, on 26 April 1999. There is now a standard direction for ADR and ADR is prominent in the pre-action protocols. It is not all that surprising that ADR has become “vanilla”. “A for alternative” was never intended just to suggest something new wave, but rather alternative to the formal court process. For some, ADR is just another weapon in the litigator’s armoury. It is a staging post. A range-finder. A “seek no quarter” marker on the road to victory, whether by judgment of the court or by submission or capitulation. But the CPR’s overriding objective still requires parties to assist the court in its attempts to encourage parties to resolve their disputes using co-operative alternative means, such as mediation.
On 20th March 2020, Griffiths J handed down his judgment on costs in DSN v Blackpool FC  EWHC 670 (QB). Belief in the strength of a defence (or by extension a claim) is not, of itself, a good reason to refuse to enter into ADR. The uncomfortable costs consequences of refusing to mediate are long established. At para 30, Griffiths J gives Dunnett a much needed ‘bump’: “the response to paragraph 4 of Master McCloud's Order is particularly disappointing in this respect” referring to Brooke LJ’s warning at para 15.
The writer hopes that litigating parties will take heed of Mr Justice Griffiths’ encouragement as a warning, but also as an explanation that mediation is a positive benefit to parties, whatever their respective merits. In particular, listen to the wisdom of these words (para 28): [emphasis added]
..Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money. Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought.....
... In the present case, for example, I have already in my previous judgment commented (at  EWHC 595 (QB) paras 188-189) on the opportunity missed by the Defendant at the very least to acknowledge and accept that the Claimant was sexually abused by Roper (it having no positive case to the contrary, and no evidence to support a case to the contrary). The passage in the Claimant's witness statement which I quoted in paragraph 188 of my previous judgment shows that the Claimant was not primarily motivated by money (and the low figure of his final Part 36 offer confirmed that). He "expected the club to want to engage and to understand what had happened". The club could have engaged with him (having received his statement, which was dated as long ago as 28 May 2019) without prejudice to what it presented at trial as its strongest defences: namely, that the claim was outside the limitation period and that the club was not vicariously liable for Roper's sexual abuse of the Claimant, even if that abuse were to be admitted. It did not engage at all.
January 2018, DSN issued a claim for psychiatric injury for historical childhood sexual abuse of Claimant against Blackpool FC on the basis that it is vicariously liable for acts of Frank Roper, convicted sex offender, now dead. The Claimant was
At trial at the end of January 2020, the Claimant succeeded in his claim for general damages but not his much larger loss of earnings special damages claim. He was awarded £17,000, beating a Part 36 offer of £10,000 made on 2 December 2019.
The chronology of offers and ADR
On 16 March 2018, the Claimant's solicitors made a Part 36 offer to settle the claim for £50,000. The Defendant did not respond at all.
On 30 October 2018, Master McCloud gave directions in the case. Directions included the standard form ADR direction:
"ALTERNATIVE DISPUTE RESOLUTION
At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise."
On 26 February 2019, the Claimant's solicitors made another Part 36 offer, this time to settle the claim for £20,000. The Defendant did not respond to this offer either.
On 30 October 2019, the Claimant's solicitors invited the Defendant to enter into settlement negotiations.
On 6th November 2019, Defendant’s solicitors made a witness statement (pursuant to the ADR direction) setting out reasons for refusing to enter into discussions. It said:
“The parties have now completed all outstanding evidential directions prior to trial in this matter (save for service of the counter schedule of loss which is due on 26 November 2019). Having considered all of the available evidence, the defendant continues to believe that it has a strong defence to this claim and stands by the contents of its Defence dated 10 May 2018. In the circumstances I respectfully submit that no purpose would be served by any form of ADR."
On 2 December 2019, the Claimant’s solicitors made the Claimant’s final Part 36 offer to settle the whole claim for £10,000, being the offer that it beat at trial.
On 3 December 2019, the Defendant’s solicitor wrote:-
"I do not have instructions to accept the offer. As advised in my statement dated 6 November, my client continues to believe that it has a strong defence to this claim and stands by the contents of the Defence dated 10 May 2018.
I now urge you to turn your attention to the trial bundle index which is due to be agreed by 23 December 2019..."
In this judgment on costs, Mr Justice Griffiths considered the claimant’s application for indemnity costs with regards to both
- the pre-trial part 36, and also
- the Defendant’s failure to engage in ADR.
- Claimant entitled to indemnity costs on Part 36 notwithstanding the level of costs wholly disproportionate to the award.
- Claimant entitled to indemnity costs for failure to engage in ADR backdated to 28 days after order for ADR direction in October 2018.
- The judge made an interim costs order of £200,000.
Extracts from the judgment below.
Extracts from the judgment:
Mr Justice Griffiths:
“Para 11: ... CPR44.3(2)(a) does not apply, with the result that the requirement when costs are assessed on the standard basis that costs should be "proportionate to the matters in issue" does not apply. But that does not make me think that it would be unjust to make the order for indemnity costs which I must otherwise make under CPR 36.17(4)(b). It is an inherent feature of indemnity costs that proportionality is not a factor on assessment, and indemnity costs are the usual order for costs when a Defendant fails to beat a Claimant's Part 36 offer.”
The judge went on to reiterate that the very purpose of enhanced interest and indemnity costs is to up the ante for the recipient of a part 36 offer.
“12. See also East West Corporation v DKBS 1912 and AKTS Svenborg  EWHC 253 (Comm) per Thomas J at para 14:-
"The purpose of the award of an enhanced rate of interest or indemnity costs is to encourage parties to make offers of settlement in the ordinary sense of that word. It is to compensate the Claimant who has made an offer that should have been accepted for the risk of continuing with the action and to bring home to the defendant the risks being run by not accepting it."
“13: ... the removal of proportionality as a consideration is part of the incentive given for the Part 36 offer to be made and accepted, and I see no injustice in the Defendant in this case paying indemnity costs, having failed to beat the Part 36 offer.”
“14. It follows that the Defendant must pay the Claimant's costs on the indemnity basis from 24 December 2019 pursuant to CPR 36.17(4)(b).”
Failure to engage in ADR
“28. The reasons given for refusing to engage in mediation were inadequate. They were, simply, and repeatedly, that the Defendant "continues to believe that it has a strong defence". No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money. Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought. The costs of an action will not always be limited to financial costs, however. A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties which a settlement could spare them. As to admission of liability, a settlement can include admissions or statements which fall short of accepting legal liability, which may still be of value to the party bringing a claim. In the present case, for example, I have already in my previous judgment commented (at  EWHC 595 (QB) paras 188-189) on the opportunity missed by the Defendant at the very least to acknowledge and accept that the Claimant was sexually abused by Roper (it having no positive case to the contrary, and no evidence to support a case to the contrary). The passage in the Claimant's witness statement which I quoted in paragraph 188 of my previous judgment shows that the Claimant was not primarily motivated by money (and the low figure of his final Part 36 offer confirmed that). He "expected the club to want to engage and to understand what had happened". The club could have engaged with him (having received his statement, which was dated as long ago as 28 May 2019) without prejudice to what it presented at trial as its strongest defences: namely, that the claim was outside the limitation period and that the club was not vicariously liable for Roper's sexual abuse of the Claimant, even if that abuse were to be admitted. It did not engage at all.
29. If the Defendant had been correct that it had "a strong defence", its responses to the Claimant's settlement overtures and the statement made in compliance with paragraph 4 of the Order of Master McCloud would still, in my judgment, have fallen short of an acceptable level of engagement with the possibility of settlement or Alternative Dispute Resolution. As Sir Geoffrey Vos C said in OMV Petrom SA v Glencore International AG  EWCA Civ 195 at para 39:
"The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court's powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process."
30. As it turned out, the Defendant did not have a strong defence. It lost the case. That alone would not justify an award of indemnity costs but the conduct I have set out, in my opinion, does. It is conduct which "takes the case out of the norm"...”
Date of judgment: 20th March 2020