March 31, 2020

Costs: Defendant’s refusal to engage with ADR results in award of indemnity costs to Claimant

In a decision which should emphasise the need to comply with directions ordering parties to consider alternative dispute resolution, a claimant was awarded indemnity costs as a result of the defendant failing to engage ADR. The Court awarded indemnity costs commencing from a date one month after a direction ordering the parties to consider ADR. 

The Claimant had attempted to engage the Defendant, who not only refused to engage with ADR, but also did not respond to the Claimant’s Part 36 offers.  This conduct took the case out of the ordinary justifying the indemnity costs order.

Background

The Claimant was successful in proving vicarious liability on the part of the Defendant after a volunteer football scout sexually abused the Claimant on a trip to New Zealand when he was a minor in 1987. The Claimant was awarded £17,000 in damages and a second hearing then took place.

The parties were unable to agree whether costs should be awarded on the standard or indemnity basis; the amount of an interim payment on account of costs; and whether there should be permission to appeal.

Indemnity costs

The Claimant argued indemnity costs were appropriate. The Claimant had made a Part 36 offer of £10,000 in December 2019, and was awarded in excess of this sum at trial. CPR 36.17(4)(b) provides that “the court must, unless it considers it unjust to do so, order that the claimant is entitled to…costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired.”

The Defendant argued an order for indemnity costs would be unjust as proportionality was an important issue. The Claimant’s costs budget had been based on a valuation of the claim far exceeding the damages award; being valued between £50,000 and £100,000 at that time.

Mr Justice Griffiths was not persuaded by the Defendant’s argument and said it would not be unjust to make an order for indemnity costs. Indemnity costs usually result when a defendant fails to beat a claimant’s Part 36 offer, and “on no view will the Claimant recover, even on an indemnity basis, more than the costs he has actually incurred”. He therefore ordered that the Defendant pay the Claimant’s costs on the indemnity basis from expiry of the Claimant’s £10,000 Part 36 offer at the very least.

ADR

The Claimant also submitted that an order for indemnity costs should be made because the Defendant failed to engage in Alternative Dispute Resolution ("ADR"). In October 2019 the Claimant wrote to the Defendant with an invitation “to enter into settlement negotiations” to which the Defendant responded that it “continues to believe that it has a strong defence,” and “no purpose would be served by any form of ADR.” The Defendant also failed to respond to three Part 36 offers from the Claimant.

Mr Justice Griffiths found that the Defendant’s reasons for refusing to engage in mediation were “inadequate”. The Defendant did not have a strong defence; it lost the case, and in any event “no defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution”. The Defendant’s conduct, in refusing to engage with ADR and to respond to the Claimant’s Part 36 offers took “the case out of the norm” and justified an indemnity costs order.

An order for indemnity costs for the totality of the claim would not be fair and appropriate. However, the Court ordered that indemnity costs be awarded from 1st December 2018, one month after the direction ordering the parties at all stages to "consider settling this litigation by any means of Alternative Dispute Resolution".

Interim payment on account of costs

Mr Justice Griffiths ordered an interim payment of £200,000 on account of costs.

Permission to appeal

Permission for the Defendant to appeal the outcome of the claim was refused, on the basis than none of the grounds were considered to have a real prospect of success as required by CPR 52.6.

What can we learn

  • This decision should stand as a warning to Defendants and their representatives. When a directions order states that the parties must consider ADR, it is not sufficient for a defendant to rely upon the strength of its defence as a means of outright refusal. Mr Justice Griffiths stated that “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.” Defendants who do oppose ADR will risk the possibility of an adverse costs order.

  • Similarly, defendants ought to be wary of ignoring Part 36 offers. Mr Justice Griffiths reiterated Sir Geoffrey Vos’s comments in OMV Petrom SA v Glencore International AG that “the parties are obliged to make reasonable offers to settle, and to respond properly to Part 36 offers made by the other side” and “the parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.”

  • UPDATE 7TH APRIL 2020 - A similar costs decision has been reached in the case of BXB v Watch Tower which we reported on here. The Claimant was successful at trial in her claim for damages following a historic sexual assault.

    The court's directions stated at all stages the parties must consider settling by Alternative Dispute Resolution and in February 2019, the Claimant's solicitor suggested a joint settlement meeting. The trustees elected to not engage in ADR. In July 2019, the Claimant made a Part 36 offer, which was rejected with no reason provided.  Having beaten her Part 36 offer at trial, the Claimant argued the trustees should pay all of her costs on an indemnity basis on account of their refusal to engage with ADR. Mr Justice Chamberlain considered that the trustees should have served a statement explaining their refusal to engage in ADR, and by not doing so their conduct was "unreasonable".

    Whilst the trustees could argue there were strong arguments with respect to limitation and vicarious liability to defend the Claimant's case, discussions could still have taken place at a joint settlement meeting. Quantum could have been agreed subject to liability. Further, the Claimant's Part 36 offer in July 2019 indicated a willingness to settle her case for less than the court awarded. The judge concluded "there was every reason to think that if the trustees had engaged with the proposal at an earlier stage, that willingness would have become known." As such it was appropriate to award the Claimant indemnity costs from when the trustees refused to engage with ADR.