Avoid Cost Penalties

Use IE – and avoid Costs Penalties

Courts now expect disputing parties to have tried alternative dispute resolution (ADR) in an attempt to settle their dispute before legal proceedings are commenced. If not, at the very first Costs & Case Management Conference, the court will want to know why ADR has not been attempted and may well order the parties to attempt early neutral evaluation (ENE), pursuant to CPR 3.1(2)(m). In light of this rule and the potential for adverse costs consequences, it is prudent for parties to use IE before spending up to £10,000 to issue proceedings.

Offers to engage in ADR should be made as soon as possible after the dispute arises, with a genuine desire to avoid litigation; at the very least, such offers should be made to protect oneself or one’s client, or to put pressure on opponents.

The Civil Procedure Rules require parties to engage in ADR. Indeed, Pre-action Protocols stipulate, “litigation should be a last resort.” Accordingly, parties to disputes ought to be recommending and utilising ADR before proceedings are issued.

If proceedings are issued, the Court is likely to require the parties to provide evidence that ADR has been considered, if not already tried. Refusal to consider and / or engage in ADR will be taken into account by the court when deciding who bears the costs of the proceedings.

Case law examples

There is an increasing body of case law confirming that costs penalties will be imposed for those parties who fail to do so.

In BXB v (1) Watch Tower & Bible Tract Society of Pennsylvania (2 Trustees of the Barry Congregation of Jehovah’s Witnesses [2020] EWHC 656 (QB), the defendants had breached a court direction given in standard form, to serve a statement explaining their refusal to participate in a joint settlement meeting. That was unreasonable conduct and the costs incurred by the claimant from the date of that refusal were assessed on an indemnity basis.

In Garritt-Critchley v Ronnan [2014] EWHC 1774 the Defendant refused to engage with ADR and was penalised by an order that the Claimant’s costs be paid on an indemnity basis.

In Laporte & Christian v Commissioner of Police of the Metropolis [2015] EWHC 371 (QB), although the Defendant won outright, his refusal to engage in ADR led to an order that he be deprived of one third of his costs.

It is over 15 years since Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576 in which Lord Dyson reminded all members of the legal profession that it was their duty to consider ADR. As stated in that case: “acting in a client’s best interests includes an obligation to provide advice on resolving disputes by all appropriate means of ADR as well as litigation”.

It will be an exceptional case for ADR to be considered inappropriate: the vast majority of cases are suitable for ADR. In the event that an opponent offers ADR, you may be required to provide a witness statement setting out full reasons for refusing within 21 days. Ignoring offers of ADR is no longer an option, because it will almost certainly lead to costs penalties.

What does this mean for you?

All disputing parties should beware of Costs Penalties. If the other side offers early neutral evaluation or any other form of ADR as an option to litigation, and your solicitor chooses to ignore the offer, this may well incur a substantial Costs Penalty, even if you win the case.

The best way to avoid this is to engage in IE at an early stage, thereby avoiding any risk of Costs Penalty, and before spending up to £10,000 on the court fee to initiate legal proceedings.