COSTS—ORDER FOR COSTS— DISCRETION

Queen’s Bench Division

Jack J

18 March 2008

Where a failure to mediate has been due to the attitudes taken on either side, it is not open to one party to claim that the failure should be taken into account in the order as to costs. Further, a party who agrees to mediation, but who then causes the mediation to fail because of his unreasonable position is in the same position as a party who refuses to mediate, and such conduct can and should be taken into account in the order for costs.

Anthony Speaight QC (instructed by Stockler Brunton) for the claimants.

Edwin Johnson QC and John Gallagher (instructed by Williams Holden Cooklin Gibbons LLP) for the defendant.

The underlying proceedings concerned the alleged negligence of the defendant partnership in negotiating leases on the claimant’s behalf. Judgment in respect of liability was entered in the claimant’s favour. Mediation took place thereafter, prior to the trial of quantum. The claimant offered to accept £9m plus 80% of its costs. The defendant refused that offer and the issue of quantum proceeded to trial. The claimant approximately £900,000 in damages, excluding interest. This case concerned costs. The claimant’s costs were put at £1.84m and the defendants £2.4m. The claimants argued that they should be considered winners and should have the costs accordingly. The defendants argued that the claimants should not be considered the winners of the trial as they were awarded damages which were but a small proportion of their claim. They relied on the claimants’ exaggeration of their claim, which they maintained made mediation impossible. They referred to a number of discrete issues on which the claimants lost and claimed that they should have the costs of those, assessed as a proportion of their total costs. They did not go as far as seeking costs in their favour, but argued that there should be no order for costs.

MR JUSTICE JACK:

The exercise of the court’s discretion as to costs was provided by Pt 44.3 of the CPR. Sub-para (4) provided:

“In deciding what order (if any) to make about costs, the court must have regard to all the circumstances including: (a) the conduct of all the parties; (b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and (c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

His lordship referred to Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 4 All ER 920, which was the leading case on the effect of refusals to agree to mediation. He considered that where the failure to mediate was due to the attitudes taken on either side, it was not open to one party to claim that the failure should be taken into account in the order as to costs. For the avoidance of doubt he did not intend to suggest that there should be a particular order as to the costs incurred in connection with the “negotiations”.

Unrealistic position

With the mediation that did ensue in the instant case, his lordship considered that the claimants’ position was plainly unrealistic and unreasonable. Had they made an offer which better reflected their true position, the mediation might have succeeded. It would be wrong to say more. As far as his lordship was aware the courts had not had to consider the situation where a party had agreed to mediate but had then taken an unreasonable position in the mediation. It was not dissimilar in effect to an unreasonable refusal to engage in mediation. For a party who agreed to mediation but then caused the mediation to fail by his reason of unreasonable position in the mediation was in reality in the same position as a party who unreasonably refused to mediate. It was something which the court could and should take account of in the costs order in accordance with the principles considered in Halsey. His lordship turned to the issue of the exaggeration of the claim by the claimants. It accorded with the authorities to take account of how the exaggeration of the claim had come about. His lordship used “exaggeration” to mean no more than that the claimant only recovered a fraction of his claim advanced.

The worse case from a claimant’s view was where the exaggeration was deliberate and involved dishonesty. Unreasonable conduct fell in the middle. It might occur without fault. But even where that was so it might be appropriate to reflect in the order for costs the fact that the claimant had only recovered a fraction of his claim. The appropriate order depended on the circumstances and the court had to seek a solution which did justice between the parties. In the instant case, the claim was initially put too high because of the advice the claimants received. As the action proceeded the claimants’ belief in their claim for damages at the highest level should have diminished until by the trial they should have realised that it had no real chance of success.

His lordship considered that it would do justice in the circumstances to order that in respect of their liability costs the defendants would pay the claimants 70% of their costs after deducting their costs incurred in respect of the discrete issues.

In respect of the damages costs the claimants would have 80% of their costs, reflecting their unreasonable attitude in the mediation.