Recent weeks have brought two Court of Appeal judgments on the status of costs budgets and the unreasonable refusal or failure to mediate: Harrison v University Hospitals Coventry & Warwickshire NHS Trust and Gore v Naheed and another.
The status of costs budgets
Costs budgets help the mediation process. They function as a reality check and inform parties about the (legal) cost of going forward. And, even when mediation is pre-action (as it is now so often), parties know that the time for budgets will come.
Often at mediation, parties ask:
- What is the relationship between the budgeted costs and what is ordered on detailed assessment?
- What happens to costs incurred prior to the budget?
In Harrison v University Hospitals Coventry & Warwickshire NHS Trust, the Court of Appeal answered these two questions.
As to the relationship between the costs budget and detailed assessment, the Court of Appeal held that, on detailed assessment, unless there is a good reason to do so, the court cannot depart from the budgeted figure upwards or downwards.
As to what will constitute “good reason”, Davis LJ (with whom the other Lord Justices agreed) said:
“I think it much better not to seek to proffer any further, necessarily generalised, guidance or examples. The matter can safely be left to the individual appraisal and evaluation of costs judges by reference to the circumstances of each individual case.”
For costs incurred prior to the date of the budget costs management conference, Davis LJ held that:
“Such incurred costs are to be the subject of detailed assessment in the usual way, without any added requirement of ‘good reason’ for departure from the approved budget.”
(It is worth noting that the court considered wording in CPR 3.18 that is not the current wording, but the judgment is still relevant to the current wording.)
Unreasonable refusal or failure to mediate
Since PGF II SA v OMFS Company 1 Ltd, the trend has been to reinforce (and even expand on) the Court of Appeal’s message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons that might justify a refusal. It is a message that the Court of Appeal made expressly with the intention of operating “pour encourager les autres”.
Gore v Naheed is one of the few post-PGF cases that doesn’t follow this trend.
In Gore v Naheed, the claimant claimed damages and an injunction in respect of an alleged obstruction of a right of way. He was successful at trial, but the defendants appealed. Part of the appeal concerned the trial judge’s order that the claimant, as the overall winner, was entitled to his costs on the standard basis. The defendants referred to PGF II SA v OMFS Company 1 Ltd and argued (among other things) that the trial judge ought to have made some allowance in their favour because the claimant refused to or failed to engage with their proposal to mediate.
As to PGF, Patten LJ (with whom the other Lord Justices agreed) said this:
“[Counsel] referred us to the decision of this Court in PGF II SA v OMFS Company 1 Ltd in which Briggs LJ emphasised the need, as he saw it, for the courts to encourage parties to embark on ADR in appropriate cases and said that silence in the face of an invitation to participate in ADR should, as a general rule, be treated as unreasonable regardless of whether a refusal to mediate might in the circumstances have been justified. Speaking for myself, I have some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated. But, as Briggs LJ makes clear in his judgment, a failure to engage, even if unreasonable, does not automatically result in a costs penalty. It is simply a factor to be taken into account by the judge when exercising his costs discretion.”
Patten LJ said the trial judge did take this factor into account but concluded it was not unreasonable for the claimant to have declined to mediate. The claimant’s solicitor considered mediation had no realistic prospect of succeeding and would only add to the costs and the trial judge considered that the case raised quite complex questions of law, which made it unsuitable for mediation.
As a result, the Court of Appeal concluded that the trial judge’s refusal to make an allowance could not be said to be wrong in principle and, overall, dismissed the defendant’s appeal on costs.
That Gore v Naheed is a right of way case, the very type of case where (as I have explored previously) the courts have gone to great lengths to promote and encourage mediation, makes it a particularly surprising result.
While Harrison may have increased certainty about what happens on costs, Gore v Naheed may be said to have created uncertainty about the courts’ message about mediation. Even so, with such a plethora of precedent pointing the other way, it remains the case that parties really do roll the dice if they fail or refuse to mediate.