Can you afford to ignore ADR or not engage constructively in a JSM?

Sean Linley – Costs Consultant

It’s a phrase banned around a lot and something you will hear lots of commentators and practitioners say – Ignore ADR at your peril!

A look at recent case law demonstrates why such a warning should not be ignored.

Famously Superman’s father, Jor-El, was a Kryptonian scientist who gave dire warnings that his home planet would die. These warnings were ignored and by the time the planet was dying it was too late. It’s a fitting analogy for those who that do not heed the latest warnings given by the Court in the cases of BXB v Watch Tower and Bible Tract Society of Pennsylvania & Ors [2020] EWHC 656 (QB (11 March 2020) and EAXB v University Hospitals of Leicester NHS Trust (reported via Kings Chambers).

Background – BXB v Watch Tower and Bible Tract Society of Pennsylvania & Ors

The case of BXB related to a claim for personal injuries arising from a rape which took place in 1990. The Claimant’s case was successful with the Claimant receiving judgment in the sum of £69,500.00. The Claimant beat their Part 36 offer and the Second Defendant accepted that this meant they had to pay the Claimant’s costs on an indemnity basis from the expiry of the relevant period of the Claimant’s offer.

The Claimant, however, alleged that the Second Defendant should pay all of their costs on an indemnity basis because of the Defendants’ unreasonable conduct, “in particular their refusal to engage in [ADR]”.

In this case the Court had given the following direction:

‘At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in 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.’

Despite this, it was contended that the Defendants did nothing to attempt to seek to explore settlement other than to suggest a ‘global offer’ to settle the Claimant’s case and those of CXC and DXD who had also been sexually assaulted by the same individual and were represented by the same solicitors. The Claimant made clear that a global offer would create a ‘conflict of interest’ and asked the Defendants to make separate offers. The Defendants, by response, proposed a joint settlement meeting (“JSM”) for the cases of CXC and DXD but not the claim at hand. The Claimant invited the Defendant to agree to a similar meeting in the Claimant’s case but this was turned down on the basis that the Second Defendant had “no authority to negotiate settlement of BXB’s claim at the JSM”. No discussion of the Claimant’s case took place at the JSM for CXC and DXD. The Claimant put forward two Part 36 offers sometime after the JSM and the Defendants rejected both offers without giving any reason.

It was also argued that the Defendants had breached the Court’s directions by failing to make any real attempt at settling the claim. Further it was noted by the Court that the Defendants had not provided a witness statement explaining why they would not engage in ADR as proposed by the Claimant. At the hearing Mr Justice Chamberlain was critical of the Defendants:

“there is still no witness statement explaining why they chose not to have a joint settlement meeting. This is, therefore, a case not just of silence in the face of an invitation to participate in ADR, but of breach of an obligation imposed by court order to explain a refusal so to participate. That conduct is, in my judgment, unreasonable.

The Decision – Refuse to engage in ADR and face the consequences

The Court accepted that the case of BXB was different from those of CXC and DXD but made the distinction that just because the Defendant felt they had a strong case it did not mean there was nothing to discuss. Mr Justice Chamberlain stated that:

“One important purpose of a joint settlement meeting is to convey a defendant’s view about the strength of its case. In any event, the possibility of agreeing quantum subject to liability provides a good reason to engage in discussions even in a case where the defendant is confident about its case on liability. In this case, that would have shortened the trial and avoided some of the intrusive questioning which in the event was necessary.

Whilst it was also noted that sums recovered by the Claimant were significantly less than those sought, it was determined that this did not “excuse the failure to engage at all with the proposal of a joint settlement meeting.”

Mr Justice Chamberlain considered that an award of indemnity costs would not prejudice the Defendants as costs could still be assessed and would still only be allowed if they were reasonably incurred and reasonable in amount. It was noted that the only difference with indemnity costs was that the burden of proving any alleged unreasonableness would be with the Paying Party (in this case the Defendants).

The High Court ordered that indemnity costs would apply to all of the costs incurred after 25 February 2019, this been the date the Defendants’ refused to engage with the invitation to attend a JSM.

Is it enough to merely attend ADR?

The answer appears to be no. It is not enough to simply attend, parties have to make a meaningful contribution.

In EAXB v University Hospitals of Leicester NHS Trust (reported via Kings Chambers) the Claimant was awarded indemnity costs. One of the key reasons for this was that despite the Defendant instigating a JSM, they took the position at the same of making no offers. The Claimant was successful in arguing that such a position was wholly unreasonable. The fact the parties were far apart was not a sufficient enough reason to make no offer at all.

Santinder Hunjan QC, representing the Claimant, also reflected on the fact that the indemnity costs award was also made in relation to the Claimant having beaten their Part 36 offer for liability of 80% after establishing liability in full and owing to a later application seeking to bring in potentially fundamental statistics into the case.

EAXB not only reminds us that parties must bring some meaningful to a JSM but that Part 36 remains one of the most powerful tools in a practitioners’ arsenal.

Lessons Learned

Many practitioners will have experienced the situation where ADR is refused or where a JSM ended up ultimately been unproductive and a waste of time and money. It is clear from recent decisions that the Court will punish such an approach. It is important that practitioners are aware of the fact where these situations arise a punitive outcome can be sought. The advantages are great. Indemnity costs shift the burden to proving unreasonableness to the Paying Party. This ultimately makes assessment more difficult for Paying Parties and will ordinarily see better outcomes for Receiving Parties. It may also be advantageous in that an award for indemnity costs would disapply a Costs Budget (see Lejonvarn v Burgess and Burgess [2020] EWCA Civ 114).

This is as much a cautionary tale about failing to heed a warning as it is a guide as to how to most effectively exploit those that do. Don’t refuse ADR without a significant reason and be prepared to engage in it if you do proceed. And if the opposing parties fails on one front then challenge them.

When Jor-El’s warnings about his home planet were ignored, he did manage to save his son. His son was Clark Kent or as he’s better known Superman. The relevance of this you ask? Heed the warnings given and you could have a potentially powerful case, even if those around you do not. Don’t be surprised though if the Other Side look for your kryptonite if you give them an opportunity to do so (and that goes for whatever side you are on, receiving or paying party). Most of all don’t say we didn’t warn you. Ignore ADR at your peril …

If you find yourself heading towards settlement or a hearing where a costs award may be made and you are unsure whether you have the merits in pursuing a claim for indemnity costs then our experts can assist and help you to build a robust case (where appropriate).

We can also provide bespoke costs training on all issues, including those raised in this blog. During the Covid-19 Crisis we can provide remote training. Please feel free to get in touch for information.

Sean Linley  | Costs Consultant | Partners In Costs Ltd