COST BITES 221: A FAILURE TO AGREE TO MEDIATE DID NOT LEAD TO A REDUCTION IN A SUCCESSFUL DEFENDANT’S COSTS

In Assensus Ltd v Wirsol Energy Ltd (Re Consequential Matters) [2025] EWHC 503 (KB) Mr Justice Constable rejected the claimant’s argument that the successful defendant’s refusal to attend mediation should lead to a reduction in the defendant’s costs.  The case serves as a reminder that there is no “automatic” penalty when a party declines mediation.  The general rule is that costs follow the event.  The burden here was on the claimant to show that the defendant acted unreasonably – it had not. Making a reasonable offer and standing by it was not unreasonable conduct.

“… the Court of Appeal held that in deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. The burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR. In doing so, it rejected submissions that there ought to be a presumption in favour of mediation.”

THE CASE

The claimant had failed in a case brought against the defendant.  The claimant sought £2.5 million and recovered nothing.  It was common ground that the correct order was that the claimant should pay the defendant’s costs. However the claimant argued that the defendant should only recover 70% of its costs because the defendant had rejected mediation.

THE JUDGMENT ON THE “REFUSAL” TO ATTEND MEDIATION

The judge rejected the claimant’s submissions on this issue.

1. 1. In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 3 Costs LR 393, relied upon by Mr Khan for the Claimant, the Court of Appeal held that in deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. The burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR. In doing so, it rejected submissions that there ought to be a presumption in favour of mediation. Factors which may be relevant to the question of whether a party has unreasonably refused ADR will include (but are not limited to) the following: (a) the nature of the dispute; (b) the merits of the case; (c) the extent to which other settlement methods have been attempted; (d) whether the costs of the ADR would be disproportionately high; (e) whether any delay in setting up and attending the ADR would have been prejudicial; and (f) whether the ADR had a reasonable prospect of success.

1. 1. In Gore v Naheed [2017] EWCA 369; [2017] 3 Costs LR 509, the Court of Appeal, in a passage referred to in the White Book and relied upon by Ms Box, for Wirsol, identified ‘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. The Court was considering reliance upon the judgment in PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288; [2013] 6 Costs LR 973 in which the Court had upheld the trial judge’s decision to regard silence in the face of an invitation to mediate as unreasonable and to impose some, albeit limited, cost sanction. In Gore, Patten LJ pointed out that, as made clear in PGF, 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.

1. 1. In his Reply Submissions, Mr Khan relied upon the case of OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 at [39] where Vos LJ observed “The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process” and at [41] that a “blank refusal to engage in any negotiating or mediation process … to seek to frustrate a claimant’s attempts to reach a compromise solution should be marked by the use of the court’s powers to discourage such conduct.” Whilst Mr Khan submitted, without more, that that is a fortori in the present case, OMV was in fact all about the rate of enhanced interest on the judgment sum, and involved, ‘a very bad case of the defendant simply ignoring a proper offer and running up the costs thereafter‘ and ‘and the use of a vast asset base to seek to frustrate a claimant’s attempts to reach a compromise solution‘. This description is a very, very long way from the present case.

1. 1. Turning to the factors to be considered, the case was not, in itself, unduly complex and the parties’ positions were polarised: Assensus’ central claim alleged an entitlement to a bonus of c£2.5m, and Wirsol argued there was no contractual or other entitlement to such a bonus. Its position was wholly vindicated. The Defendant’s amendment at trial was ultimately irrelevant to that success (see paragraph 94 of the Judgment), and this fact does not bear on the merits of the claim. It is correct that the primary pleaded position of Wirsol – that no contractual arrangement at all existed as a result of the August 2014 – was unsurprisingly not pursued in opening, but this again was not a concession that changed the shape of the case materially. When considering the merits of the case, it is also impossible not to lose sight of the unreliability of at least parts of Mr McCarthy’s evidence, which was rejected as implausible in certain important respects.

1. 1. Although the Claimant focuses on the various invitations to mediate which were not taken up by the Defendant, this is not a case where Wirsol made no attempts at settlement. Mediation was proposed by Assensus on a number of occasions prior to the issue of proceedings. Although Wirsol did not accept these invitations, it made a Part 36 Offer of £100,000 in November 2022. This is a meaningful sum, in light of Assensus’ entitlement as it has been found to be. Assensus also made a Part 36 Offer in October 2022 of £1,041,589 (excluding costs). The question is not, as Mr Khan put it at one point, whether the Assensus’ rejection of Wirsol’s offer was reasonable; it is whether the conduct of Wirsol was unreasonable. There was a large gulf between the parties. Making, and then standing by, a reasonable offer was patently not unreasonable conduct in light of the ultimate Judgment. There were some lawyer to lawyer discussions in September 2023, which may have been brief, but these resulted in Assensus making a verbal offer to accept £725,000, again representing a significant gap in expectations. Whilst I do not consider that the costs of ADR would have been disproportionate or cause prejudicial delays, in light of the offers on the table, I consider it very unlikely indeed that ADR would have been successful. Indeed, Mr Khan’s initial submissions accepted that ‘Mr McCarthy’s rejection of £257,000 £157,500 suggests that the mediation may have failed…‘. I agree (save that, of course, there was no ‘rejection’ of £157,000, as though it was an offer to reject. This was the conclusion of Wirsol’s expert as to the potential market value of a bonus, on the assumption that an entitlement existed, which it did not). As made clear in the Judgment, Mr McCarthy had already refused a discretionary bonus of £257,000. The offer of Part 36 Offer of £100,000, whilst ultimately still generous in light of Assensus’ contractual entitlement, plainly significantly below a sum previously rejected, and the gulf between the parties therefore remained very significant.

1. It is improbable that Wirsol would have increased its offer (a position which would ultimately be vindicated) and it is plain that Mr McCarthy would not have accepted it given the size of Assensus’ Part 36, which was not reduced at any time. In circumstances where the prospect of mediation or other ADR seeking was vanishingly small, the decision not to incur costs (some of which would be irrecoverable) in mediating was not unreasonable. Therefore, the absence of a mediation in this case does not justify any reduction in Wirsol’s costs.