High Court: Unreasonable refusal to ADR does not attract an order for costs on an indemnity basis

In the case of Richards & Anor v Speechly Bircham LLP & Anor (Consequential Maters) [2002] EWCH 1512 (Comm) HHJ Russen QC (sitting as a judge of the High Court) considered the most appropriate costs order to be imposed on the unsuccessful defendant law firm for refusing to consider and engage in mediation. He concluded that a failure to mediate did not justify an order for costs on an indemnity basis.

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Facts of the case

The creators of the company, i.e., the claimants had commenced proceedings against the defendant for providing them with negligent advice. At trial, the defendants lost the case and in consequence, were ordered to pay approximately £1.5m in damages.

An application was made by the claimants for costs on an indemnity basis on the grounds that the defendants had rejected four offers in regards to mediate the dispute. Three of these offers were made before the commencement of the proceedings i.e., at the pre-action stage.

In response to the first offer, the defendant did not consider that a mediation would be productive or even cost effective at that stage. In the subsequent letter, the defendants considered keeping the merits of some form of ADR under review after full disclosure has been given.

In addition, the defendant rejected the second offer of mediation as well. They argued that mediation or any form of ADR at that stage would be pointless as they were certain that the claimants would fail. A similar response was made when considering the third offer as the claim was entirely without merit.

Subsequently, the defendant rejected the fourth offer on the grounds that mediation over an unmeritorious claim would have little to no benefit. The defendant also referred to the expense of a mediation indicating that they would be prepared to have a short without prejudice call between solicitors to explain why a Part 36 offer of £500,000 made by them would not be increased.

Argument put forth by the Parties

The claimants relied upon the decision of HHJ Waksman QC in Garritt-Critchley v Ronnan [2014] EWCH 1774 (Ch) in support of their submissions. In this case, the claimants’ application was granted by the judge for indemnity costs based principally upon the defendants’ failure to engage in mediation by resisting it and claiming that the positions of the parties far apart by simply not considering any realistic prospect of the claimant’s succeeding. The judge concluded that it was unreasonable and their reasons for not considering ADR did not ‘stack up’.

In particular, the binary nature of the issue on liability, being one of fact, was one where both parties needed to engage in an analysis of the risk of their case not being accepted. The wide range of possible quantum scenarios was also considered to be an aspect rendering the case suitable for mediation, as did a mediator’s ability to defuse the emotion in the case and any feelings of distrust between the parties.

The defendants in Speechly Bircham, resisted an order for costs on the indemnity basis by arguing that their approach to mediation was not unreasonable, and that, following the Court of Appeal’s decision in Gore v Naheed [2017] EWCA Civ 369, an unreasonable refusal to mediate is only one factor of a party’s conduct to be taken into account when the costs are determined. They also relied on their Part 36 offer and the without prejudice discussions before trial between the parties’ respective lawyers.


HHJ Russen QC rejected the defendants’ argument that their approach to mediation was not unreasonable. He was persuaded by the claimants’ arguments that the defendants’ concern about the need for some disclosure to shed light on certain aspects of the case could have been explored in preparation for mediation or explored at a mediation.

However, the judge concluded that failure to engage in ADR was only one aspect of the conduct to be considered in the exercise of the discretion under CPR 44.2. He further explained that refusal to mediate does not carry the defined costs consequences of an accepted but effective Part 36 offer. The judge ordered that the defendants pay the claimant’s costs on a standard basis, considering it to be the most appropriate sanction.

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