Whether costs can be recovered following the withdrawal of a party from a pre-action mediation will depend on whether the mediation is deemed to be part of the pre-action protocol process, or a standalone process, and whether the parties have specifically come to some agreement in relation to those costs.
In Roundstone Nurseries Ltd v Stephenson Holdings Ltd, the Technology and Construction Court had to determine whether an arranged mediation formed part of the Pre-action Protocol for Construction and Engineering Disputes (the Construction Protocol) and therefore whether the wasted costs of the mediation could be recoverable as costs incidental to the litigation. The claimant issued proceedings close to the expiry of the relevant limitation period in relation to a concrete floor slab which proved defective. The defendant denied liability on the ground that the defect was a design defect for which a third party, Bridge Greenhouses Ltd (Bridge), with whom it had sub-contracted, was responsible. The Construction Protocol had not been pursued prior to commencement of the proceedings due to limitation issues but the proceedings were stayed to allow it to be complied with.
Both parties agreed to and prepared for the pre-action mediation. Bridge also subsequently agreed to attend, although it later pulled out due to late service upon them of the defendant's expert's report. As Bridge was no longer attending, the defendant then withdrew and the claimant sought its wasted costs arising out of their withdrawal on an indemnity basis (i.e. all costs unless unreasonably incurred or unreasonable in amount).
The court had to determine
- Whether the mediation was a separate Alternative Dispute Resolution (ADR) process or part of the Construction Protocol process agreed by the parties?
- If the mediation was a separate process, whether the court had the jurisdiction to make a costs order in respect of the costs of the mediation?
- If the mediation was part of the Construction Protocol, did the court have the jurisdiction to make a costs order?
- If it did have the necessary jurisdiction, should it exercise its discretion in favour of the claimant?
- If it did make such an order, should the wasted costs be assessed on an indemnity basis?
The court's findings
Generally, if a pre-action mediation is not part of the Construction Protocol, or indeed part of the general pre-action behaviour where other protocols exist, but a separate, standalone procedure, the parties provide for how the costs of the mediation will be dealt with, often being that each party will bear its own costs. If that is the position, costs would not be recoverable as incidental to the litigation.
On the evidence in this case, the court held that the parties had treated the mediation as part of the Construction Protocol. There was no other form of "without prejudice" meeting arranged between the parties, as is required by the Construction Protocol, other than the mediation itself. Additionally, the defendant's response to the claimant's letter of claim was that it would be provided by way of a position statement at the mediation, rather than separately by way of the usual letter of response. Further, the parties had not agreed between them that they should each bear their own costs of the mediation, regardless of the outcome, or that one party could not subsequently seek the costs as part of the Construction Protocol, being costs incidental to the proceedings.
As the mediation was part of the Construction Protocol, and as the parties had not agreed otherwise, the costs thrown away in connection with it were recoverable in principle.
The court then went on to exercise its discretion in favour of the claimant and award it its wasted costs on the grounds that the defendant was wrong to cancel the mediation. The mediation was an agreed part of the Construction Protocol, the defendant was obliged to participate in it and had failed to fulfil its obligation do so. Bridge had not been an original party to the mediation and therefore it should still have gone ahead despite Bridge pulling out.
However, costs were only awarded on a standard basis (i.e. proportionate and reasonable costs reasonably incurred) rather than an indemnity basis because although the defendant had been wrong to withdraw from the mediation, its decision had been bona fides. There was no culpability or abuse of process as such that would lead it to being penalised by an indemnity award against it.
The Construction Protocol is the only pre-action protocol in which there is an obligation to attend a"without prejudice" meeting. Such meetings will generally take the form of a mediation. It will therefore be harder to argue that a pre-action mediation in a claim where the Construction Protocol applies does not form part of the pre-action process and so its costs are not incidental to the litigation and recoverable unless, of course, the parties agree to the contrary.
When considering whether to withdraw from a pre-action mediation, or to seek the costs from an opponent who has, consider the following:
- What does the mediation agreement provide for in relation to the costs incurred? If the parties have agreed to bear their own costs of the mediation, there will be no question of recovering them from the other party. It will be a different matter if they are agreed to be payable by the ultimate loser of the litigation or the agreement is silent on the point.
- Was the mediation part of the pre-action process? If not, it is unlikely that costs will be recoverable. When agreeing to mediate pre-action, agree that this is being done on the basis that the mediation does form part of the pre-action process so costs can be recovered (if that is what is intended). This should be particularly done in non-construction cases where the Construction Protocol will not apply.
- Bad faith in withdrawing from the mediation does not have to be involved for costs to be recovered. However, if it is, there is a possibility that indemnity costs could be awarded.