Can mediation deliver in cost disputes?

Mediation has become widely accepted as an effective means of resolving commercial disputes, both among the legal profession and, increasingly, by clients involved in the litigation process.

Paperwork can quickly cause detailed assessment costs to spiral out of control

In the Centre for Dispute Resolution’s (CEDR) 2018 audit report, the settlement rate from mediations was an encouraging 89 per cent.

Karl Mackie, CEDR’s founder, has commented that there are dispute areas that would suit mediation where it has not been used historically, clinical disputes between the NHS and claimant solicitors for instance. Mediation is being employed more frequently in such cases, and has no doubt resulted in less anguish for patients and savings for the NHS.

Perhaps it is also time to use mediation in resolving cost disputes?

Costs: under review

It is well-established that under the law of England and Wales, costs follow the event. Civil Procedure Rule (CPR) 42.2 (2)(a) says ‘the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party’.

In R v Lord Chancellor, Ex parte Child Poverty Action Group [1999] 1 WLR 347; [1998] 2 All ER 755, 764, Justice Dyson observed that ‘the basic rule that costs follow the event ensures that the assets of the successful party are not depleted by reason of having to go to court to meet a claim by an unsuccessful party’.

Anyone in the legal profession will tell you that reaching a settlement is not the end of the road. Following a settlement, the successful party will want to recover its legal costs, but this is often a drawn-out process riddled with complex costs arguments which require the instruction of cost lawyers. Frequently, assessing costs can turn out even more contentious than the original matter.

Drawbacks: is mediation really the answer?

Before examining why costs disputes might be suitable for mediation, we should also consider whether there are any drawbacks.

Missing checks and balances

An agreement reached between parties at mediation lacks the precise checks and balances which are provided by litigation and the court. Can an agreement reached in a single day over a complex costs dispute truly be a just result?

Does it feel fair?

Jay Folberg and Alison Taylor define mediation as a process which systematically isolates dispute issues. In a legal costs dispute setting, this essentially means employing a casual, ‘broad brush’ approach. However, when two parties have spent years in a costs dispute, putting forward lengthy arguments at considerable expense, is it realistic to ask everyone involved simply to separate the dispute issues? Can the best way to reach a settlement really be to surrender our carefully thought-out cost submissions?

Who has the bargaining power?

Every time a mediator is instructed to assist two parties in resolving a dispute, the issue of potential power imbalance emerges.

The media is saturated with criticism of rapacious lawyers with their eyes solely on the bottom line. Certainly, from a costs’ perspective, the receiving party is often fighting an uphill battle. Perhaps costs disputes are best left for the judiciary to resolve by applying the law purely to the facts?

Leave it to negotiation

Many solicitors and costs lawyers take the view that there simply is no need for a mediator. After outlining points of dispute, both parties will have a good indication of the strengths and weaknesses of their case and what is likely to ensue as the claim progresses. It is easy to assume that in time – following the round of usual arguments in relation to proportionality, retainer, rates etc – the matter will simply be settled. Why mediate?

The case for mediation in costs disputes

Below, I list some of the potential advantages of using mediation in costs disputes.

Savings in cost

Litigants are often deterred by the expense of litigation. While it is generally accepted that an initial bill of costs needs to be prepared, the period where costs really surge is after the bill has been served through to the final detailed assessment. The costs of this stage (together with costs of detailed assessment) can significantly impinge on the costs of the substantive matter. In complex cases where there is an order for disclosure, correspondence and documents can often reach the tens of thousands. Arranging the paperwork can quickly cause detailed assessment costs to spiral out of control.

Effective mediation can provide a low-cost and efficient way to resolve such disputes. Even if mediation fails, it is unlikely to substantially increase the overall costs involved.

Flexible solutions

A mediator does not need to be constrained by the strict rules of evidence. The parties are not put on trial when they arrive to mediate, nor are they placed under the pressures of detailed assessment.

In some cases mediation can offer a solution that may not be available through court proceedings

Provided the parties agree, the mediator can cut straight to the point and in some cases offer a solution that may not be available through court proceedings. It may be, for example, that while the paying party ultimately agrees to pay the costs, a more generous payment plan can be agreed as part of the mediation process.

Sharing control

There is undoubtedly more control and compliance with settlements if parties have directly participated in crafting the agreement.

Supposing the paying party raises a retainer issue, following which both parties put forward their respective arguments. At detailed assessment, after considering the advocates’ submissions, the court will rule whether there is a retainer or not. There will be no middle ground. One of the parties may have undergone years of arguing, only to receive no costs whatsoever. Mediation, however, provides parties with an opportunity to eliminate the risk of adverse decisions by retaining control over the process and its outcomes.

Savings in time

The Senior Courts Costs Office (SCCO) 2018 guide says that a provisional assessment will be listed within six weeks of a request for assessment. A detailed assessment will be listed within 12 weeks. However, due to the backlog at the SCCO, in reality listings can take up to six months or more. Can parties really afford to wait this long?

Mediation may not be suitable in every case. There will certainly be cases that are resolved through negotiation, but these often take place a considerable way down the detailed assessment route – well after mediation could have taken place.