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Threat of indemnity costs for firms that dismiss mediation

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Parties judged to have unreasonably dismissed mediation as an option for out of court settlement risk being hit with indemnity costs, Matthew Smith, costs barrister at Kings Chambers, has warned.

The warning comes after Mirror Group Newspapers was last week forced to pay indemnity costs to claimants when Senior Costs Judge, Master Gordon-Saker, ruled it had unreasonably failed to discuss the possibility of mediation.

Mediation, often known as Alternative Dispute Resolution, is a process where a third party mediator, typically a barrister, helps parties settle disputes out of court.

The process has experienced growing support over recent months, with many judges now actively encouraging its use.

The case of Various Claimants vs Mirror Group Newspapers is the latest high-profile case where indemnity costs have been awarded on this basis.

Speaking about the risks of refusing to discuss the possibility of mediation, Mr Smith said:

 “In his judgment Master Gordon-Saker has reiterated the importance of Alternative Dispute Resolution and the possible consequences for litigants who fail appropriately to try to resolve their disputes outside the courtroom.

“The claimants were entitled to their costs. They successfully argued that those costs should be allowed on the indemnity basis because the defendant, Mirror Group Newspapers, had failed to respond to a suggestion of mediation.”

 Indemnity costs were awarded despite the defendant having offered, and the claimant having accepted, over £2 million in settlement of the base costs in the common costs bill and costs on the standard basis for that part of the assessment.

 In his judgment, Master Gordon-Saker said:

“I have no hesitation in concluding that the defendant has behaved unreasonably in failing to engage in the process of discussing at least the possibility of alternative dispute resolution, and mediation in particular, and given that the common costs base costs have been agreed, it seems to me that there was no reason for pessimism as to the outcome of any mediation. 

“It seems to me, therefore, that the defendant’s conduct is unreasonable to a high degree and is such as to justify an award of costs on the indemnity basis.” 

The ruling provides another very strong signal that judges are willing to penalise parties judged to have unreasonably declined to discuss the prospect of mediation and may lead to an increase in the number of cases settled out of court through the process.

Mr Smith added:

“Mediation is a process which has been looked upon increasingly favourably by judges, a development that has led to an increase in the demand for specialists in this area. 

“This ruling is proof that judges will take action where they believe that it has been unreasonably dismissed as an option, and is likely to make parties think twice before dismissing mediation out of hand.

 “They know that if they do, they may find themselves landed with substantial costs, so we can expect the option of mediation to be considered very seriously in light of this ruling.”

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