Alternative Dispute Resolution: Relevance to Cost Awards

Profession:Herbert Smith
 
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Pre-Woolf reform days costs "would follow the event". In other words, the successful party to legal proceedings would usually recover its reasonable costs.

However, post-Woolf and CPR, the courts have made it clear that costs will not follow the event if the successful party has failed to consider or to participate in an alternative dispute resolution process. It is likely that courts will take a similar view if parties fail to comply with any applicable Pre-action Protocol. Furthermore, recent cases also indicate that the test for awarding indemnity costs is lower than it used to be. Certainly, courts when making costs orders will closely consider the parties' conduct, both before and during proceedings. Against the background of judicial decisions is the recent address given by the Lord Chancellor to the International Arbitration Council in which he told the audience that his department's view was that no proceedings should be commenced until parties had exhausted all possible means of resolving their dispute.

Parties to a construction or engineering related dispute are required to participate in the Technology and Construction Court (the "TCC") Pre-action Protocol subject to certain limited exceptions such as where the proceedings are for the enforcement of an adjudicator's decision or if compliance would mean that a potential claim may be time-barred under the Limitation Act 1980, or any other relevant legislation.

The TCC Protocol requires the parties to consider whether some form of alternative dispute resolution procedure would be more suitable than litigation, and if so, they must endeavour to agree which form to adopt. Arguably, by following the Protocol the parties are already engaged in a form of alternative dispute resolution but if parties do not want to face costs orders being made against them in any subsequent proceedings, they must also consider ADR. If the parties choose to follow ADR they must have clear reasons for this.

In Paul Thomas Construction Limited v. Hyland & Another (TCC, 8 March 2000) an indemnity costs order was made against a party, which had failed to consider ADR.

More recently, in Dunnett v. Railtrack plc (The Times, 3 April 2002), the defendant asked for an order that the claimant pay its costs on the grounds that the defendant had succeeded before the Court of Appeal, the claimant having rejected its offer to settle the case before the appeal. The Court of Appeal refused to do so because the defendant...

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