Costs and mediation in litigation cases

Any business considering starting a court claim for breach of contract would be foolish not to also consider the issue of legal costs.

It is a very common misconception to believe that the issue of costs is the most straightforward aspect of a legal dispute which progresses to formal court litigation. In short, the loser may not always end up paying the winner’s legal costs, not least because, with litigation, it can be difficult to ascertain who the winner is.

Many fairly substantial disputes can end up being a fight moiré about costs than the underlying legal issues and alleged losses. Once a dispute has reached a certain level of legal costs on both sides, there is a reluctance to back down, sometimes because of costs as much as anything else, in circumstances where either or both parties might otherwise look for a way out from the dispute.

For all these reasons, an early attempt at mediation of a legal dispute has many advantages and such an approach is in fact encouraged by the courts also. The timing of mediation is undoubtedly important and there tends to be a window for attempted mediation in cases based on :-

  1. Both parties not having incurred very significant legal costs
  2. Both parties, after exchange of legal pleadings and where lawyers have had a good opportunity to explore the case, have a better understanding of each others case and prospects at trial

A recent case, covered in this excellent report by CEDR, which specialises in mediation, neatly illustrates all of the above points. In the case reported, one party suggested mediation to the other 20 days before trial. The other party rejected the suggestion, perhaps on a number of grounds, but one of which was clearly that there was little to be gained or saved, in costs terms, for them at that point.

The party rejecting the mediation apparently also had solid grounds for doing so because their legal position was vindicated at trial. The other party lost and were ordered to pay costs. They challenged some of the costs, saying that it was unreasonable to reject the mediation suggestion.

The Costs Judge gave that argument short shrift for many of the reasons described above.

The case is also useful for clearly showing that costs are always in the discretion of the court and that where significant legal costs have been run up, arguments over costs can continue on after the main case is concluded, incurring yet more costs !

For advice on all types of business legal disputes, including disputes between shareholders, at Gannons law firm we can help.