The High Court gives a helpful reminder of the cost sanctions imposed on parties that refuse to engage in Alternative Dispute Resolution (ADR), including mediation, when they think their defence is solid. In DSN v. Blackpool Football Club Ltd [2020] EWHC 670 (QB), Mr Justice Griffiths demonstrates that, in addition to obtaining indemnity costs for beating a claimant's Part 36 offer, a claimant may get indemnity costs from an earlier date where the defendant has wholly and unreasonably failed to engage in any form of ADR.

On 13 March 2020, Mr Justice Griffiths gave judgment in favour of the claimant, DSN, in a claim against Blackpool Football Club Ltd (BFC) for being vicariously liable for the sexual acts carried out on DSN by an individual associated with BFC. The parties agreed on a total sum for damages of £19,746.37. On 20 March, Mr Justice Griffiths dealt with the following issues:

• whether costs should be on the standard or indemnity basis;

• whether the sum was payable as an interim payment on account of costs.

Indemnity costs and Part 36 offers

Having been awarded more than its Part 36 offer dated 2 December 2019 for £10,000, DSN sought the costs consequences set out in the Civil Procedure Rules (CPR).

Rule 36.17(4) provides that the court "must, unless it considers it unjust to do so, order":

• interest on damages at a rate not exceeding 10% above base rate from the date that the relevant period expired;

• costs on the indemnity basis from the date that the relevant period expired;

• interest on those costs at a rate not exceeding 10% above base rate; and

• an additional sum of 10% of the amount awarded, subject to a cap.

BFC accepted these consequences, except that costs should not be on the indemnity basis.

In determining whether it would be unjust to order these cost consequences, rule 36.17(5) provides that the court must take into account all the circumstances of the case including the following:

• the terms of any Part 36 offer;

• the stage in the proceedings when any Part 36 offer was made;

• the information available to the parties at the time;

• the parties' conduct with regard to giving or refusing to give information; and

• whether the offer was a genuine attempt to settle.

BFC acknowledged that the factors above did not assist its position. Instead, BFC argued that, by awarding indemnity costs, there would be no test of proportionality and that would result in an unjust order. The reasoning was that costs would be based on an inflated costs budget which was approved when DSN was seeking higher damages, but the value of the claim had since fallen.

Mr Justice Griffiths agreed that an order for indemnity costs means there is no test of proportionality. However, he was not persuaded that this made it unjust for him to award indemnity costs, adding that such is the usual order when a defendant fails to beat a claimant's Part 36 offer. Mr Justice Griffiths explained that the removal of proportionality is an incentive for parties when considering whether to accept a Part 36 offer. In addition, whilst there was a costs budget in place, DSN would only be entitled to the costs actually incurred. Finally, Mr Justice Griffiths commented that he had not seen evidence that the cost budget was materially affected by the change in the value of the claim.

Accordingly, BFC was ordered to pay indemnity costs from 24 December 2019.

Indemnity costs as a result of failure to engage in ADR.

In addition, DSN claimed indemnity costs for a longer period because of BFC's failure to engage in any settlement discussions.

During the proceedings, DSN made three Part 36 offers. The first two were made on 16 March 2018 and 26 February 2019, with neither receiving a response.

On 30 October 2018, Master McCloud gave directions in the case to include the following: "At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging … must serve a witness statement giving reasons…"

A year later, on 30 October 2019, after exchange of witness statements, DSN invited BFC to enter settlement negotiations. On 6 November 2019, BFC responded by attaching a witness statement stating that BFC "continues to believe that it has a strong defence … respectfully submit that no purpose would be served by any form of ADR".

Subsequently, on 2 December 2019, DSN made the final Part 36 offer, as above. BFC rejected the same, stating again that it continued to believe it had a strong defence.

Mr Justice Griffiths stated that BFC's reasons for failing and refusing to engage in any settlement discussions were inadequate. He stated that no defence, no matter how strong, by itself justifies a failure to engage in any kind of ADR. During settlement, the parties are able to explore a range of options to resolve their differences in a way that both parties can live with. Often these do not require an admission of liability or payment of monies. Even when a payment of monies is required, the payment may be more favourable than the potential irrecoverable costs, as well as substantial in-house time required to prepare for a trial.

In the circumstances, BFC did not have a strong defence as it lost. Losing the claim does not justify an award for indemnity costs, but Mr Justice Griffiths found that BFC's conduct did. Citing the various authorities, Mr Justice Griffiths said that BFC's conduct "takes the case out of the norm" and is "outside the ordinary and reasonable conduct of proceedings". Accordingly, Mr Justice Griffiths awarded DSN indemnity costs from 1 December 2018 – one month after Master McCloud's judgment and eight months after DSN's first Part 36 offer.

Interim payment on account

Mr Justice Griffiths ordered that BFC pay an interim payment of £200,000 on account of costs. The judgment did not detail how that figure was calculated but, based on the incurred costs stated, it appeared to cover the majority of the costs.