ADS Aerospace Ltd v EMS Global Tracking Ltd

The unsuccessful party ordinarily pays the successful party’s costs, but the court may depart from that rule where the successful party acted unreasonably in refusing alternative dispute resolution. The burden lies on the unsuccessful party. The court must consider all the circumstances, including the nature and merits of the dispute, other settlement efforts, proportionality of ADR costs, delay and prospects of success. No factor is automatically decisive, and there is no presumption in favour of mediation. A reasonable belief in a strong case may justify refusing mediation. An interim payment on account of costs and interest on costs may also be ordered where appropriate.

The claimant’s substantive claim for more than $16 million arising from an exclusive distribution agreement had been dismissed. The defendant was therefore the successful party. The claimant sought a substantial reduction in the defendant’s costs, arguing that the defendant had acted unreasonably by declining mediation. The defendant sought standard-basis costs, an interim payment on account and interest on costs. The court determined whether the refusal to mediate justified departing from the usual costs order and what ancillary costs orders should follow.

1. The defendant was entitled to its costs on the standard basis. Under CPR 44.3(2), the general rule is that the unsuccessful party pays the successful party’s costs, although the court retains a discretion to order otherwise.
2. Applying Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576, the burden was on the claimant to establish that the defendant acted unreasonably in refusing or declining mediation. The relevant circumstances included the nature and merits of the dispute, the extent of other settlement attempts, the cost and timing of mediation, and its prospects of success. There was no presumption in favour of mediation.
3. The defendant’s conduct was reasonable. It had repeatedly sought without-prejudice discussions, while the claimant showed little willingness to engage until shortly before trial. The claimant’s substantial settlement demand suggested that mediation was unlikely to produce a realistic settlement. Mediation would have been more expensive and intrusive than direct discussions, and the defendant reasonably believed that it had a very strong case on liability, causation and quantum.
4. Following Mars UK Ltd v Teknowledge Ltd [2008] EWHC 226 (Pat) and Beach v Smirnov [2007] EWHC 3499, an interim payment on account was appropriate. The claimant was ordered to pay £525,000, together with £100,000 paid into court as security for costs and accrued interest.
5. Interest on the defendant’s costs was ordered at 1% above Bank of England base rate pursuant to CPR 44.3(6)(g).

The judgment records that the claimant’s substantive claim had previously been dismissed. This judgment determined the consequential costs issues at first instance.