If you enter into ‘without prejudice’ negotiations before a trial, can you subsequently produce them in court when it comes to deciding costs?

Readers will recall articles some weeks ago dealing with the decision of the Court of Appeal in Halsey vs Milton Keynes General NHS Trust. The court took the opportunity to define the position relating to the issue of whether a party that has refused to mediate or follow some other form of alternative dispute resolution (ADR) ought to be penalised in costs at the conclusion of the dispute.

The court set out a number of considerations to be taken into account. It emphasised that such an order was an exception to the rule that costs follow the event, and that the burden must be on the unsuccessful party to show that there should be a departure from this rule. It is perhaps not surprising that it has taken only two months for Halsey to be considered again by the court, in a trademark dispute between two companies with similar names: Reed Executive Plc and Another vs Reed Business Information Ltd and Others.

Reed Executive succeeded at trial. Reed Business Information successfully appealed the decision of the trial judge. However, Reed applied for 70% of its costs of the trial and all of its costs of the appeal on the grounds that RBI had acted unreasonably in refusing mediation. RBI replied that its attitude to mediation could not be fully justified without making reference to the content of “without prejudice” communications, which were, by definition not admissible in court. Reed agreed that these negotiations were relevant, but argued that they supported its case and that they were admissible in court.

Reed’s contention was based on Halsey. Although that case did not mention without prejudice communications, Reed argued that it emphasised the need for a court to examein the background to a decision not to mediate. And this, it continued, could be read as enabling a court to look at without prejudice correspondence.

The court did not agree. It concluded that Halsey had made no change to the law on without prejudice correspondence. In addition, other cases had not suggested that any such exception existed in relation to costs. In fact, Halsey had emphasised the need to ensure the integrity and confidentiality of the mediation process and the court could see no reason why party-to-party negotiations ought not to be treated on the same basis.

Reed agreed that these negotiations were relevant, but argued that they supported its case and that they were admissible

This might mean that the court when it comes to the question of costs cannot decide whether one side or the other was unreasonable in refusing mediation. This is not, however, a damaging conclusion from the point of view of encouraging ADR. Far from it. The answer in such circumstances is straightforward: if you are contemplating making offers to mediate then make them on a “without prejudice save as to costs” basis. If the other side responds to that offer either openly or on the same basis, this can be produced to the court. If it fails to do so then that is a matter the court might consider relevant (but not decisive) in exercising its discretion on costs. In the event, the court examined the materials available on an open basis and came to the conclusion that RBI had not been acting unreasonably in refusing mediation.

The court’s refusal to extend Halsey must be correct: the without prejudice rule is extremely important if parties are to be able to negotiate in a confidential manner during disputes.

If you believe that the other side is unreasonably refusing mediation, that should be stated in open correspondence. In addition, consider seeking an order at the case management conference requiring the party that believes that the case is unsuitable for resolution by ADR not less than 28 days before the start of the trial to file with the court a witness statement, without prejudice save as to costs, giving the reasons for reaching that conclusion.

Simon Lewis is a partner in solicitor Dickinson Dees in Newcastle upon Tyne: simon.lewis@dickinson-dees.com

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