Mediation can be used as a ploy to cut down on costs at a later trial. But if a party is suspected of playing along with no intention of compromising, everyone can end up losing a lot of money

Nigel Witham is a chartered designer. His company, Nigel Witham Limited, does some splendid interior design and project management. On its website there are pictures of the Ascott & Arlanda hotels in Brighton. The hotel owners are Robert Smith and Jacqueline Isaacs. But, oh dear, there seems to have been an awful row. As the judge put it: “The relationship between the parties broke down completely.” It took a

five-day High Court trial for the claim by the chartered design company for further fees of £94,132 to result instead in the design company having to pay £1,683 to the hotel owners. And he had to pay all his own legal costs and nearly all those of his erstwhile client.

I am much obliged to Fenwick Elliott for letting me have the 95-page judgment about the quarrel, as well as a separate judgment on the costs. Fenwick Elliott represented the net winner, the hotel owners. The quarrels were not about the building work but about the professional services, supply of drawings and more besides. Design enterprises should mug up on what happened.

Also interesting is what I will call a “modern” argument that the winner should be deprived of its costs because it failed to avoid the trial by mediating instead.

Let me explain. The idea of negotiating a settlement instead of facing a trial sounds attractive. Until recently there was invariably a sense of reluctance to suggest negotiation to the other side. There was a notion that whoever came up with the idea first had no real stomach for the coming ordeal. Then the courts started to coax parties to negotiate using a mediator. Then a senior court penalised a party that had refused to mediate. That party had preferred to come to trial. And it won. But the senior court penalised the winner in costs: it should not have refused the offer to negotiate.

Credit: Simone Lia

"Mary, Mary - if you don't stop being so contrary it's going to cost you big bucks!"

What started to happen then is that a party in a dispute would suggest mediation. If the other side refused to play, that might be a forceful argument against paying its legal costs if it should win.

The judge in the Nigel Witham case said: “A common complaint is for the party at risk of paying some or all of the successful parties’ costs to complain that the eventual winner failed to mediate or engage in some other form of alternative dispute resolution and so should not be rewarded by the court for his failure to explore ways in which the costs might have been significantly reduced, if not avoided altogether.”

A premature mediation simply wastes time and can lead to a hardening of positions. Conversely, a delay can lead to greater costs. The trick is to identify the happy medium

The fashion now is to suggest mediation early on in the dispute. The snag is that the full set of arguments has not yet been deployed. In the Nigel Witham case the other side said that it was a premature idea. It wanted the claimant to first set out its claim, evidence and argument.

The judge said: “It was not an unreasonable line for the defendants to take. A premature mediation simply wastes time and can sometimes lead to a hardening of the positions on both sides. Conversely, a delay in any mediation until after full particulars and documents have been exchanged can mean that the costs which have been incurred to get to that point themselves become the principal obstacle to a successful mediation. The trick in many cases is to identify the happy medium.”

Interestingly, before the trial there was something called a “judicial settlement conference”. A construction industry High Court judge was appointed to nudge the two sides to a settlement. He got nowhere. The trial judge said that had there been an earlier mediation, it was unlikely to have succeeded, as “Mr Witham had an extremely uncompromising attitude”. So there would be no reduction on the award of costs.

This is a relief. There is no point in spending money on a mediation if one party is only pretending to be seeking a compromise.

One final point. The winner won £1,683 – his legal and court costs were £123,433.