Parties to legal disputes will welcome guidance from the Court of Appeal on their expected conduct during attempts to negotiate settlement and their approach to mediation, to avoid costs penalties in subsequent court proceedings.
A landlord blocked up an internal door leading to a swimming pool, failed to maintain the gym, and replaced a communal jacuzzi with a sauna. A tenant sued for loss of amenity and won on every point.
Usually, the losing party is ordered to pay the winner's legal costs. However, the landlord argued that the tenant's legal costs in this case were incurred, in part, by her unreasonable failure:
- to mediate or negotiate a settlement before the dispute reached court;
- to respond properly to the landlord's attempts to settle or compromise.
He argued her legal costs were, therefore, due in part to her unreasonable conduct and he should not have to pay all of them.
The court found both parties had tried to agree dates for mediation, but the tenant had genuinely been unable to attend on any of the landlord's dates. It therefore rejected the landlord's argument that she had unreasonably refused mediation.
The court also rejected the landlord's argument that the tenant had unreasonably failed to negotiate. It ruled that the proper test was whether the landlord had made reasonable offers which the tenant had unreasonably rejected. Applying this test, it found that the tenant's conduct in refusing the landlord's offers (which failed to include compensation and proposed each side bear its own costs) was not unreasonable.
Parties to disputes should ensure their conduct is reasonable, notably including:
- any pre-conditions they set;
- the terms of settlement offers made;
- their responses to offers from the other side;
- their approach to negotiation;
- their willingness to engage in mediation.
Otherwise, they risk costs penalties, especially where they win but are awarded less than they originally claimed.
Case ref: Newman v Framewood Manor Management Company Ltd  EWCA Civ 959