Properly risk assessing each party’s future costs if a claim does not settle at mediation is integral to adopting a pragmatic and commercial approach on the day. Sketching out the figures of a recent case should illustrate why failing to do so can prove expensive – for both parties.
In 2019, the Claimant (‘C’) started a claim against the Defendant (‘D’) for around £2m. D rejected the claim in its entirety and claimed its costs back from C.
In 2021, the parties attended a mediation. C offered to settle its claim for £500k inclusive of costs. D offered £0, offering only to abandon their claim for costs against C (ie. a ‘drop hands’ settlement, where D makes no payment for damages and each party agrees to pay their own costs). At that point, each party had incurred £150k costs.
By 2023, C and D did then agree to settle the claim, again via a ‘drop hands’. However, by then C and D had incurred £1m and £1.3m costs respectively.
C therefore recovered £0 from D and was £1.35m worse off in 2023 than if the claim had been settled for £500k at mediation in 2021, ie. £1m costs plus the £350k* C did not recover in 2021, had D accepted their offer at that point.
[*ie. £500k which could have been paid by D less C’s own costs of £150k]
D paid £0 to C but was also £650k worse off in 2023 than if the claim had been settled at mediation in 2021, ie. £1.3m costs less their £650k total expenditure at mediation in 2021*.
[*ie. £500k which could have been paid to C plus D’s own costs of £150k]
Collectively the parties were therefore £2m worse off in 2023 than if the claim had been resolved by a £500k payment from D to C at the mediation in 2021.
C could do nothing about the outcome. D could, however.
Had D properly risk assessed their own future costs to trial (ie. the risk of D being unable to recover them from C), they should have concluded that a payment of £500k at mediation in 2021, plus their own costs up to that point (£150k), was a far better commercial outcome than a ‘drop hands’ settlement in 2023, by which time despite paying £0 to C, D had themselves incurred £1.3m in costs.
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