Parties to pay indemnity costs after reneging on mediated settlement

Pearce: Conduct justified censure

Defendants that reneged on a settlement agreement reached after mediation have been ordered to pay indemnity costs for the subsequent period, including the trial they lost.

His Honour Judge Pearce said this would “penalise the defendants for agreeing terms then not carrying them out, conduct which I well outside of the norm and sufficient to justify the censure of the court”.

Sitting in the High Court in Manchester, HHJ Pearce was ruling on costs after entering judgment of £550,000 against a property owner and a developer for defects in the property bought by the claimant.

After a mediation, the parties entered into a settlement agreement on 29 November 2022. This provided for the house to be subject to independent joint valuation, after which either defendant would purchase it at the valuation price. The developer was also to pay the claimant £200,000 in damages.

The valuation a week later priced the house at £1.3m but the defendants did not buy it.

The vendor said he did not complete the purchase because he had wanted to obtain his own valuation but HHJ Pearce said the agreement was clear. “If he had wished to reserve the right to obtain his own valuation, he should not have agreed to these terms.”

“In my judgment, this is ample grounds to conclude that, at least in respect of costs incurred after the defendants reneged on the agreement, an order for indemnity costs should be made.

“This would penalise the defendants for agreeing terms then not carrying them out, conduct which I well outside of the norm and sufficient to justify the censure of the court.

“There is no evidence of the additional costs incurred because of the defendants’ change of stance on this issue but the purpose of the order is to mark disapproval of conduct that its likely to incur unnecessary costs rather than compensating the party who ahs actually incurred those costs.”

Since the purchase would have taken a little time, the judge ordered indemnity costs from 1 January 2023.

HHJ Pearce rejected the claimant’s submission that the defendants were uncooperative throughout the litigation, such as by not responding to pre-action correspondence and not engaging with the proceedings early on such that summary judgment was entered.

Whilst all of the criticisms made by the claimant may be “legitimate”, the judge said, they did not justify indemnity costs.

The lack of cooperation and failure to engage were “features of the rough and tumble of litigation”. The judge went on: “The defendants were penalised for this by having costs orders made against them. I do not see that this conduct merits the further penalty of those costs being assessed on the indemnity basis.”

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