If you refuse to even try and settle a dispute – there will be consequences
29 September 2020
All businesses are suffering from the effects of Covid-19 and the various measures being taken to combat the spread of the virus. Disputes are continuing to rise and contracting parties remain desperate to ensure that they receive their contractual entitlements without delay – particularly payment.
The Cabinet Office has issued ‘guidance’ on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency and urged parties to “… seek to resolve any emerging contractual issues responsibly, through negotiation, an early neutral evaluation or mediation, before these escalate into formal intractable disputes.” While this is a sensible approach, at the end of the day it is only guidance and in these challenging times, contracting parties may not be inclined to follow it, particularly where they firmly believe they are on the right side of the dispute.
But ignoring entreaties to try and resolve disputes by negotiation can be very costly because the court is prepared to wield its’ power to sanction those who refuse to try and resolve disputes.
In January 2018 proceedings were commenced against a football club, and in the 2 years before the case came to trial in March 2020, the claimant made 3 offers to settle the proceedings by offering to accept specified sums as damages; the lowest amount being £10,000 which the claimant offered to accept in December 2019. The football club didn’t even respond to the first 2 offers, because it believed that it had a strong defence to the claim.
In October 2018 the court gave directions for the conduct of the case and its’ order included the following:
“Alternative Dispute Resolution
At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise.”
A year later, and after not insignificant legal costs had been incurred and the parties had exchanged statements of witnesses of fact, the claimant’s solicitor wrote to the football club’s solicitor and said:
“I am instructed to invite your client to enter into settlement negotiations in relation to this matter”.
The club’s solicitor responded saying:
“… the Defendant does not intend to engage in settlement negotiations and remains confident in the strength of its defence”.
Under the court’s order of October 2018, the solicitor acting for the football club provided a witness statement which said:
“Having considered all of the available evidence, the defendant continues to believe that it has a strong defence to this claim and stands by the contents of its Defence dated 10 May 2018. In the circumstances I respectfully submit that no purpose would be served by any form of ADR”.
The case went to trial and on 13 March 2020 and the court found in favour of the claimant. The parties agreed to the terms of an order which included a provision that the football club would pay the claimant damages of £19,746.37 inclusive of interest. However, the parties could not agree on the position in relation to an order for the legal costs of the claimant to be paid by the football club.
Several issues were brought back before the court, including an application by the claimant that the football club should pay legal costs on the indemnity basis because of the club’s failure to engage in any form of alternative dispute resolution. The court was unimpressed by the attitude of the football club and in finding in favour of the claimant on the question of indemnity costs, said:
“The reasons given for refusing to engage in mediation were inadequate. They were, simply, and repeatedly, that the Defendant “continues to believe that it has a strong defence”. No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution.”
“If the Defendant had been correct that it had a “strong defence” its response to the Claimant’s settlement overtures … would still, in my judgment, have fallen short of an acceptable level of engagement with the possibility of settlement or alternative dispute resolution”.
The court awarded the claimant indemnity costs from 1 December 2018 and ordered the football club to make payment of £200,000 on account of the costs incurred by the claimant – ten times the amount of the damages.
The Covid pandemic, and the steps taken to try and control the spread, continues to create challenges for businesses of all sizes and there are, inevitably, disputes between commercial parties. It is inevitable that in some of those disputes, one party will believe that there is no justification for the other party failing to fulfil its obligations and no defence to any claim, but that belief on its own will not be enough to persuade a court that a refusal to even engage in an attempt to resolve the dispute was appropriate.
The government may offer guidance as to how parties should behave when resolving disputes, but the court is very willing to use its power to sanction those it considers not to have acted appropriately.
1 DSN -v- Blackpool Football Club Limited  EWHC 670 (QB)
With the changing status of COVID-19 in the UK and internationally, the business community is facing many urgent and unique challenges, including day-to-day operations, IT, workplace wellbeing, premise issues and trying to maintain business as usual.