EE Limited v Virgin Mobile Telecoms Limited (Ruling on Costs Discounting)

Mrs Justice Joanna Smith Wednesday, 27 September 2023 ( 12:26 pm) Ruling by MRS JUSTICE JOANNA SMITH

1. The claimant now applies to disallow 20% of the defendant's costs, both of the proceedings and the application, on two grounds. The first ground is an alleged unreasonable failure to mediate at the pre-action stage by the defendant and the second ground is an alleged unreasonable delay on the part of the defendant in pursuing the summary judgment application that ultimately succeeded.

2. Essentially, the claimant says that these two features led to substantial unnecessary costs being incurred, in particular in relation to preparation for the aborted case management conference in this case.

3. Turning to the first of the grounds identified by the claimant (the alleged unreasonable failure to mediate), it is agreed between the parties that the relevant legal principles are to be found in the case of Halsey, Milton Keynes General NHS Trust, Steel v Joy, Halliday [2004] EWCA Civ 576 . I did not understand Mr Shirazi to disagree with the way in which those principles were set out in Mr Zellick's skeleton argument.

4. The unsuccessful party bears the burden of demonstrating that the successful party's refusal was unreasonable: "... it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR" ( Halsey at [13] per Dyson LJ).

5. Relevant factors to the question of whether a party has unreasonably refused ADR will include (1) the merits of the case; (2) the extent to which other settlement methods were attempted; and (3) whether the ADR had a reasonable prospect of success ( Halsey at [16]).

6. On the subject of the merits of the case, Dyson LJ said in Halsey at [18(b)]: "The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted reasonably in refusing ADR." Dyson LJ went on to identify as examples of cases where a refusal to mediate might be justified “where a party would have succeeded in an application for summary judgment pursuant to CPR 24.2” or a “party reasonably believes that he has a watertight case”.

7. On the subject of other settlement methods, the fact that other settlements have failed is a relevant factor, since it may show that one party has “unrealistic views of the merits of the case” and also bear on the question of whether ADR would have had any reasonable prospect of succeeding: ( Halsey at [18(c)].

8. As to the question of the prospects of ADR succeeding, it has been recognised that whether, objectively viewed, a mediation would have had any real prospect of success is a "crucial factor" ( Halsey at [18(f)]. The successful party is not required to show that a mediation would have no reasonable prospect of success since the burden is on the unsuccessful party to prove an unreasonable refusal ( Halsey at [28]).

9. In any event, even if a party is found to have acted unreasonably in refusing to mediate, this does not itself produce any automatic results in terms of costs penalties, but is simply an aspect of the parties' conduct to be addressed in the wider balancing exercise: PGF II v OMFS [2013] EWCA Civ 1288 at [51] per Briggs LJ.

10. Considering the factors set out in Halsey in turn:

11. First, the merits in this case were clearly with the defendant and the defendant's defence has been fully vindicated by my judgment in the summary judgment application. The defendant obviously believed that it had a strong defence and that was, in my judgment, a reasonable belief.

12. Second, as to the extent to which other settlement methods were attempted; it is in relation to this issue that Mr Shirazi makes his attack. Essentially, he contends that the defendant was invited to mediate during the course of pre-action correspondence but unreasonably refused to do so.

13. In my judgment, this is not however an accurate characterisation of what took place between the parties. As Mr Zellick has identified, these sophisticated commercial parties followed a contractual process as set out in the TSA and then engaged in correspondence with a view to trying to find a resolution. Those efforts did not succeed and there was a period of several months thereafter when nothing happened prior to the claimant sending a letter before action.

14. That letter before action said this: "We understand that since EE's issuance of the dispute resolution notice on 30 November 2021, the parties have completed the escalation process pursuant to clause 36(1) and paragraph 4(1) of Schedule 6 (Governance) of the TSA. Ultimately, the last five months of discussions have proved futile, despite EE approaching the process constructively and setting out its claim for legal recourse clearly and comprehensively. In light of VM's approach to the dispute to date, EE is not optimistic of achieving a resolution without issuing proceedings . Nevertheless, having regard to paragraph 8 of the pre-action PD and paragraph 4.2.2 of Schedule 6 (Governance) of the TSA, it is willing to try and proposes that an attempt to settle the dispute by mediation should be made" ( emphasis added ).

15. In my judgment, although this letter expressed a willingness to attempt a mediation, it was hardly a robust endorsement of the parties continuing to attempt a mediated solution. Indeed, it is very clear from the terms of this letter that the claimant was not optimistic of achieving any such resolution.

16. The response to the claimant’s letter came by way of two subsequent letters from the defendant's solicitors dated respectively 8 June and 30 June 2022, and I should say immediately that I consider the terms of those letters to have been carefully considered.

17. In the first letter of 8 June 2022 the defendant’s solicitors said this: "It is clear that given the efforts outlined above [that was a reference to the contractual dispute resolution process and the correspondence to date] the parties have exhausted both the formal and informal channels of commercial escalation and that, therefore, mediation between the parties, including the costs inherent in such a process, would be disproportionate and unlikely to yield any successful resolution of any issues."

18. In the second letter of 30 June 2022, the defendant's solicitors said this: "Your paragraph 42 refers to the history of the dispute resolution process under the TSA. VM engaged with that process fully, constructively and in good faith. Given that that was a multi-stage and detailed process, given your client's own expressed lack of optimism about mediation, given that the letter of claim has not introduced any new considerations or advanced the debate in any way and for the reasons set out in our letter of 8 June 2022, our client does not consider it appropriate to incur further time and costs in a mediation at this time " ( emphasis added ).

19. I emphasise the last three words of that paragraph. It is clear that the defendant was not ruling out the potential for a mediation for all time, but had formed the view, reasonably, in my judgment, that an attempt at mediation at that stage of the proceedings (given all that had gone before) was unlikely to prove successful.

20. There was no response from the claimant to the letters of 8 and 30 June 2022 suggesting that it disagreed with the considered approach that had been taken by the defendant's solicitors. Instead, the claimant issued its claim.

21. As it turns out, and relevant to the third factor as to the prospects of ADR succeeding, in my judgment, a mediation at that time is most unlikely to have been successful in any event.

22. Following the correspondence to which I have already referred, I understand that there was subsequently some without prejudice correspondence in November and December of 2022, initiated by the defendant, making various overtures to the claimant which were rejected or ignored. Thereafter, an offer was made by the claimant in December 2022 to settle the claim for almost the entirety of the sum claimed.

23. In my view and in light of the subsequent events to which I have referred, it is unrealistic to suppose that, had a mediation taken place when the claimant suggested that it might, it would have succeeded. The claimant appeared to consider that it was entitled to recover almost the entirety of its multi-million pound claim; the defendant rejected any such entitlement.

24. In all the circumstances, I cannot see that the defendant has acted unreasonably in refusing to mediate. Indeed, I do not consider that it did refuse to mediate. It simply indicated that it considered mediation at that stage to be premature given the attempts already made by the parties to achieve a settlement. In my judgment, that was a reasonable view to take.

25. Turning then to the second aspect of the application, namely the suggestion that there was an unreasonable delay in making the application for summary judgment. I can deal with this rather more swiftly.

26. I reject the suggestion that there was any unreasonable delay on the part of the defendant in making that application. The defendant was entitled to take the view that it wished to see the way in which the pleadings developed before making its application for summary judgment.

27. Thereafter, I do not accept that there was a significant or unreasonable delay arising by reason of the fact that the application for summary judgment was not made until February 2023, particularly given that these were large and complex proceedings potentially worth a substantial amount of money.

28. I consider that any finding that a delay of a couple of months in the circumstances of this case was unreasonable would have the potential to open the floodgates in numerous cases of this sort to parties spending time and resources making detailed and lengthy submissions to the court as to the extent to which one or other application, made at various points in the litigation for strategic reasons (which reasons the court cannot be apprised of) involved unreasonable delay so as to justify a significant deduction in the costs that may be recovered. I do not rule out the potential for procedural applications to involve unreasonable delay, but in this case a delay of a couple of months following close of pleadings was not, on any view, unreasonable.

29. Finally, I note that the reduction that was suggested by the claimant in relation to the defendants costs was a 20% reduction. There was no evidence to support the 20% figure and Mr Shirazi very frankly accepted that his client had adopted a broad brush approach in relation to that figure.

30. However, the court has no transparency as to how that figure has been arrived at in the absence of evidence. Further, as Mr Zellick correctly pointed out, the court has no comparison with the claimant's own costs in relation to the complaint around the costs incurred in connection with the case management conference. The parties’ perceptions of the reasons for costs being incurred in relation to case management differ very substantially.

31. In the circumstances, it does not seem to me that it would have been just or reasonable, having regard to the overriding objective, to make an order for a reduction of the defendant’s costs of 20% or, indeed, any reduction, absent appropriate further evidence identifying the proper extent of any such deduction.

32. For all the reasons I have given, I dismiss the application.