The Court of Appeal has handed down a judgment which should warn those engaged in legal disputes that the ‘loser pays costs’ rule in litigation is not a hard and fast one and that if the winner unreasonably refuses to mediate, they may end up carrying their own costs.

The case involved a dispute between a landlord and tenant over what proportion the tenant should pay of the dilapidations costs claimed by the landlord under the lease after the tenant had vacated the premises.

The tenant had refused to mediate the claim. In the judge’s words, the ‘serious and carefully formulated written invitation by the claimant’s solicitors to participate in mediation was met with complete silence by the defendant’.

The dispute dragged on and on, with offers passing back and forth at intervals, and was eventually settled on the day the court hearing was due to take place, when the landlord accepted an earlier offer made by the tenant in order to save the costs of the trial. During the period between the tenant making the offer and the date of settlement, each side in the dispute had run up legal costs of approximately £250,000.

The question of who carries what legal costs in circumstances such as these can get convoluted. In principle, the tenant’s costs in the latter stages of the dispute should have been met by the landlord. However, the judge refused to order this, holding the tenant’s refusal to engage in the mediation process to be unreasonable. The tenant appealed to the Court of Appeal, but without success.


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