Section 7.1 of the TCC Guide describes an Early Neutral Evaluation (“ENE”) as a form of alternative dispute resolution in which a judge or some other neutral person receives a concise presentation from each party and then provides his or her own evaluation of the case. The decision of Pearce J here related to the question of costs arising from an ENE in an employment dispute.
At the case management conference (“CMC”), the judge had transferred the case to the Shorter Trials Scheme and gave directions through to trial, including provision for an ENE.
This ENE took place earlier than anticipated which meant that witness evidence had not yet been exchanged. The ENE was unsuccessful, being adjourned part heard. The question of costs was reserved. The dispute went on to a full hearing where Bidco obtained judgment on the claim against Roberts for nominal damages in the sum of £100, but otherwise the claim and counterclaim were dismissed.
Pearce J described the case as a relatively typical employment dispute of its kind, in which the employer sought to enforce non-competition covenants and the employee argued that the covenants were unenforceable and that he was not in breach of them in any event. However, during the ENE, counsel for Roberts advanced a previously unheralded argument that Roberts was in fact not operating in competition. Bidco said that this was not an argument that could be advanced without amendment of the defence. Pearce J agreed, noting that: “it was not realistic to carry out the ENE in circumstances where the Defendants were advancing a previously unheralded and unpleaded case (so that neither the Claimants nor I had had the time to reflect upon its implications)…”.
Bidco argued that Roberts should pay the costs of the fruitless ENE on an indemnity basis; Roberts said that those costs should be costs in the case.
Pearce J noted that where parties agree to engage in ENE, whether before the issue of the claim or after the claim has been issued, it is common for them to agree a provision as to the costs of the ENE: that the costs will be borne by the party incurring the costs themselves in the first instance but ultimately will be treated as part of the costs of the case.
Pearce J also noted that CPR Part 44 gives the court a general discretion as to the basis of costs and when it comes to indemnity costs, the “well-known test” to be applied is that established in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston [2002] EWCA Civ 879: “before an indemnity order can be made, there must be some conduct or some circumstances which takes the case out of the normal“.
Amongst other points, Roberts said that Bidco’s application amounted to satellite litigation and should be discouraged. Roberts further said that the making of any order for costs, in particular an order for costs on the indemnity basis, in respect of the conduct of any ADR, risked undermining the ethos of the whole process.
Pearce J said there were “powerful arguments” for the proposition that the court should start from a presumption that costs will be in the case in the absence of compelling alternative factors. There is of course strong judicial support for the use of ADR generally. The ethos of ADR is the encouragement of cooperation and the routine making of costs orders against one or other party to a failed ENE would be liable to discourage parties from engaging in such processes.
Further, whilst there may be cases where the court can confidently predict what would have happened but for the conduct of a particular party during ADR, there are likely to be many more instances where the court cannot do so. In most cases, it will not be possible for the court to reach any secure conclusion on whether wasted costs have flowed from the conduct of the party who is being criticised. In addition, the exploration of why the ENE was unsuccessful may involve the detailed consideration of a variety of factors, both about the merits of the case and the conduct of the litigation. Here, the issues did uniformly point in one direction.
Pearce J also considered the timing of the ENE. The material available for the conduct of an ENE is likely to vary greatly depending on when it takes place in the litigation process. An ENE conducted before the issue of proceedings is likely to involve the parties advancing far less developed cases than should be the case when, as here, the ENE is conducted close to trial. This may reduce the incentive to enter into an ENE late on, when an underprepared party might risk an adverse costs order on the ground that they should have been better prepared.
Pearce J concluded that whilst, the power to make adverse costs orders is a significant tool for encouraging litigation to be conducted efficiently and properly and to avoid that kind of conduct, he would be very cautious in circumstances such as the present to make an adverse costs order, having regard to the risk that dealing with an application for costs will draw the court into satellite litigation in respect of issues which it is not well judged to determine and that discouraging parties from entering into ENE, especially once litigation is commenced. The judge therefore rejected the claim that Roberts should pay Bidco’s costs of the abortive ENE.
The judge considered that, though the immediate cause of the unsuccessful ENE was Roberts’ inability to fully plead their case, it was possible that Roberts’ inability to do so could be attributed to Bidco’s own late amendment of its case. In part, Bidco’s case was based on its suggestion that the ENE should never have occurred at all. However, the ENE here was ordered by a judge at the CMC. This was not a voluntary ENE; the court had ordered it. Further, this was not a case where Bidco could say that, but for the default of Roberts, the ENE would have been successful and/or that costs would have been saved.
