Lobster Group Ltd v Heidelberg Graphic Equipment [2008] EWHC 413 (TCC)

The facts: C purchased a large printing press from D1. D2 provided the finance. C alleged that the press was defective, and that in consequence it suffered extensive losses.

In January 2005 the parties took part in a mediation which failed to resolve the dispute. Proceedings were commenced in May 2007, after C had gone into liquidation. A few months later, D1 and D2 sought security for costs. D1's application for security covered both pre-action costs and the costs of the proceedings.

The issue: Should the amount of security include pre-action costs, and in particular, the costs of the pre-action mediation?

The decision: In certain circumstances pre-action costs incurred prior to the commencement of litigation can be recovered if they are "incidental to" the subsequent proceedings. As a matter of principle, such pre-action costs can be the subject of an application for security. However the court should be slow to exercise its discretion in favour of the applicant particularly if there is extensive pre-action activity or a long delay between incurring the pre-action costs and issuing proceedings.

More importantly, the judge concluded that the costs of the pre-action mediation were not recoverable as a matter of principle, and he would exercise his discretion against allowing them even if they were. His reasons were:

  • The mediation costs could not be described as "costs of and incidental to the proceedings" as they clearly were not.

They were costs incurred in pursuing a valid method of ADR.

  • The costs were incurred two and a half years before proceedings even started.
  • The course of the mediation and the reasons for its unsuccessful outcome were confidential.

  • The parties had agreed to bear their own costs of the mediation, so it would be a breach of that agreement if D1 now sought to recover those costs.

Comment: The judge's conclusion that pre-action mediation costs are not recoverable as a matter of principle is a surprising one in light of the senior judiciary's firm support for the mediation process. The Lord Chief Justice of England and Wales, Lord Phillips of Worth Matravers recently said:

"It is madness to incur the considerable expense of litigation - in England usually disproportionate to the amount at stake - without the parties making a determined attempt to reach an amicable settlement.... Parties should be given strong encouragement to attempt mediation before resorting to litigation. And if they commence litigation, there should be built into the process a stage at which the court can require them to attempt mediation."

Sir Anthony Clarke, Master of the Rolls, spoke in a similar vein at the Civil Mediation Council's national conference this month, promoting mediation as part of the normal pre-trial case management process. His view is that despite the Halsey decision (which has been understood to rule out compulsory mediation), it is at least strongly arguable that the court retains a jurisdiction to require parties to enter into mediation. If the courts are going to compel - or at the very least strongly encourage - parties to mediate before litigating, then it seems likely that pre-action mediation costs will become more widely recoverable.

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