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DSN v Blackpool Football Club - Indemnity costs for failing to engage in ADR

View profile for Nicholas Lee
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In the matter of DSV v Blackpool Football Club Mr Justice Griffiths awarded the Claimant indemnity costs for a period commencing a year before they beat their Part 36 offer, due to the Defendant’s failure to engage in ADR.

Background

The Claimant was seeking damages for a historical instance of sexual abuse by a scout who was employed by the Defendant. The Claimant argued that the Defendant was vicariously liable for the actions of the scout and Mr Justice Griffiths agreed. The Defendant was ordered to pay damages of £17,000 to the Claimant. The Claimant sought costs on an indemnity basis due to the Defendant’s failure to beat an earlier Part 36 offer.

Defendant’s resistance to indemnity costs

The Defendant accepted that the majority of provisions under CPR 36.17 (4) should apply, conceding the 10% uplift and enhanced interest, but they strongly contested indemnity costs. They argued that as the claim was pleaded at between £50,000 to £100,000, the valuation of the claim was inflated and the costs budget was based on this inflated value, rather than the true value of the claim. They argued that an order for indemnity costs would preclude the Costs Judge from considering proportionality and this would be unjust as the claim was inflated.

Mr Justice Griffiths did not accept the argument of the Defendant and stated that proportionality no longer being considered is a feature of indemnity costs and indemnity costs are the usual order when failing to beat a Part 36 offer. An award of indemnity costs was intended to be an incentive to Claimants to make reasonable Part 36 offers and there is no injustice in awarding the Claimant indemnity costs at this stage.

Indemnity costs for failing to engage in ADR

The Claimant sought indemnity costs prior to the expiry of the Part 36 offer as the Defendant had refused to enter into settlement negotiations or even consider various Part 36 offers. Three Part 36 offers were made over the life of the claim and the Defendant failed to respond to the first two, while rejecting the third citing the strength of their defence as the reason for not entering into negotiations. The Defendant had been required by the Order of Master McCloud to consider settling the matter by means of ADR.

Mr Justice Griffiths concluded that the reasons provided for not entering into settlement negotiations were inadequate and stated that parties should consider ADR even for disputes where one party views the claim as unfounded. He stated that a Part 36 need not be financial and as the Claimant was not motivated by money, the acknowledgement of abuse could have gone a long way to settle the claim. The Defendant’s approach took the claim out of the norm and he awarded costs on an indemnity basis from a year before the beaten Part 36 offer was made. Costs before this date were awarded on the standard basis.

Analysis

This case demonstrates the importance of not only engaging in ADR, especially when ordered to do so, but also to consider the non-financial element of settlement proposals. By purely considering the financial elements of the claim, the Defendant missed several opportunities to potentially limit their financial losses. An acknowledgement of abuse may have gone a long way to assist the Claimant in his endeavours and  may well have drawn the claim to an early conclusion. By failing to do so, the Defendant has exposed themselves to costs which are likely to be greater than the damages recovered by the Claimant.

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