Reasonable and proportionate costs incurred in seeking settlement or engaging in negotiation are recoverable in the usual way (Civil Procedure Rules PD 47 para 5.12(8)). The Court also has jurisdiction to make an order in relation to the costs of a failed mediation (Chantrey Vellacott v The Convergence Group Plc & Others  EWHC 1774).
In addition, costs (including pre-action costs) may be treated as “costs of and incidental to the proceedings” under section 51 of the Senior Court Act.
The case of Northern Oxford Golf Club v A2 Dominion Homes Ltd  EWHC 859 was heard on 9 April 2013. Pursuant to the mediation agreement, the mediator’s fees were to be borne equally between the parties, and the claimant’s solicitors had written to the defendant’s solicitors suggesting that the parties agree to share equally, “the costs of the main room and any costs attributed to the mediator.”
On detailed assessment, the claimant argued that the costs of the mediation were part of the inter-partes costs, whilst the defendant argued that the mediation was entirely separate. The Costs Master ruled that, on the facts, there was a distinction between the participation costs (the mediator’s costs, hire of room etc) and the costs of preparation and presentation of the mediation borne by the parties and their lawyers.
The Costs Master disallowed the former and allowed the latter. In a written judgment handed down on 24 April 2013, the judge hearing an application for appeal in the case said that in his view the Costs Master had probably been right although the authorities did not provide a clear answer on this.
However, Precedent H now supports the argument that failed mediation costs are recoverable.
ADR institutions are increasingly providing for the recoverability of costs in their standard agreement/terms (see CEDR’s model mediation agreement 13th edition (clause 9)).
There is no good reason why parties should agree to share the costs of mediation and when Claimants believe they are going to succeed in the underlying litigation they should be reluctant to do so. At the very least the parties should agree that the mediation cost be treated as “costs in the case.”
Otherwise, from a practical point of view, it will be difficult for the Costs Judge to rule whether the mediation costs should be recoverable or not, given that without prejudice privilege attaches to mediation.
Unless the parties agree to lift the without prejudice veil over the mediation, the Judge will not be able to look at the circumstances surrounding the mediation in order to determine whether or not it would be just to allow the mediation costs.