Costs In The Case Is The Default Order Following A Failed Judicial ENE

By Toby Moreton, Costs Lawyer (regulated by the CLSB) ·

HHJ Pearce held that costs in the case is the appropriate default following a failed judicial early neutral evaluation, absent compelling factors. The most deployable reason: where ENE was court-ordered, the applicant cannot show different conduct would have saved costs, because attendance was compulsory.

3173 BIDCO LIMITED & DALRIADA TRUSTEES LIMITED V CHRISTOPHER JAMES ROBERTS & CJR PENSIONS LIMITED [2026] EWHC 2312 (Comm)

In 3173 Bidco Ltd v Roberts (No.2) [2026] EWHC 2312 (Comm), HHJ Pearce held that costs in the case is the working default for a failed judicial ENE, identifying six reasons for caution before making adverse costs orders in such circumstances. The ENE, ordered by HHJ Halliwell and conducted before witness statements had been exchanged, collapsed when the defendants advanced a previously unpleaded argument at the hearing itself. The claimants sought indemnity costs, the defendants contended for costs in the case. HHJ Pearce refused to investigate causation as a disproportionate satellite exercise the court was not well placed to determine, and noted that because ENE was court ordered, the claimants could not argue that different conduct by the defendants would have saved costs, since failing to attend a judicially ordered ENE would itself have risked an adverse costs order. At paragraph 26, HHJ Pearce noted that penalising underpreparation at late ENE perversely incentivises early ENE, at paragraph 29 he identified direct access and unrepresented litigants as weighing against costs risk, and at paragraph 27 he treated the submission that ENE was doomed as an implicit criticism of the judge who ordered it. Consistency with pre issue ENE practice reinforced the default. The defendants’ cross application for costs of the submissions was dismissed. HHJ Pearce ordered costs in the case and preserved adverse orders only for parties attending with no intention to engage.
Link to full judgment

[22] My first consideration is whether the court should apply any specific considerations to the making of court orders consequent upon failed attempts at ENE. In my judgment, there are 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.

Citations

Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston [2002] EWCA Civ 879 Before an indemnity costs order can be made, there must be some conduct or some circumstances which takes the case out of the norm.

Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 It suffices to show something outside the ordinary and reasonable conduct of proceedings to justify indemnity costs, without requiring a lack of probity or morally culpable conduct.

Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 There is strong judicial support for the use of Alternative Dispute Resolution, and the reasonableness of a party’s refusal to engage in mediation is not necessarily determined by whether the mediation had a reasonable prospect of success.

Lomax v Lomax [2019] EWCA Civ 1467 Judicial early neutral evaluation was referred to with approval as one of the tools of Alternative Dispute Resolution.

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Key Points

  • Where judicial ENE is ordered by the court rather than agreed voluntarily, a party seeking costs on the basis that different conduct by the opponent would have saved the costs of attendance cannot establish that proposition: the applicant was obliged to attend in any event, and failure to do so would itself have risked an adverse costs order. The compulsion inherent in a court order defeats the costs-saving argument. [31(3)]
  • Costs in the case is the appropriate default order following a failed judicial ENE, absent compelling factors pointing the other way. The routine making of adverse costs orders against a party to a failed ENE would discourage engagement in the process and undermine the ethos of ADR. [22, 23, 30]
  • Where investigating the cause of a failed ENE would require the court to resolve factual disputes about the parties’ conduct that are collateral to the main proceedings, the court should treat that inquiry as a disproportionate satellite exercise it is not well placed to determine, and that difficulty weighs against making an adverse costs order. [25, 31(1)]
  • A submission that ENE was unlikely to succeed and should not have been ordered goes behind the order directing it and is weakened accordingly; it amounts to an implicit criticism of the ordering judge and carries little persuasive weight on a costs application. [27, 31(2)]
  • Imposing costs risk on a party whose preparation at a late ENE is judged inadequate in hindsight perversely incentivises parties to engage in ENE at an early stage when preparation is necessarily less developed, and discourages ENE closer to trial when it may be more productive; that perverse incentive is a factor against adverse costs orders on failed ENE. [26]

[31] "I reject the argument that, on the facts of this case, that the Defendants should pay the Claimants' costs of the abortive ENE for the following reasons: … This is not a case where the Claimants can say that, but for the default of the Defendants, the ENE would have been successful and/or that costs would have been saved… If the Claimants had failed to attend an ENE that had been ordered by a Judge, they would have been at risk of an adverse costs order."

Key Findings In The Case

  • The court determined that costs in the case is the appropriate default order for a failed judicial ENE, as making adverse costs orders routinely would discourage engagement in the ADR process and undermine its ethos [22, 23, 30].
  • The court refused to investigate the causation of the failed ENE, as doing so would require resolving factual disputes about the parties’ conduct that are collateral to the main proceedings, making it a disproportionate satellite exercise [25, 31(1)].
  • A submission that ENE was unlikely to succeed and should not have been ordered was treated as an implicit criticism of the judge who ordered it, which carries little persuasive weight on a costs application [27, 31(2)].
  • The court highlighted that penalising underpreparation at a late ENE perversely incentivises parties to engage in ENE at an early stage when preparation is less developed, thus discouraging ENE closer to trial when it may be more productive [26].
  • The court noted that where ENE was ordered, a party cannot argue that different conduct by the opponent would have saved costs, as the applicant was obliged to attend in any event, and failure to do so would itself have risked an adverse costs order [31(3)].

[33] "The sting in the tail in this case is that the Defendants contend that the Claimants should not have sought their costs and that accordingly the Claimants should pay the Defendants' costs of preparing submission on the costs issue… I am not persuaded that I want to make such an order… it would be a particularly strange result of the Claimants' application that, following a finding that the immediate cause of the ENE was the conduct of the Defendants, the Defendants nevertheless recovered their costs of resisting an application for costs."

The High Court’s decision in 3173 Bidco Ltd v Roberts (No.2) [2026] EWHC 2312 (Comm) establishes a framework for resisting adverse costs applications following a failed judicial early neutral evaluation.

Background

The claimants brought a claim for damages, injunctive relief and declaratory relief arising from alleged breaches of restrictive covenants in a service agreement. At the case management conference on 27 November 2025, HHJ Halliwell directed that the matter be referred for early neutral evaluation and gave directions through to trial. Henshaw J approved the ENE referral and nominated HHJ Pearce to conduct it. HHJ Pearce gave directions on 14 January 2026, including an order that costs be in the case.

The ENE took place on 21 April 2026, before witness statements had been exchanged. It failed when the defendants advanced a previously unpleaded argument at the hearing itself. The claimants subsequently declined to resume the ENE, and costs were reserved for determination by written submissions.

Costs Issues Before the Court

HHJ Pearce had to determine two questions. First, what costs order should follow a failed judicial ENE where no specific provision had been agreed between the parties for those costs. Second, whether the defendants should recover their costs of resisting the claimants’ costs application.

The Parties’ Positions

The claimants sought their costs of the ENE on the indemnity basis. They argued that the defendants had raised an unpleaded argument at the hearing, that this was the sole cause of the wasted costs, and that the defendants had been enthusiastic about ENE while the claimants had always doubted its utility. The defendants contended that costs in the case was the only appropriate order, that any adverse order would undermine the ethos of ADR, and that the claimants had themselves contributed to the failure by proceeding before witness statements were exchanged. The defendants also applied for their costs of the costs submissions.

The Court’s Decision

HHJ Pearce held that costs in the case is the appropriate default order following a failed judicial ENE, absent compelling factors pointing the other way. He identified six reasons for that starting point, each of which carries independent weight.

The first reason concerns the ethos of ADR. Routinely making adverse costs orders against a party to a failed ENE would discourage engagement in the process. That concern applies with particular force to judicial ENE, which the Court of Appeal approved in Lomax v Lomax [2019] EWCA Civ 1467.

The second reason is the difficulty of establishing causation. In most cases the court cannot safely determine whether the costs were caused by the conduct complained of. HHJ Pearce noted that a causative link is not a strict prerequisite for a conduct-based costs order, but its absence materially weakens the applicant’s position.

The third reason is the satellite litigation risk. Investigating why an ENE failed draws the court into a detailed examination of the merits and the parties’ conduct, matters the court is often not well placed to resolve. HHJ Pearce treated this as a disproportionate exercise on the facts before him.

The fourth reason addresses timing and perverse incentives. At paragraph 26, HHJ Pearce observed that if costs orders on failed ENEs reflect the degree of preparation, parties face a greater costs risk at a late ENE than at an early one. That would perversely incentivise early ENE, when preparation is necessarily less developed, and discourage ENE closer to trial, when it may be more useful.

The fifth reason concerns the implicit criticism of the ordering judge. Where a party argues that ENE was never likely to succeed, that submission goes behind the order that directed it. HHJ Pearce treated the claimants’ argument to that effect as an implicit criticism of HHJ Halliwell, and held that it weakened rather than strengthened their case.

The sixth reason is consistency across ENE types. Pre-issue ENE is ordinarily conducted on the basis that costs form part of the costs in the case. It is undesirable for judicial ENE during litigation to operate under a different costs regime.

Applying those principles to the facts, HHJ Pearce rejected the indemnity costs application for four reasons. Causation was not established: the defendants’ failure to plead their case fully may itself have been a consequence of the claimants’ own late amendment, and investigating that question would be a disproportionate satellite exercise. The claimants’ submission that ENE should never have been ordered was weakened by the fact that both parties had agreed to proceed before witness statements were exchanged.

Critically, at paragraph 31(3), HHJ Pearce held that the compulsion argument defeated the costs saving argument: because ENE had been ordered by HHJ Halliwell, the claimants could not say they would have stayed away had the defendants’ true position been known. Failure to attend a court-ordered ENE would itself have risked an adverse costs order, so no saving could be attributed to the defendants’ conduct. Finally, the nuanced outcome of the substantive trial meant the court could not safely conclude what the ENE would have produced.

At paragraph 29, HHJ Pearce noted an additional consideration against imposing costs risk: where a party has not instructed solicitors and has engaged counsel by direct access, the prospect of a costs penalty for preparation judged inadequate in hindsight is a substantial disincentive to ENE participation. The same concern applies to unrepresented litigants.

On the defendants’ cross-application, HHJ Pearce declined to order the claimants to pay the costs of the costs submissions. He found it would be perverse to penalise the claimants in circumstances where he had accepted that the immediate cause of the ENE failure was the defendants’ conduct. The claimants’ application was not itself out of the norm.

Practical Implications

This is a first-instance decision of the Circuit Commercial Court. It does not bind other courts, but the six reasons HHJ Pearce sets out are available as a structured framework for resisting adverse costs applications following a failed judicial ENE.

Practitioners resisting such an application should lead on the compulsion point at paragraph 31(3): where ENE was ordered rather than voluntary, the applicant cannot demonstrate that different conduct by the respondent would have saved costs, because the applicant was obliged to attend in any event.

The satellite litigation point is equally available. A respondent should characterise any detailed inquiry into why ENE failed as a disproportionate exercise the court is not well placed to conduct, and should identify specific factual disputes that would need to be resolved before causation could be established.

Where ENE was ordered before witness statements were exchanged, both parties should expect that timing to weigh against any adverse costs application, regardless of which side proposed the timetable.

Practitioners acting for direct access clients or unrepresented parties in ENE proceedings should note paragraph 29 expressly. The costs risk argument is weaker where the party facing it lacked full legal representation throughout the ENE process.

The judgment preserves adverse costs orders for the clearest cases, specifically where a party attends ENE with no intention of engaging. That reservation at paragraph 30 should be kept in mind when advising clients on conduct at any ENE hearing.

 

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