Can Unreasonable Refusal To Mediate Lead To Indemnity Costs On Appeal Even Where Permission Is Granted?

Indemnity costs for mediation refusal can be justified where a party’s conduct is “out of the norm.” In Fernandez v Fernandez, a 10-week delay responding to 26 proposed mediation dates, coupled with pursuing unpleaded issues on appeal, warranted indemnity costs even though permission to appeal had been granted.

FERNANDEZ V FERNANDEZ [2025] EWHC 2530 (Ch)

In Fernandez v Fernandez [2025] EWHC 2530 (Ch), HHJ Paul Matthews addressed consequential costs matters following dismissal of an appeal against removal of an executor. The court awarded costs on the indemnity basis, finding Julian Fernandez’s conduct was “out of the norm” within Hosking v Apax Partners Ltd [2019] 1 WLR 3347. Critical factors included unreasonable refusal to mediate—frustrating the process by delaying responses and declining all proposed dates—and pursuing unpleaded issues beyond the core removal question. The court rejected arguments that late service of a costs statement under CPR PD 44 warranted denying costs entirely, citing Macdonald v Taree Holdings Ltd. Applying CPR rule 44.2(8) and Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm), a payment on account of 50% was ordered given substantial disputes over quantum. The court declared the appellant was not entitled to indemnity from the estate under section 31(1) of the Trustee Act 2000, as the appeal was conducted for personal benefit. The decision confirms that unreasonable mediation refusal on appeal may independently justify indemnity costs.

In my judgment, it is unacceptable to take so long to respond to the mediation offer and suggested dates, especially when the answer was No. There was no explanation as to why this could not have been said on 13 June, let alone much earlier. It is equally unacceptable not to be able to make some re-arrangement which would enable the parties to mediate on at least one of those 26 dates. Not everyone on the team is needed. Even if it were acceptable so to behave, it is unacceptable not at least to try to find further dates, even close to the appeal hearing. It is patently obvious that Julian just did not wish to mediate.

Citations

Macdonald v Taree Holdings Ltd [2001] 1 Costs LR 147; on appeal [2001] EWCA Civ 312 A failure to comply with the costs practice direction does not automatically deprive a party of its costs; the court’s response must be proportionate and take into account any prejudice caused. Kingsley v Orban [2014] EWHC 2991 (Ch) The principle that breach of the 24-hour rule for filing a statement of costs does not justify full disallowance of costs remains applicable post-2013 reforms, subject to proportionality and prejudice. Whittaker v Bertha UK Ltd [2023] EWHC 2554 (Ch) Non-compliance with the timing of costs statement service must be considered in context and does not in itself justify an order disallowing costs, especially absent material prejudice. Hosking v Apax Partners Ltd [2019] 1 WLR 3347 Indemnity costs may be awarded where conduct is out of the norm, including unreasonable litigation behaviour, exaggerated claims, or refusal to engage in alternative dispute resolution. Gore v Naheed [2017] 3 Costs LR 509 An unreasonable failure to mediate may justify a costs sanction, although it remains only one of several factors to be considered when determining the costs order. Thakkar v Patel [2017] 2 Costs LR 233 A party who frustrates or delays mediation without justification may face costs sanctions, including indemnity costs, regardless of the outcome of the substantive litigation. Schumacher v Clarke [2019] EWHC 1031 (Ch) Considered relevant to arguments on removal of executors and trustee conduct, specifically in terms of evidential weight and applicability of prior case authority in similar probate contexts. Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm) A reasonable payment on account of costs is an estimate of likely recovery on detailed assessment, incorporating a margin for potential overstatement or inaccuracy. Involnert Ltd v Aprilgrange Ltd [2015] EWHC 2834 (Comm) Courts routinely exercise their discretion to award interest on costs at a commercial rate from the date costs were incurred until the judgment date when a costs order is made.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

A litigant’s unreasonable refusal to mediate, particularly by failing to engage with reasonable proposals and causing delays without explanation, may justify an award of indemnity costs as a proportionate costs sanction.
Indemnity costs may be ordered where an appellant pursues unpleaded or unjustified issues on appeal, thereby conducting litigation in a manner which goes beyond what is reasonably required and takes the case outside the norm.
Where there is a good reason, such as substantial disputes regarding quantum or proportionality of costs that cannot be resolved summarily, detailed assessment will be ordered even for hearings lasting one day or less.
Under CPR rule 44.2(8), a reasonable payment on account of costs should be ordered when costs are to be subject to detailed assessment, unless the paying party establishes a good reason to the contrary; submissions about proportionality or inflation of costs alone may be insufficient to resist such an order.
A trustee or personal representative is not entitled to an indemnity for legal costs, including adverse costs liability, incurred through litigation conducted solely in their personal interest rather than in the interests of the trust or estate.

"Of course, there are cases where it is reasonable not to mediate. But, in my judgment, this was not one of them. And, even where it is unreasonable not to do so, that failure is simply a factor to take into account: Gore v Naheed [2017] 3 Costs LR 509, [49]. However, in the present case, in my judgment, Julian's behaviour in frustrating the mediation purpose justifies a costs sanction. As Jackson LJ said in Thakkar v Patel [2017] 2 Costs LR 233, [31], '… The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction …'"

Key Findings In The Case

The appellant, Julian Fernandez, unreasonably failed to engage with the respondents’ mediation proposals by not responding substantively to a list of 26 proposed dates until ten weeks later, and his eventual refusal was unaccompanied by any effort to suggest alternatives, constituting conduct justifying indemnity costs as a proportionate sanction.
Julian Fernandez pursued lines of argument on appeal that lacked a pleaded foundation and fell outside the scope of the appeal as defined, including reliance on so-called “central issues” not raised in the underlying proceedings, which amounted to exceptional conduct supporting an indemnity costs order.
Although Julian challenged the timeliness of the respondents’ costs schedule under CPR PD 44 paragraph 9.5(4), the court found that the schedule was served the evening before the hearing, resulting in no meaningful prejudice to Julian, and that this alone could not bar recovery of costs or warrant any costs sanction against the respondents.
The court found that a summary assessment of costs was inappropriate given substantial disputes between the parties as to the proportionality and reasonableness of the costs claimed, and therefore directed that the respondents’ costs of the appeal be subject to detailed assessment despite the hearing lasting less than one day.
Julian Fernandez was found to have conducted the appeal in furtherance of his own interests rather than those of the estates or the trust, and accordingly was held not entitled to an indemnity out of those funds for either his own legal costs or his liability for the respondents’ costs of the appeal.

"In my judgment, Julian conducted this appeal entirely in his own interest, and not at all in the interests of the estates or the trust. Accordingly, Julian's costs, and those of the respondents that he is ordered to pay were not properly incurred within section 31(1) of the Trustee Act 2000, and he is not entitled to an indemnity in respect of them: see CPR PD 46 para 1.1(b). I will so declare."

The High Court’s decision in Fernandez v Fernandez [2025] EWHC 2530 (Ch) confirms that unreasonable refusal to mediate on appeal may independently justify indemnity costs, and that executors conducting appeals in their own interest lose their right to indemnity from the estate.

Background

This judgment follows HHJ Paul Matthews’ substantive appeal judgment handed down on 22 September 2025 ([2025] EWHC 2373 (Ch)), which dismissed Julian Fernandez’s appeal against his removal as executor. Having invited written submissions on consequential matters, the court now addresses the specific costs orders arising from the appeal, including whether unreasonable refusal to mediate justifies indemnity costs.

The case concerned an appeal by Julian Fernandez against an order made by District Judge Wales on 3 December 2024, which removed him as executor of the estates of his parents and of a trust established during their lifetimes. The respondents to the appeal were his siblings, Leessa Karen Fernandez and Graeme Nicholas Fernandez, along with other defendants to counterclaim. The appeal was heard by HHJ Paul Matthews, who handed down a written judgment on 22 September 2025 dismissing the appeal [§1]. Following the substantive decision, the court invited written submissions on consequential matters, leading to this judgment dealing exclusively with costs-related issues [§1].

Costs Issues Before the Court

The court was required to determine five matters arising from the dismissed appeal [§2]: (i) the incidence of costs, specifically whether the unsuccessful appellant should pay the respondents’ costs; (ii) the basis of assessment, namely whether costs should be assessed on the standard or indemnity basis; (iii) whether a payment on account of costs should be ordered and in what amount; (iv) whether interest should be awarded on costs; and (v) whether the appellant was entitled to an indemnity from the estates and trust fund for his own costs and any costs liability to the respondents [§2]. The court also determined whether summary or detailed assessment was appropriate [§25-28].

The Parties’ Positions

The respondents sought an order that Julian pay their costs of the appeal on the indemnity basis [§4, §13]. They argued that Julian’s conduct warranted indemnity costs, citing his unreasonable refusal to mediate, his pursuit of unwarranted factual enquiries, his making and failure to withdraw improper allegations, his misdescription of legal authorities, and the over-elaborate and repetitive nature of his grounds and skeleton arguments [§13]. They also requested a detailed assessment of costs [§25], a payment on account of £46,000 (approximately 60% of their claimed costs of £77,663.91) [§31], interest on costs at 2% above base rate from the dates of payment [§34], and a declaration that Julian was not entitled to an indemnity from the estates or trust for his costs or his liability to pay theirs [§36].

Julian’s position on costs was ambiguous [§4]. In his submissions dated 25 September 2025, he initially appeared to argue that the respondents should not be entitled to recover costs at all, primarily due to their late service of a costs statement, which he claimed was served after 16:00 on the day before the hearing and therefore deemed served on the hearing day [§4, §7]. However, his draft order proposed that he pay the respondents’ costs on the standard basis [§4]. He opposed indemnity costs, contending that the grant of permission to appeal by Michael Green J indicated his conduct was not “out of the norm” [§14]. He also argued that the respondents’ costs were inflated and disproportionate, suggesting that summary assessment was appropriate and disputing the need for a payment on account or interest [§26, §31-32]. On the indemnity issue, Julian did not provide a substantive response to the respondents’ application [§37].

The Court’s Decision

The court ordered Julian to pay the respondents’ costs of the appeal on the indemnity basis, to be subject to detailed assessment if not agreed, with interest at 2% above bank base rate from the dates the respondents paid their legal costs until judgment [§38]. A payment on account of £38,832 was required by 4 pm on 20 October 2025 [§38]. The court also declared that Julian was not entitled to any indemnity from the estates or trust fund for his own costs of the appeal or for his costs liability to the respondents [§37-38].

Incidence of Costs

On the incidence of costs, the court applied the general rule under CPR rule 44.2(2)(a) that the unsuccessful party should pay the costs of the successful party [§3, §6]. As the appeal had been dismissed, the respondents were the successful party, and no reason was found to depart from the general rule [§6]. Julian’s argument that the respondents should be denied costs due to late service of their costs statement was rejected [§7-11]. The court found that any prejudice was minimal, as Julian had the statement the evening before the hearing, and the case was not suitable for summary assessment, rendering the point largely irrelevant [§11]. The court cited authority, including Macdonald v Taree Holdings Ltd [§9], that failure to comply with the practice direction should not lead to a total deprivation of costs where otherwise entitled. The court described Julian’s submission as “formalism of the most unthinking kind” [§11].

Basis of Assessment

Regarding the basis of assessment, the court held that indemnity costs were justified due to Julian’s conduct, which was “out of the norm” [§24]. The court referenced Hosking v Apax Partners Ltd [§12] in emphasising that indemnity costs are appropriate where behaviour takes the case out of the norm.

Key factors included:

- - Unreasonable refusal to mediate | Julian delayed responding to mediation offers for ten weeks (from 14 April to 23 June 2025) and failed to propose alternative dates, effectively frustrating the process [§15-16]. On 14 April 2025, the respondents proposed 26 dates for mediation (5 in May, 21 in June) [§15]. They chased for a response on 9 May and 8 June, but received only a holding response on 13 June [§15]. Julian’s substantive response on 23 June stated none of the 26 dates was possible and that mediation was unlikely before the appeal hearing on 8 July [§15]. The court found it “unacceptable to take so long to respond” and “equally unacceptable not to be able to make some re-arrangement” for at least one of 26 dates [§16]. It concluded that “Julian just did not wish to mediate” [§16]. This alone warranted a costs sanction, as per Thakkar v Patel [§17-18].
  - Pursuit of matters beyond the core issue | Julian insisted on pursuing matters other than whether he should be replaced as executor, including what he called “central issues” that were not even pleaded [§19]. This constituted “conduct out of the norm” [§19].
  - Other conduct points | The court considered allegations regarding misdescription of authorities and over-elaborate pleadings but found these, standing alone, were not sufficient to justify indemnity costs [§21-22]. The court was not prepared to conclude that counsel deliberately miscited authorities and proceeded on the basis of mistaken understanding [§21]. Similarly, over-elaborate and repetitive pleadings, whilst regrettable, were not of themselves “conduct out of the norm” [§22].

The court concluded that the mediation refusal and pursuit of unpleaded issues “amply justify an award of costs on the indemnity basis” [§24].

Method of Assessment

On the method of assessment, the court ordered detailed assessment rather than summary assessment [§25-28]. Although Julian argued that summary assessment was suitable for a hearing lasting one day or less under CPR PD 44 paragraph 9.2(b) [§26], the court noted he had omitted the final part of the rule, which provides for detailed assessment where “there is good reason to do so, for example where the paying party shows substantial grounds for disputing the sum claimed” [§27]. The court found substantial grounds for disputing the costs existed, which could not be dealt with summarily, and therefore ordered detailed assessment [§28].

Payment on Account

For the payment on account, the court applied CPR rule 44.2(8), which requires such a payment unless there is good reason not to do so [§29]. Julian’s arguments about inflated costs went to quantum rather than the principle, and no good reason was found to avoid an order [§32]. The respondents sought 60% of £77,663.91, rounded down to £46,000 [§31]. The court, applying the approach in Excalibur Ventures LLC v Texas Keystone Inc [§30], considered factors including hourly rates exceeding guidelines and potential duplication of work [§33]. District Judge Wales had previously expressed concerns about the respondents’ costs [§33]. Taking a cautious approach, the court ordered 50% of the claimed costs, amounting to £38,832 (to the nearest pound), payable within 14 days [§33].

Interest on Costs

Interest on costs was awarded at 2% above bank base rate from the dates the respondents paid their legal costs until judgment [§34-35]. The court noted this power is “now routinely exercised” following trial [§34, citing Involnert Ltd v Aprilgrange Ltd]. The court rejected Julian’s argument that inflated costs made interest inappropriate, noting that interest would apply only to costs allowed on detailed assessment, not the claimed amounts [§35].

Indemnity from Estates

Finally, the court denied Julian any indemnity from the estates or trust fund for his costs or his liability to pay the respondents’ costs [§36-37]. The court held that the appeal was conducted entirely in Julian’s own interest, not for the benefit of the estates or trust [§37]. Costs were therefore not properly incurred under section 31(1) of the Trustee Act 2000 and CPR PD 46 paragraph 1.1(b) [§37]. The court noted that the judge below had been entitled to reach the same conclusion regarding Julian’s indemnity for costs of hostile litigation at first instance [§36].

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