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Costs: ADR – silence in face of invitation to mediate – unreasonable

PGF II SA v OMFS Co 1 Ltd
23 October 2013
Court of Appeal

Alexia Drew and Simon Mason review the Court of Appeal’s decision in PGF II SA v OMFS Co 1 Ltd (2013) to extend the Halsey guidelines.  Parties who stay silent in response to an offer to enter into mediation risk being penalised by the court in costs.  It is not an option to stay silent in the face of an offer to mediate, even if it is reasonable to refuse.

Facts

The Claimant was the freehold owner of office premises, the leases of which were assigned to the Defendant, who subsequently sub-let the premises. The claim itself arose out of a dispute regarding liability for dilapidations, wherein the Claimant brought proceedings against the Defendant for recovery of around £1.9 million.

Around the time of commencing proceedings the Claimant made a Part 36 offer of £1.125 million, which was superseded by a further Part 36 Offer of £1.25 million. At the same time, the Claimant invited the Defendant to attend a mediation (the letter even went as far as to include proposed dates and mediators). The letter also asked for the Defendant’s explanation for any refusal to mediate.

On the same day, the Defendant made a Part 36 Offer of £700,000. The Defendant did not, however, respond to the Claimant’s proposal to mediate.

The Claimant subsequently wrote to the Defendant again proposing mediation and asking for dates of availability, or in the alternative, an explanation for any refusal to mediate. The Claimant did not receive a response and therefore chased the Defendant. The Defendant promised that it would provide a “full response” but when it eventually did respond to some of the points made by the Claimant, it failed to address the proposal of mediation.

The Claimant subsequently made a further Part 36 Offer of £1.05 million.

On the day before trial (and seemingly in light of notice from the Defendant that it intended to seek permission to amend its Defence) the Claimant accepted the Defendant’s Part 36 Offer of £700,000.

However, the Claimant subsequently sought its costs on the basis that the Defendant had given notice that it intended to seek permission to amend its Defence at a late stage and that the Defendant had unreasonably refused to mediate. The late amendment point failed but the Claimant did succeed, in part, on the refusal to mediate point. Specifically, whilst the Court did not allow the Defendant its costs for the relevant period, the Court also did not award the Claimant its costs during that period.

Both parties appealed.

Findings

The Court of Appeal dismissed both appeals. The Court considered that the failure to respond to the Claimant’s proposal to mediate the claim was, in itself, unreasonable.

Specifically, the Court considered the principle established in Halsey v Milton Keynes General NHS Trust [2004], that an unreasonable refusal to participate in ADR is a form of unreasonable conduct of litigation to which the Court may properly respond by imposing costs sanctions. The Court also looked at the guidelines established in Halsey for ascertaining whether a refusal to participate in ADR could be shown to be unreasonable.

However, the Halsey guidelines did not consider the issue of whether silence to an invitation to enter into ADR constituted a refusal. In this case, the Court considered that it was reasonable to apply a modest extension to the Halsey guidelines; specifically the Court stated “it would in my view be perverse not to regard silence in the face of repeated requests as anything other than a refusal”.

Specifically, Briggs LJ also stated “the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds”.

The Court also rejected the argument that the Defendant’s Part 36 Offer (which was eventually accepted) demonstrated the belief in the strength of its case such as to give rise to an argument that it was indeed reasonable.

However, the Court also dismissed the Claimant’s appeal for its costs during the relevant period stating, “whilst in principle the court must have that power, it seems to me that a sanction that draconian should be reserved for only the most serious and flagrant failures to engage in ADR, for example where the court had taken it upon itself to encourage the parties to do so, and its encouragement had been ignored”.

Comment

This decision highlights that it will no longer be acceptable for parties to simply ignore invitations to enter into mediation and other forms of ADR, even in circumstances where a party might have reasons to justify a refusal. It also provides a stark reminder of the costs sanctions which can be imposed in such circumstances and reinforces the value placed upon ADR by the Courts.

Contact

For further information please contact Alexia Drew, Senior Solicitor, DWF Fishburns on 0117 301 7395 or Simon Mason, Partner, DWF Fishburns on 0117 301 7392

By Simon Mason

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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