Introduction

Under Practice Direction 31, the Court is empowered to make an adverse costs order where a party unreasonably fails to engage in mediation. Since the introduction of the Woolf Reforms in England and Wales in 1999, there have been successive authorities ruling on the “reasonableness” of a party’s failure to mediate.  In the recent English Court of Appeal decision of PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288 (“PGF”), it was held that silence in the face of repeated requests for mediation could amount to an unreasonable refusal to mediate, and the deprivation of the costs of an otherwise successful party.

Facts

In October 2010, the Claimant commenced proceedings against the Defendant in relation to refurbishment costs carried out on a property. It claimed in aggregate slightly more than £1.9 million. Shortly before the proceedings, the Claimant made an offer pursuant to CPR Part 36 (the English equivalent of Order 22 of the Rules of the High Court) to accept £1.125 million in settlement. On 11 April 2011, there was a further Part 36 offer, superseding the first, to accept £1.25 million plus interest from June 2009 in settlement.

By a separate letter the Claimant invited the Defendant to take part in an early mediation. The letter was a “thorough, carefully thought through and apparently sensible mediation proposal”.

On the same day, the Defendant sent the Claimant a Part 36 offer of £700,000, promising an explanation of its reasoning under separate cover, which was not thereafter provided nor, for that matter, asked for. Neither of the competing Part 36 offers was accepted and the Claimant’s invitation to mediation received no response from the Defendant of any kind. On 19 July 2011, the Claimant by its solicitors sent a further invitation to the Defendant to mediate. Again, it received no response. On 20 December 2011, the Claimant made a further Part 36 offer, to accept £1.05 million plus interest.

On 10 January 2012, one day before trial, the Claimant accepted the Defendant’s £700,000 offer, thereby settling the proceedings save as to costs.

Unreasonable Refusal to Mediate

Extension from Halsey

The Court “firmly” endorsed the advice given in Chapter 11.56 of the Jackson ADR Handbook by Messrs. Blake, Brown and Sime (“ADR Handbook”), that silence in the face of an invitation to participate in alternative dispute resolution (“ADR”) is, as a general rule, of itself unreasonable. Indeed, there are exceptions to the general rule: for example in rare cases where ADR is so obviously inappropriate, or cases where the failure to respond at all was a result of some mistake in the office. The onus to prove the exceptions lies on the recipient of invitation.

Such endorsement by the Court in PGF extended the approach in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 (“Halsey”), where a refusal (even a refusal by silence) to mediate could be found reasonable. The Court offered two reasons for such extension. First, an investigation of alleged reasons for refusal could be advanced for the first time at the costs hearing months or even years later. Such would pose forensic difficulties for the Court and the inviting party; in particular, it is difficult to ascertain whether the previously undisclosed reasons for refusal to mediate are genuine at all. Second, the failure to provide reasons for the refusal is destructive to the parties’ consideration of ADR; a reasonable objection to a particular ADR proposal may be addressed and alternative proposals considered, if explanations are raised at the relevant time.

Application on the Facts

Based on the facts in PGF, the Court held that silence in the face of repeated requests amounted to refusal to mediate. This was particularly so because the first request was couched in such detailed and sensible terms that it could not reasonably have been regarded as mere tactics. The gulf of offers between the parties was narrowing, and the only remaining issue heavily depended on competing valuation evidence which would cost a disproportionate amount to litigate to trial. As such the Court considered that there would have been a reasonable prospect of success, had the mediation been conducted in April 2011.

In the premise, the Defendant’s refusal by silence was found to be unreasonable. The Court upheld the trial judge’s decision to deprive the Defendant of the whole of its costs during the relevant period.

Points to Note

In light of the decision in PGF, litigants are reminded to constructively engage in ADR rather than giving flat rejection or silence. Parties should give serious consideration to an invitation to mediate, and a reason should be given if mediation should be refused.  Generally, the below advice in the ADR Handbook should be followed:-

1.        Not ignoring an offer to engage in ADR;

2.        Responding promptly in writing, giving clear and full reasons why ADR is not appropriate at the stage, based if possible on the Halsey guidelines;

3.        Raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR, together with consideration of how that shortage might be overcome; and

4.        Not closing off ADR of any kind, and for all time, in case some other method than that proposed, or ADR at some later date, might prove to be worth pursuing.