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PGF II SA v (1)OMFS Company and (2) Bank of Scotland PLC, High Court, 27 January 2012

14 February 2012
The issues

Mediation – Part 36 – landlord and tenant

The facts

The first defendant made a Part 36 offer to settle the claim but the acceptance period expired. Although the claimant made offers to mediate these were never responded to. The day before trial the claimant, becoming aware of amendments to the defence introducing a new argument, decided to accept the Part 36 offer. The issue came before the court as to whether or not costs should be paid by the first defendant from the date of the expiry or the offer to the date of acceptance. The claimant argued that it should have its costs, notwithstanding the default provision of Part 36 because the amendment to the defence was raised late by the first defendant and it was relevant information within CPR 36.14(4)(c) or CPR 36.14.(4)(d) which had not been available to the claimant when the offer was made and moreover if the first defendant had engaged in mediation the argument would have arisen at that stage.

The decision

The new information was not ‘information’ in terms of the workings of Part 36. It related to the interpretation of a lease and was not ‘information’. Whilst the first defendant might be criticised for failing to raise the argument until the last moment, it was available to the claimant at all times from reading the under-lease and the claimant could be expected to consider the nature and extent of the obligations in the lease that were relevant to the claim. The conduct point therefore in failing to plead was irrelevant. There was evidence or material from which the judge could conclude that, but for failure to plead the argument, or to participate in mediation from which it was said that the argument would have emerged, that the Part 36 offer would have been accepted. The case did not therefore fall into the exceptional category which would render it unjust for the claimant to pay the defendant’s costs after expiry of the relevant period. It was therefore certainly inappropriate for the first defendant to pay the claimant’s costs. It was however, unreasonable for the first defendant not to respond to the suggested mediation and therefore not agree to mediate the dispute. There was a reasonable prospect that the mediation would have been successful. By not responding to the suggested mediation it was reasonable to infer that the defendant was refusing to mediate. There was nothing to suggest that the claimant was merely going through the motions. The parties were well advised commercial parties with the benefit of experienced lawyers and it was likely that an accommodation would have been reached. The first defendant had been unreasonable in refusing to mediate and this was conduct which the court was entitled to take into account in the exercise of its discretion as to the costs incurred after the relevant period. For these reasons the claimant would be entitled to its costs on the standard basis up to the expiry of the relevant period following the Part 36 offer, but there would be no order for costs in respect of the period thereafter.

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