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refusing to mediate has just become even more expensive

28 October 2013

The power of the court to impose adverse costs sanctions on parties who unreasonably refuse to engage in Alternative Dispute Resolution ADR , have just got wider following a recent Court of Appeal decision.

Through the case of Halsey v Milton Keynes General NHS Trust (2004) 1 WLR 3002 the court identified six possible factors which could be taken into account when assessing whether a party had unreasonably refused to mediate:

  1. The nature of the dispute, as to which the court warned that "most cases are not, by their very nature, unsuitable for mediation";
  2. The merits of the case, by which a party which reasonably believes it has a strong case might make the refusal of mediation reasonable;
  3. Whether other settlement methods have been attempted, though again the court noted that "mediation often succeeds where other settlement attempts have failed";
  4. Whether the costs of mediation would be disproportionately high;
  5. Whether any delay in setting up and attending ADR would be prejudicial; and/or,
  6. Whether mediation had a reasonable prospect of success.

However in the recent case of PGF II SA v OMFS Company 1 Limited the Court of Appeal has taken an important step in widening these principles issuing yet a further warning of the importance for mediation to be at the forefront of all litigators minds.

Browne Jacobson, acting through partner Kate Andrews, acted for landlord PGF II SA (PGF) in bringing three dilapidations claims against a tenant, OMFS Company 1 Limited (OMFS). During the course of the proceedings, several Part 36 offers were made by both parties. Notably however PGF invited OMFS to mediate on two separate occasions yet OMFS failed to provide any response to these invitations or to raise the possibility of mediation at all.

The matter settled the day before trial; PGF accepting the Part 36 offer made by OMFS some 9 months earlier. PGF argued OMFS ought not to have the benefit of the usual costs protection due to the defendants lack of response to invitations to mediate. PGF argued the defendants silence amounted to an unreasonable refusal to mediate. Going against the normal principles, set out in Part 36 of the Civil Procedure Rules, and exercising discretion, the judge at first instance agreed with PGF and held OMFS were not entitled to their costs for the relevant period i.e. from 21 days following the date the offer was made. OMFS appealed and in turn PGF cross appealed.

For PGF Jonathan Seitler QC, instructed by Browne Jacobson, argued that not only was the defendants silence tantamount to a refusal to mediate, but that the silence itself was unreasonable. In support of this, Jonathan Seitler QC made substantial reference to the recently published ADR Handbook noting the courts increasing preference for, and in fact penchant for positively encouraging parties to consider ADR before taking a case to trial.

The Court of Appeal was persuaded by these arguments, with Lord Justice Briggs stating:

"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…".

He went on to say:

"There are in my view sound practical and policy reasons for this modest extension to the principles and guidelines set out in the Halsey case…."

Accordingly the appeal and cross appeal were dismissed.

Although this was originally a property case heard in the Technology & Construction Court, the Court of Appeals decision has established principles that will be applied across all cases demonstrating a clear and unequivocal endorsement of the values not only of mediation but all forms of ADR . This appeal decision highlights the fact that a party who refuses to engage in the process of ADR can, and will, face costs sanction.

With the Jackson reforms taking effect, we already expected to see a trend in ADR taking place earlier in proceedings, and the Court of Appeal upholding decisions like this will only support that trend. There are now a wide range of options of ADR available and so litigants can choose the form most suited to them in terms of time and costs.

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