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Refusal to mediate - PGF II SA v OMFS Company 1 Limited

24 October 2013

In this case the Court of Appeal had the opportunity to take an important step in widening the principles in Halsey, in relation to awarding costs sanctions against a party who did not ‘beat’ a part 36 offer in court, on the basis of a refusal to mediate.

The case involved three dilapidations claims brought by PGF II SA (PGF) the landlord, against OMFS Company 1 Limited (OMFS) the tenant. During the course of 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 Defendant’s lack of response to invitations to mediate. PGF argued the Defendant’s 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, Recorder Furst QC, sitting in the Technology and Construction Court 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 PGF appealed for good measure). Jonathan Seitler QC, instructed by Browne Jacobson LLP for PGF, argued that not only was the Defendant’s 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 court’s 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….” . The appeal and cross appeal was dismissed.

This case is of importance to all who embark on litigation. The case demonstrates a clear and unequivocal endorsement by the court of appeal as to the value of ADR, (including but not limited to mediation) and highlights the fact that a party who refuses to engage in the process of ADR can, and will, face costs sanctions.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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