The Court of Appeal has recently made another decision which affirms the message that parties ignore mediation at their peril.
(PGF II SA v OMFS Company 1 Ltd 2013 EWCA Civ 1288 23 October 2013)
They have confirmed that:
a) Failure to respond to an invitation to mediate was of itself unreasonable.
b) Such unreasonable behaviour warranted costs sanctions
The case involved two companies, the Claimant had issued proceedings against the Defendant following recovery of refurbishment costs carried out at a commercial property which was let by the Defendant. The Defendant denied all liability.
Before commencement of proceedings, the Claimant made a Part 36 offer of settlement. Proceedings began and order as to how the case were to progress were made. Part way through proceedings a further Part 36 offer was made by the Claimant. The Claimant also invited the Defendant to take part in an early mediation and set out a detailed mediation proposal. The Defendant on the same day as receiving the offer to mediate sent a Part 36 offer to the Claimant. Crucially there was no response to the offer to mediate. A further invitation to mediate was sent by the Claimant. Again no response was received.
The day before trial the Defendant raised a new issue in its Defence and as a result the Claimant accepted the Defendant’s offer to settle. The usual order would be for the Claimant’s to pay the Defendant’s costs from the date of the Defendant’s offer in May 2011 until January 2012. The Claimant gave notice that it sought its costs for this period as the Defendant had been unreasonable in refusing to participate in mediation.
The Defendant denied its silence amounted to a refusal and the expenditure had been attributable to the Claimant’s failure to accept a reasonable Part 36 offer.
The Judge held that the Defendant’s silence had amounted to a refusal and that applying the existing guidelines and tests for reasonableness for refusing to take part in ADR set out in Halsey v Milton Keynes General NHS Trust; Steel v Joy) the refusal had been unreasonable and whilst he did not order the Claimant to have his costs, he did order that the Defendant would not recover his costs. The Defendant appealed this decision.
The appeal was dismissed. The Court said, that silence in the face of an invitation to participate in ADR, was of itself unreasonable and might have been justified by the identification of a reasonable grounds. There may be rare cases where ADR is obviously inappropriate, or failure to respond is due to a mistake, but in this type of situation the onus is on the recipient of the invitation to explain clearly why they are not prepared to mediate.
The Court of Appeal made two important points: firstly it was difficult for them to consider reasons being advanced when it was made so late in the day when those representations were made at the costs hearing, months or years after the offer had been made and whether the reasons being advanced were in fact genuine. Secondly, a failure to provide reasons for a refusal was destructive for the real objective of encouragement to parties to consider and discuss ADR.
As a firm advocate of mediation, I am pleased the Court of Appeal has made another decision which will encourage parties to consider mediation as a real opportunity to bring about an end to their dispute.