Do not ignore a reasonable request to talk things over

Mediation is back in the spotlight and, as the recent PGF II case shows, failing to engage could lead to costs sanctions, warns Jason Hunter

ADR is a core principle of litigation practice. Jackson has re-emphasised that.

On 23 October 2013, the Court of Appeal delivered judgment in PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288 that will refocus attention on mediation. The court considered what the consequences might be if a party to litigation simply failed to respond to a request to mediate.

Exceptions under Halsey

The most notable case about mediation and costs sanctions was Halsey v Milton Keynes General NHS Trust in 2004.

Usually the court will order the unsuccessful party to pay the costs incurred by the successful party. In Halsey, the court considered whether that principle might be departed from when someone failed to take up a request to mediate. It would be an exception to the general rule about costs.

The burden was on the unsuccessful party to show why there should be a departure from the general rule. They must show that the successful party acted unreasonably in refusing to agree to ADR.

Factors that may be relevant will include:

 The nature of the dispute

 The merits of the case

 Other attempts at settlement

 The costs of mediation

 The possibility of delaying trial

 The prospect of a successful mediation

 Whether there has been judicial encouragement to mediate.

Part 36 offer accepted

The PGF case concerned a claim by a landlord (L) for damages against its tenant (T) for failing to comply with its obligations about the condition of the leased property.

L proposed mediation. T did not respond. Instead, T made a Part 36 offer which L accepted shortly before trial. Ordinarily, on acceptance of the offer, L would have been obliged to pay T's costs from the last date on which the offer could have been accepted. L argued that the usual rule about costs when a Part 36 offer was accepted should be departed from because T unreasonably refused to mediate.

The judge agreed. He deprived T of its costs for the relevant period under CPR r.36.10, but did not order T to pay L's costs.

Unreasonable failure

The appeal and cross-appeal were dismissed. In Halsey, there had been a response to proposals to mediate. In PGF II, there was silence.

The Court of Appeal reviewed the cases on mediation and held that failing to respond to a request to mediate would, as a general rule, be unreasonable, even though, had a considered response been made at the '¨time, a refusal could have been reasonable.

There may be exceptions, but it is for the recipient of an offer to mediate to explain why any might apply.

The court acknowledged that a finding of unreasonable conduct does not automatically lead to a costs sanction.

The trial judge may have gone too far in this case, but it was not a decision the Court of Appeal could interfere with as it was a matter of discretion.

The court said encouraging proportionate conduct of litigation was so important that it was appropriate to exercise its sanctions, even if in this case the sanction was tougher than perhaps it could have been.

The court specifically said it wanted to "encourager les autres". Do not ignore it. SJ

 

---

 

Jason Hunter is a partner at Russell-Cooke Solicitors