A recent case in the Court of Appeal has highlighted the importance of mediation, and in particular, the consequences of ignoring an offer to mediate made by the other side.
In PGF II SA v OMFS Company 1 Limited, the claimant made various offers to refer the dispute to mediation, which the Defendant failed to answer. The case subsequently settled when the Claimant accepted an offer made to it by the Defendant. There was then an argument about whether the liability for costs was affected by the Defendant’s (allegedly) unreasonable conduct in rejecting the offer of mediation.
Since the case of Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, the Courts have taken the view that a party’s unreasonable refusal to mediate can be taken into account as a factor affecting the award of costs. The factors that could be taken into account when assessing whether a party had unreasonably refused to mediate included:
- The nature of the dispute;
- The merits of the case;
- Whether other settlement methods have been attempted;
- Whether the costs of mediation would be disproportionately high;
- Whether any delay in setting up and attending ADR would be prejudicial; and
- Whether mediation had a reasonable prospect of success.
Prior to PGF, case law suggested that a positive suggestion of mediation turned down by the other side is usually required in order to show unreasonableness. At first instance in PGF, the judge found that the Defendant was unreasonable not to respond to the Claimant’s suggested mediation attempts. As a result the Defendant was penalised on costs.
The Defendant appealed, arguing that it had not acted unreasonably, that its silence could not be construed as a rejection of the Claimant’s invitation to mediate and that it had been reasonable not to mediate because mediation stood no reasonable prospect of success.
The Court of Appeal did not accept the Defendant’s arguments. The Court stated that “a positive engagement with an invitation to participate in ADR may lead in a number of alternative directions, each of which may save the parties and the court time and resources”. It went on to hold that “the defendant’s silence in the face of two requests to mediate was itself unreasonable conduct sufficient to warrant a costs sanction”. In addition, the Court of Appeal also confirmed that the Defendant’s silence had constituted a refusal to mediate.
This decision highlights the importance the Courts place on mediation and that a party ignores an offer to mediate at its peril. If you choose to not accept an offer to mediate you should ensure that at the very least you put forward a persuasive explanation.
PLEASE NOTE this briefing note contains information about current legal issues and is only intended as a general statement of the law – it does not give legal advice. No action should be taken in reliance on this note without specific legal advice.
For further information please contact:
Matthew Littlestone
Solicitor, Litigation
Telephone: +44 207 845 7416
Email: matthewlittlestone@iwg.co.uk