In the recent case of PGF II SA v OMFS (2013) the Court of Appeal upheld a decision of the High Court to deprive a successful party of its costs on the ground that it had not responded to an invitation to mediate.
The case related to a claim for damages arising from dilapidations. The Claimant made two Part 36 offers to accept firstly £1.125 million and then £1.25 million and followed that up with a detailed invitation to participate in mediation. The Defendant did not respond to the invitation and, instead, made a Part 36 Offer to settle, of £700,000. The Defendant's offer was eventually accepted but very late (on the eve of trial) and, ordinarily, the Claimant would be obliged to pay the Defendant's cost incurred from a date shortly after the offer was made and up to the date on which it was accepted.
The Court of Appeal approved the original decision of the High Court and took the opportunity to state that, as a general rule, silence in the face of an invitation to participate in Alternative Dispute Resolution (ADR) was itself unreasonable conduct sufficient to warrant a costs sanction, regardless of whether a refusal to engage in ADR might have been justified. As a result, the Defendant was deprived of its costs for the relevant period.
It was acknowledged that there may be rare cases where ADR was so obviously inappropriate that to characterise silence as unreasonable would not be appropriate or where a failure to respond was a result of a mistake, in which case the onus would be on the recipient of the invitation to make that explanation good.
It is now clear that any invitation to mediate or engage in any other form of ADR must be given serious consideration and cannot be rejected out of hand or ignored. If it is felt that there are good reasons to refuse the invitation then they must be set out in full and in writing. It would be very risky to attempt to rely on an argument that ADR was obviously inappropriate, in circumstances where an offer to mediate has not been responded to, and this should be avoided at all costs.
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