Costs sanctions for silence on mediation

Parties who fail to reply to an invitation to mediate may face costs sanctions regardless of whether they would have accepted or not, the Court of Appeal has ruled in a long-awaited ruling on costs.

PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288, involved three dilapidations claims brought by the landlord, PGF, against the tenant, OMFS. Several Pt 36 offers were made by both parties during the course of proceedings. PGF invited OMFS to mediate on two separate occasions but were met with silence.

The case settled one day before trial, PGF accepting a Pt 36 offer made nine months earlier.

PGF contended that OMFS should not be given the benefit of the usual costs protection because of their lack of response to the offer to mediate. PGF further argued that silence in response to an invitation to mediate was in itself unreasonable, regardless of whether there were grounds to refuse.

Exercising discretion, the Recorder agreed and refused OMFS costs for the “relevant period” of 21 days from when the offer was made. OMFS appealed.

Dismissing the appeal, Lord Justice Briggs said: “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…”.  

Later in the judgment, he said: “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….”

In Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576, the Court of Appeal set out guidelines for deciding whether a refusal to participate in ADR can be shown to be unreasonable.

Kate Andrews, partner at Browne Jacobson, who acted for PGF, says: “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.”