Saturday, 28 December 2013

What happens if you refuse to engage in Mediation

Failing to engage in mediation could result in your paying your opponent's costs even if you win your case.

You need to seriously consider when involved in litigation the costs consequences that can result from refusing to engage in the mediation process as can be seen from the outcome of the recent case of PGF II SA –v- OMFS Company 1 Limited (2013) 

The  case of PGF related to dilapidations to a property and concerned a landlord and tenant of a commercial property in London. During the course of proceedings, the defendant made a part 36 offer to settle the claim. The claimant replied in a detailed letter suggesting dates, possible mediators and a suggestion that the parties engage in the mediation process,  The Claimant's Solicitors received no reply to their request from the Defendants or their Solicitors and forwarded a chaser letter which was also ignored

The day before the trial, the claimant accepted the defendant's Part 36 offer  and both parties made representations to the Court in respect of costs.  The claimant’s argument was that the ordinary rules on Part 36 offers to settle claims (that the claimant would be liable for the defendant’s costs from 21 days after the offer) should not apply because the defendant had ignored their suggestion to mediate and that that refusal was  unreasonable.

Initially the Judge, Mr Furst QC, who was sitting at the Construction and Technology Court upon considering the question of costs in relation to this case considered the case of Lumb –v- Hampsey which concerned the court’s exercise of its discretion under CPR 36.10 (5) (b) and  applied the recommendations made in Halsey –v-Milton Keynes General NHS Trust. 

Judge Hurst considered that the defendant’s failure to respond to the claimant’s requests to mediate was an unreasonable failure to mediate on the basis of the recommendations set out in the case of Halsey. He ordered that the usual costs consequences of part 36 would not apply, and ordered both parties to be responsible for their own costs for the period following the 21 days after the defendant’s part 36 offer.

The defendant appealed against Judge Hurst's order and argued that they had not acted unreasonably in not engaging in the mediation process and that their silence did not amount to a refusal to mediate. They further argued that mediation between the parties would not have been successful because of the difference in  the claimant and defendant's valuations of the claim.  They also argued that the order in respect of costs made by Judge Furst initially was too harsh because the judge had not carefully taken into consideration the claimant’s responsibility in not accepting the defendant’s offer sooner.

Guy Featherstonehaugh for the defendant argued that the test in Halsey for reasonableness of a refusal to mediate was to be considered  by reference to the relevant facts about the litigation at the time and as the test was an objective one,  it made no difference whether the party refusing to mediate gave its reasons at the time, or later during the trial.

The Court of Appeal did not agree with Mr Featherstonehaugh but rather agreed with the argument submitted by Jonathan Seitler QC on behalf of the claimant that the courts should strongly encourage parties to consider Alternative Dispute Resolution before progressing to trial. Lord Justice Briggs said that:-

 “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…”

The Court provided reasons for a small extension to the Halsey guidelines and recommended that parties to actions should provide any objection to mediation/ADR at the time it was discussed and confirmed that responding to a request to mediate with silence did not agree with the courts objective of encouraging parties to consider and use ADR.

The Court stated that silence to a request to mediate could not be regarded as anything other than refusal to mediate, and this refusal would be considered unreasonable conduct which would be sufficient to attract a costs sanction.

The Court did qualify its extension of the Halsey principles by stating that a refusal to engage in a discussion about mediation did not produce an automatic costs penalty as their might be situations in which a refusal to mediate was reasonable or occurred due to a  misunderstanding, and therefore it should be part of the balancing exercise for the court when making a decision in respect of a costs order.

To avoid a cost order being ordered against you for your failing to engage in mediation you need to consider the following:-
  • If you refuse to engage in mediation or other ADR, you should take care to provide a good and sensible reason for your refusal when mediation is discussed. The court will not look be impressed with excuses given at trial that have not been mentioned previously.
  • If the court states that a case appears suitable for mediation, and you fail to engage in mediation this could result in a harsh costs sanctions and you could end up being responsible for some of your opponents costs.
  • If the party you have suggested mediation to does not respond then you may want to consider making  a complaint about the silence.
  • You may want to consider suggesting mediation when you initially issue proceedings.

This article is for information purposes only 

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