PGF II SA v OMFS

[2013] EWCA Civ 1288

ADR – Civil Procedure Rules – costs and invitations to Mediation

The Facts

In this case PGF appealed against a decision that it could not recover some of its costs because it had failed to respond to the other side’s invitation to mediate earlier in the proceedings.

Earlier in the claim the Claimant had made two Part 36 Offers and then followed them up with a detailed proposal for a mediation. P did not respond, either then or subsequently when the Claimant repeated the invitation. Instead, PGF made a Part 36 Offer of its own, which the Claimant accepted shortly before trial. The trial judge held that PGF’s refusal to even engage with the mediation proposal was unreasonable, and that the appropriate course was to make no order for costs for the relevant period. P appealed that ruling.

The Decision

The Court of Appeal upheld the judge’s decision to make no order as to costs. In particular, the Court of Appeal stated clearly that a refusal to even respond to an invitation to participate in ADR was prima facie unreasonable. Generally the onus was on the party refusing to engage to explain why its silence was justified (e.g. because it had missed the letter, or because a rejection would simply be “pure formalism”). Absent a good explanation, silence would be unreasonable. A failure to engage undermined the objective of encouraging the parties to consider and discuss ADR. If a party had what it considered to be a good reason for not wanting to participate, then it was required to set that out.

In the present case, the gulf between the parties’ respective offers was not unbridgeable, and it could have been overcome by mediation. The judge had not erred in his exercise of discretion in depriving P of its costs for the relevant period.

Comment

This case demonstrates the strong judicial encouragement of ADR, and the lengths which the judges will go to in order to ensure that the parties engage with the process, leaving trial as very much a solution of last resort. This case represents a further extension of that already strong judicial tendency as seen in Halsey v Milton Keynes NHS Trust [2004] 1 WLR 3002. The Court of Appeal, perhaps not surprisingly, has given a strong indicator that a party must at least give serious consideration to proposals by the other side for ADR. Indeed, this was a clear case; both sides had made significant and serious Part 36 offers, and it should have been obvious that they should have been talking to each other. It is not surprising that the judge marked his disappointment with P’s refusal to engage with deprivation of costs.

However, as the discussion in the Court of Appeal demonstrates, what will be much harder are those cases which fall closer to the line. For example, if the claim is (or appears to be) an obviously speculative one, or where a defendant has a vested interest in having his day in court, because he wants to repudiate evidentially very weak but very serious allegations (say of professional negligence, dishonesty, or breach of trust), and ADR is being offered by a claimant who is – or who appears to be – looking for a quick deal “on the cheap”? Would it be justifiable to refuse a proposal of ADR then, because rejecting it would be “pure formalism”?

The likely effect of this decision is to confirm the practice that many practitioners are already adopting; that is, to engage with ADR proposals, and even go to mediation or the like not because there is any real belief that it will produce results, but simply because doing so protects the costs position. There is nothing inherently wrong with that. Plenty of disputes which did not look like they would settle have done so, even when the prospects for the mediator’s success looked very bleak indeed at the outset

TEDR Volume & Issue

TEDR Volume: 
18
TEDR Issue: 
3