Failure to respond to a request for mediation is in itself unreasonable

The Court of Appeal decision in PGF II SA -v- OMFS Company 1 Ltd¹ highlights the dangers of failing to respond to an invitation to mediate. As a general rule, silence is of itself unreasonable regardless of whether an outright refusal would have been, and serious costs sanctions could be imposed. In light of this decision, the sensible course is to respond to invitations to mediate/engage in alternative dispute resolution (ADR) so as to minimise the risk of future arguments as to reasonable conduct.

Facts

Here the claimant had made two Part 36 offers and then invited the defendant to participate in mediation. When the defendant did not respond, the invitation to mediate was repeated. The defendant again failed to respond. The case was eventually settled after the claimant accepted the defendant's Part 36 offer the day before trial. The question was whether the defendant should be penalised in costs because of its failure to engage in any way with the invitations to mediate.

The decision

The Court of Appeal thought costs sanctions were appropriate. In doing so, they endorsed the advice given in the ADR Handbook (introduced as a result of the Jackson reforms) that failure to respond at all to an invitation to mediate is, as a general rule, of itself unreasonable, regardless of whether a refusal to engage might have been justified. This approach was justified on practical and policy grounds. An investigation of the reasons for refusing to mediate, advanced for the first time at a costs hearing months or years later, posed forensic difficulties for the court in deciding whether those reasons were genuine. Further, a failure to provide reasons for a refusal was destructive of the objective of encouraging parties to consider and discuss ADR. Any difficulties or reasonable objections to a proposal should be discussed, enabling the parties to narrow their differences. This also served the policy of proportionality. A positive engagement with ADR could lead to early settlement or narrowing of the issues.

On the facts, the defendant's silence did amount to a refusal to mediate and it was unreasonable. The first request to mediate was couched in such detailed and sensible terms that it could not reasonably have been regarded as tactical. Further, the Court was not persuaded that the mediation stood no reasonable prospect of success in any event.

Comment

A finding of unreasonable conduct by a refusal to mediate will not automatically result in a costs penalty. As confirmed by the Court, it is simply one aspect of a party's conduct that has to be taken into account as part of a wider balancing exercise. However, and as concluded by Briggs LJ, "this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal…". Litigators take note.

Please click on the links below for the other articles in the April 2014 Commercial Litigation Newsletter:

• Service: recent developments
• Brussels Regulation: which takes priority - contract or tort claim?
• Settlement: recent developments
• Changing experts: full disclosure and timely notice required
• Impact of contractual exclusion clauses on the availability of injunctive relief
• Deciphering Part 36: the saga continues
• Litigation privilege: the dominant purpose test revisited
• Court news: CPR update and other developments
• Collective actions update: "opt-out" coming to a competition claim near you
• Reforms to judicial review: Part II

_Notes

_{^1. [2013] EWCA Civ 1288.}