A recent decision by the Court of Appeal in PGF II SA v OMFS CO 1 Ltd (2013) has illustrated the importance of actively engaging in the alternative dispute resolution (“ADR”) process.
The case involved a dilapidations claim arising from a commercial lease. The landlord Claimant accepted the tenant Defendant’s Part 36 offer just before trial, albeit 9 months after the offer had been made. However, in between the time that the Defendant’s Part 36 offer was made and then accepted, the Claimant had sent two invitations to the Defendant to participate in mediation, to which the Defendant did not respond.
The Judge held that the Defendant had been unreasonable in its failure to respond to the invitations for mediation. As a result, the Defendant was deprived of the usual costs order associated with acceptance by the other party of a Part 36 offer under CPR 36.10, namely an order requiring the Claimant to pay its post-offer costs.
The Court of Appeal upheld this decision, stating that “silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by identification of reasonable grounds” (Briggs LJ). As such, it was the silence itself, as opposed to an active refusal, that was unreasonable.
There were two main reasons behind this decision:
1. Practicality - If the reasons for refusal are not stated at the time of the invitation to mediate, they may not be advanced until much later at a hearing/trial, at which point it may be difficult to investigate whether the reasons were justified; and
2. Policy - A failure to discuss the reasons for refusal is a failure to engage with the ADR process.
The clear message from the Court in this case was that a party must not ignore an offer to mediate. Even if the party is set against the idea of mediation, it should, at the least, respond to the invitation stating the reasons for its refusal to mediate.
The case has also opened the possibility of a Court imposing the harsher sanction of ordering the Defendant to pay the Claimant’s costs where the Court had encouraged the use of ADR and that encouragement had been ignored.
In the current climate of the Jackson reforms, it is more important than ever for the parties to engage in ADR and the decision in this case highlights the risks in refusing to do so.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Edward Vaughan at or Catherine Connolley at
