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PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288 ? 23/10/13

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We are pleased to welcome again Anis Waiz, Solicitor at Curtis Law Solicitors, as he continues his critical review of current case law.

This case raised the important issue of the costs consequence when a party declines to take part in alternative dispute resolution (ADR). Practitioners will of course be familiar with Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, in which an unreasonable refusal to participate in ADR had been identified by the courts as a form of unreasonable conduct to which the court may respond by imposing costs sanctions.

The claim between the parties arose as a result of a landlord and tenant dispute. The claimant landlord served notices to repair and schedules of dilapidations alleging breaches of the tenant's repairing covenants. The defendant tenant denied liability relying on section 18, Landlord and Tenant Act 1927. The claimant made a carefully formulated written invitation to the defendant to participate in mediation. That was met with complete silence by the defendant's solicitors. At a later date, the claimant accepted the defendant's Part 36 offer but applied for a costs sanction on the ground that the defendant had unreasonably refused to mediate.Two issues arose on appeal: 1) The application of CPR part 36.10 and 36.14 (2); 2) In the context of the Halsey guidelines, what is the cost consequence of a party declining to engage in a request for ADR?

Appeals dismissed. Held:

1) Following Lumb v Hampsey [2011] EWHC 2808 (QB), the same test should be applied under rule 10 as under rule 14, including the non-exclusive guidelines set out in rule 14(4). That approach had recently been endorsed by the Court of Appeal in SG v Hewitt [2012] EWCA Civ 1053;
2) 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 the identification of reasonable grounds. However, it is possible that there may be cases where ADR was inappropriate so that to characterise silence as unreasonable would be pure formalism. There may also be cases where the failure to respond at all was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made. In such cases the onus would lie squarely on the recipient of the invitation to make that explanation good. While the court has the power to order the otherwise successful party to pay all or part of the unsuccessful party's costs, such a draconian sanction should be reserved for only the most serious and flagrant failures to engage with ADR. For example where the court had taken it upon itself to encourage the parties to do so and its encouragement had been ignored. A finding of unreasonable conduct constituted by a refusal to accept an invitation to participate in ADR or, a refusal even to engage in discussion about ADR, produces no automatic results in terms of a costs penalty. It is simply an aspect of the parties' conduct which needs to be addressed in a wider balancing exercise.

To deprive the defendant of the whole of its costs during the relevant period was within the range of proper responses to the seriously unreasonable conduct which the judge identified.

Conclusion

A number of important principles maybe derived from this case:
  • As to CPR part 36, the Court of Appeal noted the court's broad discretion to disallow a party's costs and provided a useful overview as to the correct test to apply under rule 10 and rule 14. The Court of Appeal noted that Part 36 was itself designed to encourage parties to make, and promptly to accept, realistic offers of settlement;
  • As to ADR the decision makes clear that as a general rule silence in the face of an invitation to participate in ADR is unreasonable. However a finding of unreasonable conduct constituted by a refusal to accept an invitation to participate in ADR or, a refusal even to engage in discussion about ADR, produces no automatic results in terms of a costs penalty. Again the court retains a broad discretion as part of a wider balancing exercise. Given this decision it would be a brave litigant which fails to respond to a reasonable request for ADR.

The last word goes to Lord Justice Briggs:

'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, or the undertaking of some other form of ADR, or ADR at some other time in the litigation.'

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