For a number of years, a party to a dispute who refused to engage in Alternative Dispute Resolution (ADR) was at risk of the Court finding their refusal to be unreasonable conduct such as to lead to a costs penalty. Now the failure to respond to an invitation to participate in ADR has also been held to be unreasonable, regardless of whether there was a good reason for a refusal to engage in ADR.
In the case of PGF II SA –v- OMFS CO 1 LIMITED  EWCA Civ 1288, the Claimant made two substantial settlement offers which the Defendant did not accept. The Claimant then sent the Defendant a detailed invitation to participate in mediation, to which the Defendant did not respond. The Claimant repeated the offer some months later and again the Defendant did not respond. Instead the Defendant made an offer which the Claimant eventually accepted. As the offer was accepted “out of time”, the Claimant would ordinarily have been obliged to pay the Defendant’s costs from the time of the offer. However, the Judge concluded that the Defendant had unreasonably refused to participate in mediation and consequently deprived the Defendant of its costs for the relevant period. On appeal, the Court of Appeal upheld the Judge’s decision and confirmed that the Defendant’s silence was tantamount to a refusal and was of itself “seriously unreasonable conduct”.
Gavin Evans, Associate Solicitor in the Commercial Litigation Team at The Wilkes Partnership, comments:-
“This case is a warning to all those involved in litigation that the Court will expect parties to actively think about and engage in ADR. Whilst ADR is still not compulsory, where it is suggested by one party then it is incumbent on the other party to at the very least consider the proposal and respond, setting out their reasons if the proposal is being refused. In this case the Court did not go so far as to order the “unreasonable” Defendant to pay the Claimants costs; however there was a clear indication from the Court of Appeal that this might happen where, for example, the Court had itself encouraged parties to engage in ADR and one party had not done so.”
Our Commercial Litigation Team regularly advises clients with regard to ADR processes and has acted in a number of successful mediations/settlements. If you wish to discuss any of these issues in further detail please contact Gavin Evans on 0121 233 4333 or [email protected].