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Costs consequences of refusing an offer to mediate

The great poet Seamus Heaney was exasperated by the culture of silence in the face of interminable conflict and this prompted him to write his famous ironic poem “whatever you say, say nothing.”  The Court of Appeal has made it clear that silence is unacceptable in a post-Jackson world, in the recent case of PGF II SA v OMFS CO 1 Ltd (2013).   Here, the Court of Appeal revisited the test in Halsey v Milton Keynes NHS Trust, which was growing outdated following the Jackson reforms.   In Halsey, the Court set out a list of factors for the Court to take into account, when considering whether a refusal to mediate is unreasonable, including:

  1. nature of the dispute;
  2. merits of the case;
  3. extent to which other settlement methods had been attempted;
  4. whether the costs of ADR would be disproportionately high;
  5. would any delay in setting up and attending ADR have been prejudicial;
  6. whether ADR had a reasonable prospect of success.

I have long advocated a change to the Halsey factors, which appear too generous to the refusing party and potentially unjust, as the Court is mainly looking at the matter with hindsight and the parties can easily justify their refusal to mediate by reference to the ultimate outcome.  Following the suggestion in the ADR Handbook that Halsey should be revisited, the Court of Appeal has at last made it clear that the Halsey guidelines are not exhaustive and that the Court will look at the conduct of the parties at the time, from a subjective point of view.

The Court held that as a general rule, silence in the face of a mediation invitation is of itself unreasonable.  Of course, it is only common courtesy to send an RSVP when invited to a party.  There are policy reasons to justify this, in that without any reasons being given at the time, it is very difficult for the Court to investigate the reasons for a refusal when the case is done and dusted.  The party’s own perceptions of the case at the time play an important part in the analysis and so it is important that reasons are given contemporaneously.  Given the silent treatment in response to two requests to mediate, the Court considered that it was not necessary to go into a point by point analysis of the Halsey factors.  Silence itself was enough to justify sanctions for unreasonable conduct.

The Court was not persuaded that making a Part 36 offer was sufficient to excuse the party from responding to a mediation proposal.  The fact that the case did in fact settle before trial led the Court to consider that there were reasonable prospects of success in the mediation.  The Court considered that the sanction imposed was somewhat more “vigorous” than it would have preferred, but to deprive the refusnik of all of its costs during the relevant period was within the range of proper responses to the seriously unreasonable conduct. The Court did not go so far as to order that they pay the other party’s costs during that period, but that must have been small comfort.

In another decision on silence in the face of negotiations, the Court of Appeal ruled that it was unreasonable to reject offers without any explanation and to ignore a request for details of costs following making a Part 36 offer.  In Thinc Group Limited v Jeremy Kingdom, the Court held that even though the Claimant had made a successful Part 36 offer, which the Court should take into account, the Court also needed to consider whether the costs consequences would be unjust.  It was unreasonable for the Claimant to have sent bare rejections to the Defendant’s offers and not to have provided details of its costs.  Effectively, this means that uncertainty is reintroduced into the process, which had been tackled by the Civil Procedure Rule Committee when it reversed the controversial ruling in Carver v BAA [2008] EWCA Civ 412.  The Claimant was only entitled to 20% of its costs from the date of the Part 36 offer.  Macur LJ expressed regret in the judgment that the parties had not followed the single judge’s written comments that “the dispute is suitable for mediation and the parties are urged to mediate.”

What practical lessons can be learnt from these decisions?

  1. Silence is golden – but only for the other party.  Ignore mediation offers at your peril!
  2. Don’t rely on making a Part 36 offer to protect you from sanctions.
  3. The burden of proving that a refusal to mediate was unreasonable is not onerous.
  4. Refusal to mediate is a trump card.  Victory can be entirely Pyrrhic, if costs are not recovered.

If you are uncertain what to do when you receive an offer to mediate call us and one of our experienced mediators will be able to talk you through the process and give impartial information about mediation.