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Party denied costs for ignoring mediation offer

The case of PGF II SA v OMFS Co & Anr decided on 27 January 2012 in the Technology & Construction Court affirms the principle that a successful party may be deprived of costs if it unreasonably refuses to mediate. It also confirms the without prejudice and confidential nature of mediation.

Briefly, the claim stemmed from dilapidations arising out of repairing covenants to a property. On 11 April 2011 OMFS made a Part 36 Offer to settle. On the same day, PGF also made a Part 36 Offer to settle the matter and furthermore proposed mediation any time after 6 May 2011, suggesting various dates in May and June and also supplying the names of 2 possible mediators. Critically OMFS did not respond to the offer to mediate.

Mediation was proposed again by PGF on 19 July 2011, and once more OMFS ignored the offer.

On 10 January 2012, the day before the trial was due to start, PGF accepted the Part 36 Offer from OMFS but then arguments commenced regarding the payment of OMFS’ costs by PGF. PGF relied on the general rule in Halsey v Milton Keynes NHS Trust that a successful party may be deprived of its costs if it unreasonably refuses to mediate. OMFS brought up the conduct of PGF in a previous mediation as a ground for refusing mediation and argued that full disclosure and expert evidence was not available until November 2011. These reasons had never been mentioned in previous correspondence between the parties.

The Judge held that it was unreasonable of OMFS not to mediate stating “the court should be wary of arguments only raised in retrospect as why a party refused to mediate or as to why it cannot be demonstrated that a mediation would have had a reasonable prospect of success”.

As a result OMFS lost their costs after the relevant period following their Part 36 Offer on 11 April 2011, the usual rule did not apply because of the failure to mediate. The court had no difficult in interpreting a failure to respond to the mediation offer as a refusal to mediate.

The Judge also refused to consider the evidence advanced by OMFS concerning the conduct of PGF any previous mediation, this being covered by privilege which PGF refused to waive. The Judge stated that to do so “would be to undermine the very protection given to the parties in relation to their conduct in a mediation”.

The case is a warning to anyone who routinely ignores offers to mediate. The court will apply the costs sanctions which up until now appear to have been used so infrequently as to appear theoretical.