“Silence is golden when you can’t think of a good answer” said boxing great Muhammad Ali, but the Court of Appeal has this month delivered a robust right hook to those trying the same tactic in High Court litigation.
It has been the case since Halsey in 2004 that the courts can penalise in costs a party which unreasonably refuses to engage in mediation or some other form of alternative dispute resolution (ADR), but what about one which declines even to respond to an invitation to do so? In a case long on sense and short on proper nouns, PGF II SA –v- OMFS Company 1 Ltd, the Court of Appeal has debated for the first time how they should treat parties who do not respond to invitations to mediate in any way.
PGF accepted a Part 36 offer made by OMFS. Normally that would entitle OMFS to its costs from PGF for (put broadly) the period between the making of the offer and the acceptance of it. However, PGF said that OMFS’s silence in reply to its earlier mediation offer was in effect a refusal and was unreasonable, and therefore that those costs consequences should not apply. The High Court agreed. Both parties appealed. Seconds out, Round Two.
The Court of Appeal laid down some very useful guidance for parties making or responding to an invitation to mediate. The invitation should:
(i) seek an explanation for any refusal to participate;
(ii) encourage the other to identify any documents or information which it might want as a pre-condition of agreement to mediate;
(iii) provide a range of possible dates; and
(iv) invite the other party’s views on choice of mediator.
If the offer is refused (which the Court of Appeal found included just ignoring it), then Halsey said that the reasonableness of that refusal would be assessed by reference in particular to:
(i) the nature and merits of this dispute;
(ii) any earlier attempts to settle;
(iii) the costs of mediation relative to the value of the case and whether any delays would be prejudicial to the responding party; and
(iv) whether mediation had any reasonable prospect of success.
Not much to go on there for a party not willing to mediate – the process will almost always (unless suggested at the very last moment) be quicker and cheaper than continuing with formal proceedings. On the prospects front, the Court of Appeal noted CEDR statistics that some 90% of cases mediated by it in 2012 settled either on the day or shortly afterwards.
A party responding to an invitation (other than to accept it) should:
(i) “engage constructively”, ie. respond promptly to explain (ideally using the Halsey guidelines above) its reasons for declining;
(ii) consider with the other side how any obstacles to mediation might be overcome;
(iii) expressly leave the door open to mediation at a future point should relevant circumstances change;
(iv) whatever else, not ignore the invitation. “Silence in the face of an invitation to participate in ADR is as a general rule of itself unreasonable“, said the Court. “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“.
In the end the Court of Appeal upheld the High Court’s decision that OMFS had to meet its own costs for the disputed period. Despite having OMFS on the ropes, however, it rejected PGF’s argument that OMFS should also have to meet its costs for that time. This would have been a total reversal of the usual Part 36 costs consequences – not so much a cross to the jaw as a knee to the groin. The decision makes clear nonetheless that such an Order is within the Court’s powers in cases of very serious and flagrant failure to engage with ADR, perhaps where the Court suggests it and that “encouragement” is ignored.
Though the costs rules are different in the Employment Tribunal, it is not hard to see an Employment Judge being swayed by the principles set out by the Court of Appeal here – remember that the unreasonable conduct of proceedings can justify a costs award in the Tribunal, and an unreasonable failure to mediate or respond to an invitation to do so now seems to fall even more squarely into that arena.