The Risks of Refusing to Mediate

In the recent court of appeal case of PGF II SA v OMFS Company 1 Limited (2013) the courts affirmed its support for alternative dispute resolution as means of settling disputes. In 2004 in the case of Halsey v Milton Keynes General NHS Trust the court found that refusing to take part in ADR was a form of unreasonable conduct which could result in costs penalties at the conclusion of proceedings.

In Halsey the court set out the following principles:

1. The court should not compel parties to mediate.
2. The court should encourage parties to mediate in appropriate circumstances.
3. The court may deprive a successful party of some or all of its costs if it refuses to mediate.
4. The unsuccessful party needs to prove that the successful party has acted unreasonably.

The court then provided guidance on relevant factors which might be considered:

1. The nature of the dispute.
2. The merits of the case.
3. The use of other forms of settlement.
4. Proportionality of the costs of mediation.
5. Delay.
6. Whether mediation had a reasonable prospect of success.

In the PGF case the defendant simply ignored requests to mediate and responded to various part 36 offers by making an unsupported counter offer. The counter offer was ultimately accepted, however the consequence of accepting the part 36 offer is ordinarily that the accepting party, the claimant in this case, pays the offerror’s costs. The claimant however applied for his costs to be paid by the defendant as he had unreasonably refused mediation.

The court of appeal emphasized the importance of mediation and referred to a number of reports which highlighted its success rate. The court also referred to the ADR Handbook and endorsed its guidance on when it is reasonable to refuse mediation and how to communicate this:

1. Do not ignore a request for mediation.
2. Respond promptly in writing setting out your reason for refusal based upon Halsey principles.
3. Raise any obstacles to mediation, such as a lack of documents or clear statement of case, and suggest how the obstacles can be remedied.
4. Do not close off mediation for all time.

In PGF the court determined that silence in the face of a request to mediate is of itself unreasonable. Even if good ground to refuse at the time requested may have justified the refusal. Factually the court found that the defendant’s counter offer did not constitute evidence of a reasonable refusal to mediate.

The court however refused to sanction the defendant by requiring him to pay the claimant’s costs. It said this would only be appropriate in exceptional circumstances. Instead the court determined that the defendant, as the successful party, should not be able to recover his costs from the claimant.

The court of appeal notably supported the Halsey principles, added to them and endorsed the ADR Handbook. It is always possible to refuse mediation but it cannot be ignored and any refusal must be clearly reasoned.

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