£250,000 costs penalty for ignoring offer to mediate

What happens if you simply ignore an opponent’s offer to mediate? You run the serious risk of a significant costs penalty. Who says? Lord Justice Briggs and his colleagues in the Court of Appeal case of PGF II SA v OMFS Company 1 Ltd. What happened? The case settled when the claimant accepted a Part 36 offer to settle 8 months after it was made. The judge exercised his discretion and refused to allow the defendant’s costs for that 8 month period (about £250,000). Why? Because the defendants completely ignored the claimant’s repeated offers to mediate. The judge at first instance said that silence amounted to a refusal and, following the principles laid down in Halsey v Milton Keynes General NHS Trust, that refusal was unreasonable. Briggs LJ added:

… the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds.

So the case is not saying I always have to agree to mediate? Correct, the courts are not going to compel you to mediate but they are obliged, under their case management duties, to encourage the use of ADR. You are only likely to face a costs penalty if you unreasonably refuse, or simply ignore, an offer to mediate or use some other form of ADR. Does the ADR Handbook offer any advice? As a matter of fact it does, it suggests: a.) Not ignoring an offer to engage in ADR; b.) Responding promptly in writing, giving clear and full reasons why ADR is not appropriate at the stage, based if possible on the Halsey guidelines; c.) Raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR, together with consideration of how that shortage might be overcome; d.) Not closing off ADR of any kind, and for all time, in case some other method than that proposed, or ADR at some later date, might prove to be worth pursuing.

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