Litigation is an expensive and time consuming process. The courts recognise this and actively encourage parties to explore all options for resolving their disputes. Consequently, it is common for parties contemplating or in the early stages of litigation to consider mediation or other forms of ADR. If one party unreasonably refuses an invitation to mediate then the court is likely to view this as unreasonable conduct and may respond by imposing cost sanctions on that party. However, what would a court's reaction be to a party that fails to respond at all to an invitation to mediate?

This is the question the Court of Appeal had to decide in PGF II SA v. OMFS Company 1 Limited [2013] EWCA Civ 1288. In this case, the claimant's solicitor sent the defendant an invitation to mediate which, the Court of Appeal described as a "carefully thought through and apparently sensible mediation proposal". This was met with complete silence by the defendant, as was the claimant's subsequent communication of the offer.

The litigation proceeded and the claimant made a last- minute acceptance of the defendant's Part 36 offer the day before trial so that the only issue outstanding between the parties was costs. The ordinary consequence of the acceptance of the Part 36 offer would have been that the claimant would have had to pay the defendant's costs for the nine month period since the Part 36 offer was made unless the court ordered otherwise. The trial judge had to decide whether to impose costs sanctions based on the claimant's application that the defendant had unreasonably refused to mediate. At first instance, the judge decided that the defendant's silence in light of the offer to mediate amounted to a refusal and that this refusal was an unreasonable one. In light of the unreasonable refusal, the judge decided costs sanctions were appropriate to deprive the defendant of the costs it would otherwise be entitled to in respect of the Part 36 offer. However, the judge did not go further and make the defendant pay the claimant's costs incurred in the same period.

Both parties appealed and the Court of Appeal stated that silence in the face of an offer to engage in mediation should as a general rule be regarded as an unreasonable refusal. The Court of Appeal did note that this was a general rule and there may be circumstances where ADR is so unsuitable that silence would not be regarded as unreasonable.

The Court of Appeal then went on to look at the cost consequences of the defendant's unreasonable refusal to mediate. The defendant argued that it should not have been deprived of its costs for the period when the claimant failed to accept its Part 36 offer. By a cross- appeal, the claimant asserted that the judge was right to deprive the defendant of its costs but should have ordered the defendant to pay the claimant's costs as well in respect of the relevant period. The Court of Appeal stated that, whilst it was within the court's power to order a party who refused to mediate to pay the other party's costs, this would only be suitable in respect of "the most serious and flagrant failures to engage with ADR". The example given by the Court of Appeal is where the court has encouraged the parties to engage in ADR but this has been ignored. Further, the Court of Appeal found that depriving the defendant of all of the costs it would otherwise have been allowed due to the Part 36 offer was within the range of proper responses for the judge at first instance. Consequently, the appeal and cross-appeal were dismissed.

The Court of Appeal stated that "this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR". It should be noted that the Court of Appeal referred to and endorsed a specific section of the Jackson ADR handbook first published in 2013. Chapter 11.56 states that in order to avoid costs sanctions:

  • A party should avoid ignoring a request to participate in ADR.
  • If an offer to mediate is refused full written reasons should be promptly given as to why ADR is not appropriate.
  • If there is a shortage of information or evidence and this is believed to be an obstacle to ADR then this should be raised with the other party and it should be considered how this may be overcome.

In addition, the guidance advises against closing off ADR altogether as it may be worth pursuing at another time or by using a different method of ADR. 

This case sends out a clear message that parties should seriously consider requests to mediate and also send reasoned responses to these requests.