PGF II SA v OMFS Company and another [2012] EWHC 83 (TCC)

The Technology and Construction Court (TCC) has ruled that when a party refuses to mediate, that behaviour may be deemed unreasonable conduct for the purposes of Part 44.3 of the CPR and sanctioned accordingly.

The Claimant had claimed against the Defendant for an alleged failure to comply with repair covenants relating to a building’s air conditioning under a lease. The Defendant made a Part 36 offer, following which the Claimant made a counter offer and suggested the parties proceed to mediation. The Defendant failed to respond to this invitation. The day before the trial, the Defendant sought to amend its defence to state the demise under the lease did not include the building’s air conditioning and therefore it could not be liable. In response, and on the same date, the Claimant accepted the Defendant’s Part 36 offer.

In seeking to avoid paying the Defendant’s costs, the Claimant argued that had the Defendant proceeded to mediation as suggested, this information would have come to light at an earlier date and the dispute could have been resolved without further costs having been incurred. The Defendant contended that the Claimant was still liable as the opportunity to disclose this information had not presented itself, and that in any event the lease had been available to both parties.

The TCC decided that the Claimant’s arguments were not sufficiently exceptional to fulfil the requirements of CPR 36.10(5), therefore the Claimant could not avoid paying the Defendant’s costs on that basis. However, citing the decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 which had held that a successful party may be deprived of its costs if it unreasonably refuses to mediate, the TCC held that the Defendant’s refusal to mediate had been unreasonable conduct for which a sanction in costs was appropriate. Consequently, the Claimant was entitled to costs up until the expiry of the Part 36 offer, after which date each party was ordered to pay its own costs.

Also of note was that the TCC held that the Defendant’s failure to respond to the Claimant’s invitation to mediate was reasonable grounds to infer that it was actively refusing to participate even though the Claimant had not followed up its invitation.