The concept of Alternative Dispute Resolution (ADR) to settle litigation has been around for a long time. This includes round table conferences, early neutral evaluation, mediation (involving the use of an independent third party to facilitate negotiation) and arbitration. However, ADR has again hit the headlines in the recent Court of Appeal judgment in the case of PGF II SA v OMFS Company 1 Ltd.

Whilst this case concerned a commercial dispute, the judgment has far wider implications. Not since Halsey v Milton Keynes General NHS Trust have the courts been so keen to point out that failure to consider ADR could lead to dire costs consequences for the party who chooses to fight to trial. The Court of Appeal in Halsey made clear that whilst the courts cannot compel parties to engage in ADR, they should be encouraged to do so and that such encouragement may be “robust”. The court has power to have regard to the parties’ conduct when deciding whether to depart from the general rule that the unsuccessful party should pay the successful party’s costs and may exercise this power if the successful party unreasonably refused ADR. The burden of proving such unreasonable behaviour is on the losing party.

The defendant in the recent case was severely criticised and sanctioned for their refusal to consider the claimant’s invitation to ADR. The claimant had set out in detail why the case was suitable for mediation but was met with complete silence. Subsequently, the claimant accepted a Part 36 offer made by the defendant out of time as a consequence of which the defendant would ordinarily become entitled to their costs under Part 36.10. However, the claimant raised the defendant’s conduct as an issue and submitted that their silence to the claimant’s invitation to mediate amounted to an unreasonable refusal and that the defendant should not therefore be entitled to their costs in the usual way. The court at first instance (the Technology and Construction Court) accepted this argument and disallowed the defendant’s post Part 36 offer costs which were around £250,000 odd.

The decision, unsurprisingly in this new era of the Jackson Reforms with emphasis on costs management and proportionality was upheld on appeal with the court delivering a very clear warning to those who ignore or unreasonably refuse invitations to engage in ADR should expect to face costs sanctions.

This decision emphasises the importance of considering and engaging in ADR in suitable cases. The court went as far as to quote the advice set out in the ADR Handbook published in 2013, having regard to the principles laid down in Halsey. The advice in the handbook includes:-

  • Not ignoring an offer to engage in ADR;
  • Responding promptly in writing, giving clear and full reasons why ADR is not appropriate at this stage (if that is the position);
  • Identifying any missing evidence that might be an obstacle to successful ADR and how this can be overcome; and
  • Keeping ADR an option throughout the dispute.

Many personal injury and clinical negligence practitioners do of course happily engage in ADR, though not necessarily in the formal setting of mediation. Round table meetings (RTMs) or joint settlement meetings (JSMs) with the parties and their legal representatives can be just as successful. And indeed directions orders most often impose a duty on parties to consider ADR.

It is acknowledged that not all cases are suitable for ADR and that there are cases where parties may be justified in refusing an invitation, including those that are unmeritorious, where costs of ADR would be disproportionate or where some prejudice would result. However, simply ignoring another party’s invitation even in such cases will not be enough it seems. Parties should at the very least consider ADR and give reasons for refusal or face being penalised in costs.

As this case goes to show, the judiciary are keen for disputes to be resolved as cheaply as possible and to keep cases that can be resolved by use of ADR out of court. The message is very clear – ignore ADR at your own peril!