PGF II SA v OMFS Co & Anr

[2013] EWCA Civ 1537

We first reported on this case in Issue 140. On 10 January 2012, the day before the trial was due to start, PGF accepted a Part 36 offer that had been made on 11 April 2011. This left the question of costs. PGF at the time OMFS made their Part 36 offer, proposed mediation. No response was received. PGF tried again in July 2011. Again no response was received. PGF relied on the well-known Halsey principle which says that, as an exception to the general rule that costs should follow the event, a successful party may be deprived of its costs if it unreasonably refuses to mediate. In other words, PGF argued that OMFS should not have the benefit of the usual costs protection provided by successful Part 36 offers. At first instance the TCC agreed. It was appropriate to depart from the usual principles and OMFS were not entitled to their costs for the period from 21 days following the date the offer was made.

In the CA PGF argued that the silence of OMFS was tantamount to a refusal to mediate and that the silence was itself unreasonable. Lord Justice Briggs stated that:

“silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable ...”

There was a practical reason for this. The fact of the refusal meant that an investigation of alleged reasons for the (alleged reasonableness of the) refusal advanced for the first time, possibly months or even years later, at a costs hearing, when none had been  given at the time of the original invitation, raised forensic difficulties for the court in establishing what had actually happened. Of course, those difficulties fall on the party asserting its refusal to mediate was justified. If, and there can certainly be reasons why ADR is premature, a party refuses an invitation to mediate, then it is sensible to explain why at the time.

Equally, there is nothing especially unsurprising in the CA’s decision, but it serves as a useful reminder of the support that the courts in general provide to all forms of ADR. Whilst the court cannot compel a party to mediate; it can penalise in costs a party who unreasonably refuses to see whether there is an alternative way to resolve the dispute in question. Lord Justice Briggs had begun his judgment by noting that:

“In the nine and a half years which have elapsed since the decision in the Halsey case, much has occurred to underline and confirm the wisdom of that conclusion, reached at a time when mediation in particular had a track record only half as long as it has now.””

There are policy reasons for this, which the CA linked to the April changes to the court rules.  Lord Justice Briggs referred to the constraints that now affect the provision of state resources for the conduct of civil litigation, which he said call for an ever-increasing focus upon means of ensuring that court time, both for trial and for case management, is proportionately directed towards those disputes which really need it. With proportionality in mind, Lord Justice Briggs also noted:

“A positive engagement with an invitation to participate in ADR may lead in a number of alternative directions, each of which may save the parties and the court time and resources. The invitation may simply be accepted, and lead to an early settlement at a fraction of the cost of the preparation and conduct of a trial. ADR may succeed only in part, but lead to a substantial narrowing of the issues. Alternatively, after discussion, the parties may choose a different form of ADR or a different time for it, with similar consequences.

“Finally, Lord Justice Briggs said that:

“this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation. To allow the present appeal would, as it seems to me, blunt that message. The court’s task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres.”