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PGF II SA V OMFS Company Limited [2013] EWCA Civ 1288  

Updated: Jan 16, 2019

The importance of constructive engagement in ADR rather than a flat rejection or silence.

This case highlights the importance of responding to any request to engage in alternative dispute resolution (“ADR”), and where the response is a refusal, the importance of setting out coherent and reasonable grounds. In this particular case, the Court of Appeal had to consider for the first time how the court should respond to a party which when invited by its opponent to take part in a process of ADR simply declines to respond to the invitation in any way. In effect, the Court of Appeal in this decision confirms the need for parties facing an invitation to participate in ADR to engage constructively with the invitation. ​​

This Court of Appeal case develops the law in relation to mediation one step further from Halsey –v- Milton Keynes General NHS Trust [2004] EWCA Civ. 576; [2004]1 WLR 3002; [2004] 4 All ER 920 in which the Court of Appeal considered for the first time as a matter of principle the extent to which it was appropriate for the court to use its powers to encourage parties to civil litigation to settle their disputes otherwise than by trial. The conclusion in Halsey was that the courts could not compel parties to mediate, as this would risk contravening Article 6 of the Human Rights Convention, but that the court may need to encourage parties to embark on ADR in appropriate cases and that such encouragement may be robust. Robust encouragement includes the addressing, with costs sanctions, unreasonable refusal to participate in ADR.

Failing to reply to offers of ADR

In PGF II SA, the Court of Appeal concluded that silence by a party faced with an invitation to participate in ADR is, as a general rule, of itself unreasonable. A party who simply fails to respond to an invitation will therefore risk having costs sanctions imposed on it, irrespective of its reasons for failing to reply.

This case is unusual because the responding party did not respond to any of the invitations to participate in ADR. The invitations were all met with silence although other communications did take place between the parties. Interestingly, paragraph 11.56 of the Jackson ADR Handbook not only recommends responding to offers, giving full and clear reasons why ADR is not appropriate at the particular stage if the invitation is not accepted and raising requests for information which would assist, but it also recommends not closing off ADR of any kind and for all time. It calls for “constructive engagement in ADR rather than a flat rejection or silence.”

In this particular case, the claimant, the day before trial, accepted a much earlier Part 36 offer from the defendant, albeit against a backdrop where the defendant earlier that day had raised a new defence for the first time. The claimant was able to rely upon the failure of the defendant to respond to its offers to mediate to persuade the judge to depart from the usual position that the claimant would pick up the defendant’s costs in the relevant period after the Part 36 offer. This aspect was discretionary and although Briggs LJ indicates that if it had been left to him, he would have disallowed some proportion of the costs of the defendant, rather than the whole of them, the Court of Appeal accepted that the judge’s conclusion, depriving the successful defendant of any of its costs for the relevant period, fell within the range of proper responses to the conduct which a judge could reach.

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