In the recent case of PGF II SA v OMFS Company and another [2012] EWHC 83 (TCC) the Technology and Construction Court (“TCC”) has considered submissions that a party should not have Part 36 costs awarded to it not only because of their failure to communicate a pleading point but also, because the defendant had unreasonably refused to mediate.
In PGF II SA v OMFS Company and another [2012] EWHC 83 (TCC) the TCC ordered that both parties should bear their own costs after the date on which the relevant period for acceptance of a Part 36 offer expired and therefore departing from the usual order under CPR36.10(where an offeree is liable to pay the offerer’s costs for the period from the date of expiry of the relevant period to the date of acceptance).
The decision in PGF II SA v OMFS Company and another [2012] EWHC 83 (TCC) shows that there are still very few occasions where the court will hold that a party’s decision to refuse to enter into mediation or some other form of alternative dispute resolution is considered reasonable.
The General Rule and Halsey
The general rule on costs is that the unsuccessful party will be ordered to pay the costs of the successful party but the court has a wide discretion on the issue of costs and will have regard to all the circumstances surrounding a case (CPR44.3) including the conduct of the parties. Much emphasis is also placed on the efforts made by all parties to a dispute, before or during the proceedings to try and resolve the dispute (CPR44.5(3)(a)(ii)).
The leading case on whether a mediation should be followed is Halsey v Milton Keynes General NHS Trust [2004] and which provides a useful checklist of when a party is justified in refusing mediation; for example, when the nature of the dispute is not suitable for ADR; whether the cost of ADR is disproportionate to the case; the damaging effect of delay caused by a stay for ADR, especially where a trial date is imminent; whether ADR has a reasonable prospect of success.
Post Halsey
The case of Rolf v De Guerin [2011] EWCA Civ 78 demonstrated that the Court of Appeal can and will exercise its discretion and make no order as to costs when a party unreasonably refuses to participate in settlement negotiations or some other form of ADR. In Rolf v De GuerinLord Justice Rix spoke of the “sad case about lost opportunities for mediation” and said that where negotiation and/or mediation would have had a reasonable prospect of success and where a party spurned offers made by the other party to enter into settlement negotiations or mediation, such behaviour is considered unreasonable and ought to bear materially on the outcome of the court’s discretion in deciding cost.
A further Hong Kong reported case, Ansar Mohammad v Global Legend Transportation Limited has also shown how refusal to mediate will usually amount to unreasonable behaviour and lead to the refusing party being deprived of much if not entirely all of its costs.
The most recent decision taken in PGF II SA v OMFS Company and another [2012] EWHC 83 (TCC) shows all parties to litigation that where one party fails to accept another party’s offer to mediate, and where the court generally believes that such a mediation would have had a reasonable prospect of success, such conduct by an obdurate party must be taken into account by the court when it comes to exercise its discretion in relation to costs. Further, the case also shows that any arguments about why a party refuses to mediate are difficult to sustain unless they are put forward at the relevant time. Any costs sanctions will be imposed from the time a party refuses to mediate, not from when a proposed mediation may have taken place.