Corporate- Settlement Agreements and Civil Mediation

The early part of 2013 bought a wide range of changes to civil litigation procedure following the review undertaken by Sir Rupert Jackson. The courts are continuing to emphasise the importance of alternative dispute resolution (ADR) in this emerging new culture.

For nearly a decade, following the case of Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002, it has been established that if a party unreasonably fails to take part in ADR it is at risk of being penalised in costs. In Halsey the Court set out various factors which could be taken into account when deciding whether a refusal was unreasonable. These include the nature of the dispute, the merits of the case and whether the ADR had any reasonable prospects of success.

In the recent case of PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288 several offers to settle (Part 36 offers) were made by the parties and the Claimant invited the Defendant to mediate on two separate occasions. The Defendant totally ignored the proposals to mediate. The case then settled one day before trial when the Claimant accepted one of the Defendant’s offers to settle. The Claimant contended that the Defendant should not be given the usual costs benefits flowing from their offer because of their lack of response to the Claimant’s invitation to mediate. The Claimant argued that silence in response to an invitation to mediate was in itself unreasonable, regardless of whether there were grounds to refuse.

The case reached the Court of Appeal. It agreed with the Claimant and held that that the principles in Halsey should be extended to include a general rule that silence in the face of an invitation to participate in ADR is, of itself, unreasonable.

The Court noted how mediation achieves a remarkable level of success. The desire to achieve proportionality between the cost of litigation and the value of the dispute has led to a clear endorsement of ADR. Court time needs to be focused proportionately towards the disputes which really need it. Therefore, the Court pointed out, parties to civil litigation should responsibly engage in ADR wherever it offered a reasonable prospect of producing a just settlement at proportionate cost. Interestingly the Court endorsed the new ADR Handbook which sets out at length the steps which a party faced with a request to engage in ADR, but which believes that it has reasonable grounds for refusing to participate at that stage, should consider in order to avoid a costs sanction.

The Court noted that the failure to provide reasons for a refusal prejudices the real objective of encouraging parties to engage with the ADR process. There were, the Court noted, many types of reasonable objections to a particular ADR proposal which, once raised, may be capable of being addressed. ADR should be discussed routinely as is already the case with expert issues, CMCs and pre-trial reviews.

The Court said there was enough, on the face of the correspondence between the parties, to justify a conclusion that the Defendant’s silence was itself unreasonable.

The Court commented how this dispute was eminently suited to mediation. It gave rise to complicated matters of detail likely to cost a disproportionate amount to litigate to trial, even ignoring the attrition upon management time likely to be required for that purpose.

This is a clear message from the court that if a party does not engage fully with the Civil Courts ADR process it will run serious risks in costs sanctions. Importantly any refusal should be carefully drafted by any party.

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