The duty on parties in a legal dispute to consider Alternative Dispute Resolution (ADR) and the potential costs sanctions for non-compliance is well established within the Civil Procedure Rules.
Case law has provided further clarification on the actions each party must take to comply with this duty. In particular, Lord Briggs stated in PGFII SA v OMFS Company One Ltd  EWCA Civ 1288 (the PGF II case) that it was unreasonable for a party to remain silent when invited to mediate, regardless of whether it may have been reasonable for the party to refuse to engage in ADR. In essence, the case stressed the importance for both parties to actively discuss ADR.
This article considers recent developments in case law.
1. Thakkar & Anr v Patel and Anr  EWCA Civ 117
The claimant made a claim for damages for dilapidations in the sum of £210,000, with the defendant responding with a counterclaim of £41,875. Both parties expressed a willingness to settle and the court granted a stay for settlement negotiations to commence. During this period, settlement offers were put forward by both parties with them agreeing in principle to mediate. Settlement negotiations broke down, with the claimant pulling out, after the defendant failed to assist / make progress towards arranging that mediation. The case went to trial and the judge held there was a good prospect that the matter would have settled at a mediation. Taking this into account, he ordered the defendant to pay 75% of the claimant’s costs.
The defendant’s appeal on the issue of costs was dismissed. Lord Justice Jackson upheld the decision by the judge at first instance. As the dispute in question was on the issue of quantum only and offers of settlement had been put forward by both parties, it was highly likely that it would have settled as mediation. Referring to the PGF II case, he stated that:
“ the message which this case sent out in PGF was that to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct, meriting a costs sanction, even in cases where mediation is unlikely to succeed. The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying or dragging its feet for no good reason, that will merit a costs sanction. In the present case, the costs sanction was severe but not so severe that this court should intervene.”
2. Gore v Naheed and Another  EWCA Civ 369
This matter concerned a land dispute in which the claimant sought an injunction in respect of a right of way on the neighbouring defendant’s land. The claimant’s solicitor declined the defendant’s invitation to mediate. Given the complexity of the legal issues involved, they considered it unlikely that a mediation would resolve the matter and would only increase legal costs. At first instance, the injunction was granted and the claimant was awarded damages in the sum of £2,500. When considering payment of the claimant’s costs, the judge at first instance did not heed the defendant’s request for the claimant to be penalised for not agreeing to mediate.
The Court of Appeal upheld the decision in respect of costs. The judge at first instance had already made a finding of fact that the claimant’s reasons for declining to mediate were not unreasonable and therefore costs sanctions would not follow.
Lord Justice Patten, commenting on the PGF II case, stated:
“Speaking for myself, I have some difficulty in accepting that the desire of a party to have his rights determined by a court of law in preference to mediation can be said to be unreasonable conduct particularly when, as here, those rights are ultimately vindicated. But, as Briggs LJ makes clear in his judgment, a failure to engage, even if unreasonable, does not automatically result in a costs penalty. It is simply a factor to be taken into account by the judge when exercising discretion.”
The recent judicial decisions send a clear message to insurers of the importance of properly considering ADR as an effective tool for resolving claims. The following key considerations should be taken into account:
- When assessing the costs to be awarded, the court will consider the extent of communication between both parties in considering ADR
- The position remains that no response to an invitation to mediate is considered to be unreasonable and is most likely to attract cost sanctions
- It is not sufficient to either agree or refuse to take part in mediation. Parties must take practical steps to arrange a mediation and/or provide reasons for any refusal to mediate
- Refusing to mediate does not automatically attract cost sanctions. The court will assess the reasons put forward by the party refusing to mediate, and also the prospects of success of any mediation.
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