The Court of Appeal in PGF II SA v OMFS Co  EWCA Civ 1288 considered the question of whether silence in the face of an invitation to mediate could ever be considered reasonable.
C had brought proceedings against P for breaches of a tenant’s repairing covenants in respect of a commercial building. C’s claim was for approximately £1.9 million and C made two Part 36 offers of £1.125 million and £1.25 million which were not accepted. C then sent P an offer to mediate to which P failed to respond, even though the invitation was later repeated. Instead P made a counter-offer of £700,000 which was accepted by C shortly before trial. Ordinarily upon acceptance C would have had to have paid an appropriate amount of P’s costs. However, Mr Recorder Furst QC, sitting as a High Court Judge concluded that P had acted unreasonably in refusing to mediate and therefore deprived P of a costs order for the relevant period, but did not order P to pay C’s costs either. Both parties appealed.
Giving the judgment of the Court, Briggs LJ noted that “the time has now come for this court firmly to endorse the advice given in … the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might be justified by the identification of reasonable grounds. I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism. There may also be cases where the failure to respond at all was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made, but in such cases the onus would lie squarely on the recipient of the invitation to make that explanation good. ”
The need to give reasons for not agreeing to ADR at the time the offer was made was emphasised: namely that an investigation into the reasons for a failure to engage that took place for the first time at a costs hearing after the determination of the trial may prove forensically difficult and also that a failure to provide reasons was destructive of the objective of encouraging parties to consider and discuss ADR.
In short, the question is not whether a refusal to mediate was reasonable; the problem P faced was that it did not engage in the process in any way. The giving of reasons for the refusal at the time the request was received was necessary and would allow the parties to potentially narrow the issues between them and perhaps identify a way that ADR could work. The decision of the Court of Appeal is consistent, it seems to me, with the post-Mitchell world in which we all now live. Parties to litigation cannot sit back but must be pro-active in the litigation seeking to identify problems and narrow issues, especially in light of the funding problems within the system. Briggs LJ concluded his judgment by saying:
“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 the message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres.”
You have all be warned.