05 November 2013 #Dispute Resolution
For over 10 years a succession of cases has made it clear that a failure to engage in alternative dispute resolution, including mediation, might lead to negative costs consequences in litigation.
A further reminder on this has just been issued by the Court of Appeal in PGF II SA –v- OMFS Co 1 Limited.
The facts in the case were straightforward. The Claimant brought proceedings against the Defendant for breaches of repairing covenants in a lease of a commercial building. The claim was for just over £1.9m. The Defendant denied liability completely.
At the very start of the proceedings the Claimant offered to settle for £1.125m. Later on in the proceedings, after the parties’ positions had hardened, the Claimant made a further offer to settle at £1.25m plus interest. The Defendant did not accept either of these offers and the Claimant then wrote a letter to the Defendant offering mediation. That offer was later repeated and chasing letters were sent, but no response to the offer of mediation ever came from the Defendant. Instead, the Defendant sent its own offer on 11 April 2011 to pay £700,000 in settlement of the claim. The Claimant did not accept this, and there were further chasing letters in relation to the mediation to which there was no response from the Defendant. The case was due to go to trial on 11 January 2012 and, the day before trial, the Claimant accepted the Defendant’s offer of £700,000.
The normal consequence of this acceptance would have been that the Claimant would get its costs up to 2 May 2011 (21 days after the date of the offer), but that the Claimant would be obliged to pay the Defendant’s costs (and its own) from 2 May 2011 to 10 January 2012. The Court retains discretion to make a different order. In this case the Judge decided that the failure by the Defendant to agree mediation was so serious that he made the Defendant pay its own costs for the period from 2 May 2011 to 10 January 2012. The Court of Appeal reported that these costs were substantial - £250,000 on each side.
The Court of Appeal upheld the decision of the Judge to deprive the Defendant of its costs by reason of its failure to respond to the proposal for mediation, which the Court of Appeal considered to be equivalent to a refusal. Lord Justice Briggs did indicate in his Judgment that had he been making the original decision he might have awarded some reduced costs to the Defendant in these circumstances, but felt that the principle was of such paramount importance that the Judgment should be upheld as an example to others.
In this decision the Court of Appeal has re-emphasised the importance of considering and dealing positively with any proposal for mediation received. It also highlights the benefits of proposing mediation as a way of resolving a dispute early on in order to put pressure upon the other side to engage in this process, which very often leads to settlement.