08 November 2013

Silence is an unreasonable refusal to engage in ADR


The Court of Appeal has decided that a failure to respond to a reasoned invitation to mediate an ongoing dispute is unreasonable, regardless of whether there were good reasons to refuse to mediate. Silence is not an acceptable response and parties must actively engage in attempts to settle their disputes without recourse to court proceedings.

Background

Over 9 years ago, in the case of Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002, the English Court of Appeal established that the court may use its discretion to depart from the usual rule that the successful party should recover its costs if it can be shown that the successful party refused to engage in ADR, and that refusal was unreasonable. That judgment laid down a number of factors to be taken into account in deciding whether refusal was unreasonable:

  • the nature of the dispute
  • the merits of the case
  • the extent to which other settlement methods have been attempted
  • whether the costs of ADR would be disproportionately high
  • whether any delay in setting up and attending ADR would have been prejudicial
  • whether ADR had a reasonable prospect of success.

The Halsey guidelines have since been applied in numerous cases, many of them focussing on the reasonableness of refusing to mediate in the particular circumstances of a dispute.

In the recent case of PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288, the defendant was in a position to recover a substantial amount of costs as the claimant had accepted the defendant’s Part 36 offer of settlement just before trial. Earlier in the case, the claimant had made a serious and carefully formulated written invitation to mediate which had been met with complete silence. Even when the offer was repeated a few months later it elicited no more than a holding response. At first instance, the trial judge held that the defendant had unreasonably refused to mediate, and deprived the defendant of the costs to which it might otherwise have been entitled.

Appeal decision

The defendant appealed, arguing that silence was not a refusal, and even if it were, the circumstances of the case, viewed objectively, would show that a refusal was justified. The Court of Appeal disagreed, holding that the Halsey principles should be extended to include a general rule that silence in the face of an invitation to participate in ADR is, of itself, unreasonable.

Lord Justice Briggs, giving the main judgment of the Court, pointed out that mediation now had an established track record of providing an effective alternative mechanism for resolving disputes. Earlier court decisions had indicated that what was required of parties was an active engagement in the process of seeking an alternative means of resolution. Active engagement is also recommended by the Jackson ADR Handbook, published as an adjunct of the recent civil justice reforms at the express request of Lord Justice Jackson.

Briggs LJ also highlighted two practical reasons why parties should respond to mediation invitations. If the responding party genuinely believes it has good reasons for refusing to mediate, then setting these reasons out clearly at the time will enable the court at a later date to assess the reasonableness of a refusal on the basis of the party’s actual perceptions, rather than arguments made with the benefit of hindsight. Case law clearly shows that the court will regard refusals to mediate as reasonable in the right circumstances, for instance where a party believes that the mediation will not be successful (see Swain Mason v Mills & Reeve (a firm) [2012] EWCA Civ 498). If, on the other hand, a party’s perceptions are misplaced, then a proper response setting out their concerns would give the other party a chance to correct the misconceptions and overcome any perceived difficulties.

Sanctions

The defendant had been deprived of all of its costs. This was considered harsh, but the Court of Appeal let the sanction stand as a lesson to others of the risks of silence, and of failing to engage.

Comment

The ‘Jackson’ civil justice reforms in April 2013 included no rule changes that specifically mentioned ADR or mediation. It remains the case that the court can only encourage parties and not compel them to use alternative means to resolve their disputes.

However, the central thrust of the reforms, as reflected in the changes to the Overriding Objective in CPR 1.1, is to increase the importance of resolving cases at a proportionate cost and using only an appropriate share of the court’s resources. New costs management powers will enable the court to highlight at an early stage those cases that cannot be dealt with cost effectively within the court system, and this is bound to lead to more robust encouragement to try ADR.

The new culture is likely to see parties who fail to engage in a meaningful and constructive manner with invitations to explore ADR being scrutinised very closely when it comes to the award of costs, and the sanctions handed out for unreasonable refusals being more severe than in the past.

Authors

Category: Article