In the recent case of PGF II SA v OMFS Company 1 Limited the Court of Appeal determined that the failure by a party to respond to a reasoned invitation to mediate an ongoing dispute was unreasonable even though there may have been good reasons to refuse to mediate. In other words, the Court of Appeal wanted to make it clear that silence (the refusal to engage in the mediation process) was not an acceptable response to such an invitation. By upholding this decision, the Court of Appeal seeks to encourage parties to engage in attempting to settle their disputes without having to embark on or continue with court proceedings.
The court made it clear that even if a party felt that there were goods grounds for refusing to mediate, there were two practical reasons why it should respond to the mediation invitation:
If the receiving party genuinely believes that it has good reasons for refusing to mediate then it is important that it should take the opportunity to set out its reasons clearly at the time because this will then enable the court at a later date to assess the reasonableness of that refusal on the basis of what was said at the time rather than any arguments that might be made with the benefit of hindsight; and
- The setting out of such reasons for refusing to mediate also gives the inviting party the opportunity to challenge the reasons which have been set out and potentially the opportunity to correct any misunderstandings which might have led to the decision to refuse.
In the case itself, the claimant had, shortly before trial, accepted a Part 36 offer made by the defendant some nine months previously. Normally the effect of such an acceptance would be that the defendant would be entitled to recover its costs from a date 21 days after the Part 36 offer had been made up to the date of acceptance. However, as a result of the fact that the defendant had refused to engage with an offer to mediate made by the claimant earlier, the defendant was deprived of all of its costs for that period.
The defendant appealed but although the Court of Appeal recognised that the penalty imposed by the judge in depriving the defendant of all of its costs was “vigorous” it nevertheless upheld the decision on the basis that it hoped that this decision would encourage others to take a more reasonable approach when considering mediation offers in the future.