Mediation: the cost of silence

Mediation practice has moved on, following a recent decision of the Court of Appeal (PGF II SA v OMFS Company 1). This is a summary of the decision together with practical tips on what to do when faced with an invitation to mediate.

Before PGF the settled law derived mainly from the so-called Halsey decision, which gave general guidance on the Court’s power to encourage parties to resolve their disputes. Briefly, it was agreed that the Court should not compel parties to mediate but may need to encourage them, robustly in some cases, to embark upon alternative dispute resolution (ADR). Also the Court’s power in relation to costs might be used against parties that refuse unreasonably to agree to ADR but the burden is on the unsuccessful party to show that the refusal was unreasonable.

The PGF/OMFS appeal concerned the failure to carry out repairs on a property. PGF eventually carried out the repairs itself and issued proceedings to recover the costs. OMFS twice failed to respond to an offer to mediate and the matter was finally resolved the day before the trial when PGF accepted an earlier Part 36 offer that OMFS had made. This left the question of costs. The usual rule, on the Halsey principle, was that the loser pays the winner’s costs but the winner can be deprived of its costs if it unreasonably refuses to mediate. The trial judge accepted that OMFS’s silence in the face of two offers to mediate amounted to an unreasonable refusal and ruled that it was not entitled to its costs.

It was left for the Court of Appeal to decide for the first time whether it was acceptable to decline to respond to an invitation to mediate. It ruled that OMFS’s silence was tantamount to a refusal to mediate and that silence itself was unreasonable, regardless of whether the refusal to engage may have been justifiable. The Court stated that a modest extension to the Halsey principles was required because of the importance for parties to discuss any difficulties they might have. Only in exceptional cases, such as administrative error, might it be acceptable not to respond to an invitation to mediate.

So clearly following the PGF decision it is no longer possible to ignore an invitation to mediate. Our advice is to:

• always respond promptly to a mediation offer
• be proactive by confirming available dates and suggesting a choice of mediator
• request relevant documents prior to participating in mediation
• try and arrive at a practical solution through correspondence
• and, if you have reasonable grounds for refusing mediation, provide the reasons… silence is no longer acceptable.

If you decline to mediate, you should review the reasons on an on-going basis to ensure they remain reasonable and never close off the possibility of mediation.

The Court of Appeal’s support for mediation endorses the post-Jackson approach of avoiding wasting judicial resources. Even if the dispute cannot be completely resolved through discussion, the mediation process may help to narrow the issues. Research by the Centre for Effective Dispute Resolution shows that that 70% of cases settle on the day of the mediation itself and a further 20% of cases settle shortly after.