10 years ago in the landmark case Halsey v Milton Keynes General NHS Trust the UK Court of Appeal first addressed the role the court should have in encouraging parties to settle their disputes otherwise than by trial. This judgment included laying down the principle that the court has the power to deprive a successful party at trial of their right to receive costs from the unsuccessful party if they have unreasonably refused to agree to mediation before trial. The court set out a non-exclusive list of factors that may be relevant in determining whether a party has acted unreasonably.
The UK Court of Appeal has again addressed this issue in PGF II SA v OMFS Company 1 Limited. This judgement comes equipped with the new research from the Centre for Effective Dispute Resolution about the effectiveness of mediation that has been produced since the judgment in Halsey.
In the PGF II SA case the defendant had failed to reply to two separate letters from the claimant inviting them to take part in mediation. At trial, and upheld on appeal, the judge ruled that the defendant should be deprived of payment towards costs because of this unreasonable conduct. While recognising that it may be possible in some extreme cases, both judges held that there was no recognition in the Halsey case that the court might go further than this and allow an otherwise successful party to pay the costs of the unsuccessful party.
In coming to this decision, the appeal judge firmly endorsed the advice in the Alternative Dispute Resolution (ADR) Handbook that parties who believe that they have reasonable grounds for refusing to participate in mediation should consider an order to avoid a costs sanction. This advice calls for constructive engagement in the ADR process and establishes the principle that silence in the face of an invitation to mediate is in itself, as a general rule, unreasonable.
Even though a refusal to reply to an invitation to take part in ADR may be unreasonable, it does not automatically mean that a cost penalty will be imposed.