A judge can deny the winner of a case its costs where the winner failed to respond to an offer made by the loser to engage in ADR.
Voltaire said that the execution of Admiral Byng after the Battle of Minorca was “pour encourager les autres” words used by a judge in the case of PGF II SA v OMFS Company 1 Limited  EWCA Civ 1288 imposing a costs sanction on the winner of a case for failing to respond to an offer to mediate.
In the case, the eventual loser made two offers to the eventual winner to mediate, which were met with silence and no comment either way from the winner.
The winner had made a formal offer to settle 8 months before trial. The offer was accepted just before trial. Normally, the winner would have expected to be awarded its costs from the end of the initial period for acceptance of the offer until it was actually accepted.
However, a High Court judge concluded that the winner’s refusal to respond to an offer by the other side to mediate, early in the case, amounted to an unreasonable refusal of the offer, leading the court to refuse to award the winner the costs it sought.
Upholding the earlier decision, Court of Appeal judge Lord Justice Briggs said
“silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable regardless of whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds”.
Where does this leave us?
- It is not compulsory for parties in litigation to take part in alternative dispute resolution (ADR).
- The court may direct parties to consider ADR, but cannot order the parties to engage in it.
- If your opponent offers mediation, or the court encourages the parties to consider it you should not remain silent.
- Any offer by your opponent to engage in ADR must be responded to, even if it is simply to give proper reasons why the offer is not acceptable.
- In the light of this case, a failure to respond to an offer to engage in ADR by the eventual winner of the case will almost certainly lead to a reduction, in the amount of costs the winner can expect to receive.
Should I always offer ADR?
In answer to the winner’s submissions that the only reason the case settled immediately before trial was because “fresh eyes” had seen the case, Lord Justice Briggs said “that is precisely the sort of insight which a trained and skilled mediator, experience in the relevant field can bring to an apparently entrenched dispute” .
Given this clear endorsement of ADR from an influential Court of Appeal Judge, it is always worth giving serious thought to offering ADR in a dispute.
There is, as yet no indication that the court will impose a costs sanction on a party for failing to offer a mediation absent a proposal from his opponent. However, an offer to engage in ADR will offer protection from potential criticism by the court and place your opponent under the obligation to respond.