Ignore requests to mediate at your peril

Photo credit: William Arthur Fine Stationery - https://www.flickr.com/photos/williamarthur

While George Bernard Shaw’s dictum “Choose silence of all virtues, for by it you hear other men’s imperfections and conceal your own” may well be sound advice generally, in the context of commercial dispute resolution the Court of Appeal has declared if a party follows this course it will be visited by costs sanctions.

In the recent case of PGF II SA-v-OMFS Company 1 Limited (2013) (a dilapidations claim for £1.8m) PGF wrote to OMFS on two occasions offering mediation. OMFS simply ignored both requests and failed even to acknowledge the letters.

Meanwhile, OMFS made a formal offer of settlement (known as a Part 36 Offer) for £700,000 which, if accepted within the requisite time (21 days from date of the offer) would have resulted in OMFS paying PGF’s costs up to and including the date it was accepted. PGF did not, however, accept the offer within the required 21 days but instead accepted the offer some 9 months later - the day before trial. In the normal course of events, PGF would have been liable for OMFG’s costs for the period between when it should have accepted the offer (within 21 days of it being made) and when it actually accepted the offer.

PGF argued in the Court of Appeal that:
(a) OMFS’s silence in response to an invitation to mediate was unreasonable irrespective of whether there were grounds to refuse and
(b) as such, it should not have to pay OMFS’s costs. The Court of Appeal agreed on both counts, and confirmed “….silence in the face of an invitation to participate in ADR [Alternative Dispute Resolution – here mediation] is, as a general rule, of itself unreasonable”.

How could this affect you?

If you’re involved in a corporate dispute and are given an offer to mediate, you must now always respond. There may well be good reasons to refuse to mediate but these now need to be communicated in your reply.

If you have any queries about responding to requests for mediation in a commercial dispute or need advice on any other construction issue contact Julian Kirkpatrick in our Construction & Engineering team on 01225 730 161 or [email protected]