UK: Silence Is Costly: Consequences Of Ignoring An Invitation To Mediate

Last Updated: 15 November 2013
Article by Nick Goldstone

On 23 October 2013, the Court of Appeal handed down judgment in the case of PGF II SA v OMFS CO 1 Ltd, providing strong guidance on the duty to take part in alternative dispute resolution (ADR).

Background to the case

PGF, the landlord, filed a dilapidations claim against OMFS, the tenant, for £1.9 million, in respect of commercial office premises in London.  OMFS denied liability entirely.  Trial was scheduled for 11 January 2012.

In April 2011, PGF made a Part 36 offer to settle, at £1.25m.  At the same time, OMFS also made a Part 36 offer to settle, at £700,000.

In July 2011, PGF invited OMFS to mediate the matter.  This invitation was re-iterated on 1 October.  The invitations were ignored.

On 20 December 2011, PGF made a decreased Part 36 offer, at £1.05m, reducing the gap between the offers to £350,000.

The day before trial, OMFS, for the first time, took a point that an air conditioning system (for which damages of around £250,000 were claimed) was outside the demise and therefore outside the scope of the claim. 

Later on the same day, PGF accepted the Part 36 offer made by OMFS nine months earlier at £700,000. 

Part 36 Costs: The default position

Acceptance of the Part 36 offer by PGF "out of time" should have meant that PGF should pay OMFS's costs incurred from 21 days after the offer was made, until the date it was accepted. 

However, where the court considers it unjust to make an order as prescribed by the rules, the order remains subject to the discretion of the court, which discretion was in this case exercised.

The Defendant's position

OMFS asked for costs from 2 May 2011 to trial on 11 January 2012.  They argued that they had used the Part 36 settlement procedure as it was supposed to be used: they had made an offer, and stuck to it.  They claimed that PGF had greedily held out for more, and then, at the very last minute, had accepted the accuracy of the original offer.  As a result of these circumstances, they claimed, earlier mediation would not have worked.

The ruling

The judge held that OMFS was not entitled to its costs, as they had unreasonably refused PGF's invitations to mediate. 

OMFS subsequently appealed; on 23 October 2013, the Court of Appeal handed down its judgment.  OMFS's appeal was rejected, and they were ordered to pay PGF's costs of the appeal and of the original action.

The Court of Appeal held that:

  • Silence in the face of an invitation to ADR is, as a general rule, unreasonable.
  • Failure to respond to an invitation to ADR will make a party liable for penalties in costs, at the court's discretion.
  • Not providing reasons for refusal to mediate means that the other side is unable to try to accommodate them.  A reasoned response could encourage the parties to re-consider their position.
  • Reasons provided subsequently - at trial, for example - will be disregarded. 
  • A specialist mediator may spot the game-changing point (here: the air conditioning system), much earlier in the case.
  • The Court depriving the Defendant of all costs claimed was "vigorous", but an exercise of the Court's discretion, and should compel others to agree to ADR.

Practical implications

If you do not want to mediate, you need to have a good explanation as to why.  These may include:

  • Time/cost limits;
  • The type of ADR offered is not suitable;
  • Timing: not yet/too late, for example in relation to disclosure/evidence;
  • Re-iteration of the strength of your case - as long as your case is proved right; or
  • Exceptions to the general rule, in particular cases involving reputational matters, including criminal cases, and fraud cases, where public vindication may be key.

However, investigating/illustrating the subjective reasonableness of a refusal to mediate several months or years after the event may often prove difficult.

Conditions to mediate

Entering mediation with conditions may still discharge the duty to mediate, as long as the conditions themselves are reasonable.  This may provide a fallback option; but conversely may make the initial agreement to mediate more difficult.


Confidentiality in mediation is contractual, not statutory.  As a result, it is negotiable.

A caveat could be attached to the confidentiality clause of a Mediation Agreement, making the mediator compellable as a witness on the question of the parties' reasonableness during the mediation. This prevents parties entering mediation merely in order to discharge their duty, with no real intention of reaching an agreement.

What next?

  • ADR must be taken more seriously by all parties involved as anyone who refuses to participate in ADR without good reason can and will face costs sanctions.
  • The outcome of the PGF case may indicate the movement of the court towards introducing compulsory mediation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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