Practical Law

Almost ten years ago, the Court of Appeal addressed, as a matter of principle, the extent to which it was appropriate for the court to use its powers to encourage civil litigants to settle their disputes. In Halsey v Milton Keynes General, it held that a successful party can be deprived of all or part of its costs if it unreasonably refused to agree to ADR.

Last month, the Court of Appeal modestly extended this rule to include silence in the face of an invitation to participate in ADR. In PGF II SA v OMFS Company 1 Ltd, it held such silence is, as a general rule, of itself unreasonable.

In PGF, the claimant had twice written to the defendant asking it to mediate and, if it refused to do so, to say why. The defendant failed to respond. The Court of Appeal held that the defendant had unreasonably refused to mediate and penalised it with a costs sanction.

Several important points arise out of this decision.

The importance of Halsey

First, the decision in Halsey must be at the forefront of parties’ minds. In PGF, Briggs LJ (with whom the other two Lord Justices agreed) said that the court in Halsey “took the view that many civil disputes were suitable for mediation” and:

“In the nine and a half years which have elapsed since the decision in the Halsey case, much has occurred to underline and confirm the wisdom of that conclusion, reached at a time when mediation in particular had a track record only half as long as it has now.”

Responding to an invitation to participate in ADR

Secondly, what does a party do if it receives an invitation to participate in ADR? The answer is, they must engage with it. In other words, a serious invitation to participate in ADR cannot be ignored. If a party does not want to participate in ADR, it must explain the reasons why and these reasons should then be explored by the parties. Pragmatism is key.

Briggs LJ acknowledged that there are many types of reasonable objection to a particular ADR proposal and said, when raised, they may be capable of being addressed:

“Mediation may be resisted on the basis that some other type of ADR, such as early neutral evaluation, may be equally suitable and preferred by the objecting party. A proposed mediation may be expensive to the other party if, as is usual, the mediator’s fees are shared equally. In such a case it is not unknown for the proposing party to offer to bear the whole fee, or for some cheaper form of ADR, including judicial early neutral evaluation or financial dispute resolution, to be provided more cheaply by the court. ADR may be proposed before the other party has the requisite information, a difficulty capable of being addressed either by limited voluntary disclosure, or by ADR at a later date than that proposed.”

Proposing ADR

Thirdly, parties should engage with each other in considering the suitability of ADR, rather than waiting for encouragement from the court. On this point, Briggs LJ said:

“…the provision of state resources for the conduct of civil litigation… call for an ever-increasing focus upon means of ensuring that court time, both for trial and for case management, is proportionately directed towards those disputes which really need it, with an ever-increasing responsibility thrown upon the parties to civil litigation to engage in ADR, wherever that offers a reasonable prospect of producing a just settlement at proportionate cost. Just as it risks a waste of the court’s resources to have to try a case which could have been justly settled, earlier and at a fraction of the cost by ADR, so it is a waste of its resources to have to manage the parties towards ADR by robust encouragement, where they could and should have engaged with each other in considering its suitability, without the need for the court’s active intervention.”

Court of Appeal endorses The Jackson ADR Handbook

Fourthly, it is essential for parties to a dispute to consult The Jackson ADR Handbook, published earlier this year.

The handbook contains a foreword from Lord Dyson commending it as “properly authoritative”. Further, despite the handbook being first published after the period relevant to the proceedings, the court in PGF expressly and firmly endorsed advice given by it at section 11.56. Briggs LJ summarised that advice as “calling for constructive engagement in ADR rather than flat rejection, or silence”, and noted that the authors of the handbook had drawn heavily on the first instance decision in PGF.

The future

Finally, Briggs LJ said that ADR is a process that is “still insufficiently understood and still under-used”. While the court considered that it may have made a different costs order to the one made at first instance, it did not disturb it. Instead it concluded by saying this:

“Finally…  this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation. To allow the present appeal would, as it seems to me, blunt that message. The court’s task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres.”