Most motor finance companies engaged in litigation will generally consider the possibility of alternative dispute resolution (ADR) at some point in the proceedings.

While the courts cannot compel parties to participate in ADR they can robustly encourage parties to do so. An unreasonable refusal to participate in mediation (the most common form of ADR) has, since the Court of Appeal decision in Halsey v Milton Keynes General NHS Trust (2004), been deemed to be unreasonable conduct leading to the courts imposing costs sanctions on a successful party following trial.

The Court of Appeal has now gone further, holding that if an invitation to mediate is met with stony silence, that is akin to an unreasonable refusal, sufficient to warrant a costs sanction.

This was the decision in PGF II SA v OMFS Company 1 Ltd (2013). The claimant sent a very detailed invitation to mediate to the defendant which elicited no response at all. The invitation was subsequently repeated, but again with no response. The claimant made two offers to settle pursuant to Part 36 of the Civil Procedure Rules, but subsequently accepted the defendant’s Part 36 offer shortly before trial.

The default position under Part 36 meant the defendant was ordinarily entitled to its costs from the period commencing 21 days after the offer was made until it was accepted. However, the court declined to award any costs for that period due to the defendant’s unreasonable refusal to participate in the proposed mediation.

The defendant argued that its lack of any response did not amount to a refusal and, even if it did, it was a reasonable refusal as the proposed mediation stood no reasonable prospects of success.

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It considered the parties were too far apart in terms of their respective Part 36 offers (£1.05 million plus interest against £700,000).
In dismissing the appeal, the Court of Appeal held that, as a general rule, failure to respond to an invitation to participate in ADR is, of itself, unreasonable, regardless of whether an outright refusal may have been justifiable. Any perceived difficulties or reasonable objection to an ADR proposal should have been discussed between the parties, hopefully to narrow those differences.

Silence in the face of two reasonable requests to mediate could not be regarded as anything other than a refusal. The court considered there was no unbridgeable gap between the parties’ respective Part 36 positions that could not have been overcome during a mediation for which the dispute was entirely suited. There had been reasonable prospects of success.

Things to consider
This is a robust judgment reinforcing the benefits of mediation which continues to enjoy a good success rate.
As a result, parties must not simply ignore invitations to engage in ADR.
Active engagement, even if only to the extent of putting forward a succinct but reasoned explanation as to why the proposal is not acceptable, or not at that time or in that format, is required to avoid a potential costs penalty.

Greg Standing is a partner in Wragge & Co’s motor finance litigation team