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Cost Sanctions for Unreasonable Refusal to Respond to a Mediation Request: UK

A recent decision by the Court of Appeal upholding a cost sanction may lead UK litigants to more seriously consider invitations to meditate. In PGF II SA v. OMFS Co. 1 Ltd., [2012] EWCA Civ 1288; [2013] WLR (D) 405, a party was denied its costs because of its “unreasonable refusal to recognize a request to mediate.” The sanctioned party, OMFS, argued that “[i]ts silence did not amount to refusal, and even if it did, that refusal was on reasonable grounds.” The claimant argued that the defendant’s lack of response was itself unreasonable and that the defendant should not receive its usual costs for the ‘relevant period’ of 21 days after the offer was made.”

Lord Justice Briggs agreed with the court below and cautioned that, “the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless 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.” The court concluded that the “the defendant’s silence in face of two requests to mediate was itself unreasonable conduct of litigation sufficient to warrant a costs sanction.”

The court dismissed the appeal and upheld the lower court, ruling that, “[t]o deprive the defendant of the whole of its costs during the relevant period was within the range of proper responses to the seriously unreasonable conduct which the judge identified.”

According to the traditional English rule on costs, the unsuccessful litigant is generally ordered to pay the successful party’s costs, including reasonable legal fees. While such costs awards are not a common feature of US civil litigation, a little-used provision of the Federal Rules of Civil Procedure (FRCP), Rule 68, provides for some cost-shifting in litigation when a defendant makes an “offer of judgment” to a plaintiff, the plaintiff does not accept, and the ultimate judgment is less favorable than the offer, see E. Sherman & C. Fairman,  “Interplay Between Mediation and Offer of Judgment Rule Sanctions” 26 Ohio St. J. Disp. Res.327 (2011); available at SSRN). Many states have similar legislation, some of which expressly includes attorneys’ fees in the costs.

While this seems, in the US, to be limited to litigation, similar provisions can be found in the legislation of a number of EU countries implementing the 2008 EU Mediation Directive, which does not itself mandate any type of cost-shifting sanctions. According, for example, to the new Italian mediation legislation (Law Decree 69 of June 21, 2013; see G. de Palo, “Mandatory Mediation is Back in Italy with New Parliamentary Rules” 31 Alternatives 140 (October 2013),  if the parties fail to reach a settlement, the mediator may propose a solution to the dispute. If after it is rejected the case goes to court and the judgment is consistent with the proposal, the court may shift onto the rejecting party all mediation and litigation costs arising after the mediator’s proposal.

- Libbie Richards, CPR Legal Intern