PGF II SA v OMFS Company 1 Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs,Lord Justice McFarlane,Lord Justice Maurice Kay |
| Judgment Date | 23 October 2013 |
| Neutral Citation | [2013] EWCA Civ 1288 |
| Docket Number | Case No: A2/2012/0373 & 0465 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 October 2013 |
[2013] EWCA Civ 1288
Lord Justice Maurice Kay
Lord Justice Beatson
and
Lord Justice Briggs
Case No: A2/2012/0373 & 0465
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
Mr Recorder Furst QC
HT11-159;11-161;11-162
Royal Courts of Justice
Strand, London, WC2A 2LL
Guy Fetherstonhaugh QC (instructed by Kingsley Napley) for the Appellant
Jonathan Seitler QC (instructed by Browne Jacobson) for the Respondent
Hearing dates: Wednesday 2 nd October
Approved Judgment
Introduction
This appeal raises, for the first time as a matter of principle, the following question: what should be the response of the court to a party which, when invited by its opponent to take part in a process of alternative dispute resolution ("ADR"), simply declines to respond to the invitation in any way? An unreasonable refusal to participate in ADR has, since 2004, been identified by this court as a form of unreasonable conduct of litigation to which the court may properly respond by imposing costs sanctions: see Halsey v Milton Keynes General NHS Trust [2004] 1WLR 3002. After a general review of the progress of ADR, and mediation in particular, with the assistance of intervention by the Law Society and several bodies engaged in the development of ADR, this court laid down non-exclusive guidelines for deciding whether, in particular cases, a refusal to participate in ADR could be shown to be unreasonable. Those guidelines have stood the test of time, and the crucible of application in subsequent reported cases. A common feature of most of them, including the two cases reviewed in the Halsey case itself, was that the refusing party had communicated its refusal to the inviting party, with succinct reasons for doing so.
In the present case, a serious and carefully formulated written invitation by the claimant's solicitors to participate in mediation was met with complete silence by the defendant. The offer was repeated just over three months later and, despite promising a full response to the letter in which it was contained, the defendant's solicitors thereafter made no reply or comment about it at all. After the case was compromised, save as to costs, by the last minute acceptance by the claimant of the defendant's Part 36 offer, the trial judge Mr Recorder Furst QC, sitting as a deputy judge of the Queen's Bench Division in the Technology and Construction Court, acceded in part to the claimant's application for a costs sanction on the ground that the defendant had unreasonably refused to mediate, by depriving the defendant of the costs to which it would otherwise have been entitled under Part 36, but he declined to take the further step of making the defendant pay the claimant's costs, incurred during the same period. The judge decided first that the defendant's silence amounted to a refusal and secondly, applying the Halsey guidelines, that its refusal had been unreasonable.
Both parties appealed. The defendant submitted that the judge had been wrong on both points. Its silence did not amount to refusal, and even if it did, that refusal was on reasonable grounds. For the claimant, Mr. Jonathan Seitler QC made what he acknowledged was a novel submission, namely that silence in response to an invitation to participate in ADR was itself unreasonable regardless whether it amounted to a refusal, or whether there were reasonable grounds to refuse. He said that a civil litigant's first duty in response to such an invitation was to engage with it, rather than ignore it, even if such engagement led in due course to a reasonable refusal or to the pursuit of some different, or differently timed, process of ADR than that contained in the invitation.
Although Mr. Seitler could rely upon on no direct authority for his submission he derived considerable support (as will appear) from the contents and general thrust of the recently published Jackson ADR Handbook by Messrs Blake, Brown and Sime, supported by a distinguished editorial advisory board, and endorsed by the Judicial College, the Civil Justice Council and the Civil Mediation Council. The ADR handbook was prepared and published in response to an invitation in Jackson LJ's review of Civil Litigation Costs, see paragraph 3.8 in Chapter 36 of the Final Report. His invitation arose from a conclusion that a culture change was needed among the civil litigation community, so that the widespread benefits of participating in ADR were better recognised.
The Facts
The claimant (and respondent to this appeal) PGF II SA is the freehold owner of a mixed commercial and office building at 33 Lombard St, London EC3 (the Building). The defendant (and appellant) OMFS Company 1 Limited took assignments of office leases of the first, second and fourth floors of the Building, for the residue of terms expiring in 2009. Each of the leases imposed a full repairing liability on the tenant, limited to the interior skin of the office accommodation on the relevant floor. In due course the defendant sub-let all three floors to other occupiers, so that it had not been in occupation for some time when the leases all expired in 2009.
After notices to repair served by the claimant on the defendant in November 2008, schedules of dilapidations were served in 2009, alleging breaches of the tenant's repairing covenants in the aggregate value (for all three floors) of slightly more than £1.81 million. Thereafter the claimant carried out a substantial refurbishment of the Building for the cost of which the defendant declined to offer any reimbursement.
The claimant therefore issued proceedings in the Chancery Division in October 2010, claiming in aggregate slightly more than £1.9 million. The defence denied liability entirely, its main point being a denial that such disrepair as might have existed had caused any damage to the reversion, relying for that purpose on Section 18 of the Landlord and Tenant Act 1927.
At or shortly before the commencement of proceedings, the claimant made a Part 36 offer to accept £1.125 million in settlement, thereby leaving a substantially narrower gap between the parties than that visible to the court on the face of the pleadings.
Standard directions for disclosure and expert evidence were ordered by Master Price, by consent, on 31 st March 2011, pursuant to which the case was transferred to the Technology and Construction Court.
There was an exchange of email correspondence between the parties on 11 th April 2011. None of them appear to be responsive to each other, and they may be said to have passed, electronically, in the post. The claimant made a second Part 36 offer, superseding the first, to accept £1.25 million plus interest from June 2009 in settlement. This, incidentally, slightly widened the gap between the parties. By a separate letter the claimant invited the defendant to take part in an early mediation. The letter assumed that the defendant would wish to review the claimant's disclosure, and that a meeting and exchange of information might usefully take place between experts, before a mediation commenced. The claimant offered to send the defendant its Section 18 valuation. Numerous specific dates in May and June 2011 were proposed and additions were made to a previously notified list of suggested mediators. The letter concluded by seeking the defendant's agreement to mediate, and an explanation for any refusal. It sought confirmation as to documents and information which the defendant might wish to see before mediation, an exchange of dates and the defendant's list of proposed mediators. It was, overall, a thorough, carefully thought through and apparently sensible mediation proposal, taking full account of the likelihood that the defendant, which had not been in occupation of any part of the Building for several years, would wish to obtain further information before taking part.
For its part, again on the same day, the defendant sent the claimant a Part 36 offer of £700,000 inclusive of interest, promising an explanation of its reasoning under separate cover, which was not thereafter provided nor, for that matter, asked for.
The effect of the exchange of Part 36 offers was, on a without prejudice basis, to narrow the gap between the parties to £550,000 plus interest, little more than a quarter of the difference on the face of the statements of case, and half that which it had been prior to 11 th April.
Neither of the competing Part 36 offers was accepted and the claimant's invitation to mediation received no response from the defendant of any kind.
On 19 th July the claimant by its solicitors sent a further invitation to the defendant to mediate. It formed one of four matters raised in a short letter, stating:
"Please confirm whether your client is willing to attend a mediation and, if so, provide us with your dates of availability. If you are not prepared to attend a mediation, please could you let us know why."
After a chasing letter on 1 st August the defendant's solicitors promised a "full response" on 3 rd August. On 15 th August they responded in some detail in relation to one of the matters raised. Again, nothing whatsoever was said by way of response to the invitation to mediate.
On 20 th December the claimant made a further Part 36 offer, to accept £1.05 million plus interest, thereby narrowing the gap between the parties' offers to £350,000 plus interest.
The trial had been fixed for 11 th January 2012. In its skeleton argument, exchanged on 10 th January 2012, the defendant took...
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