Don't ignore an offer to mediate

Posted: Wednesday, 18 December 2013 @ 10:46

In the case of PGF II v OMFS Co and another, the Court of Appeal on 23 October has confirmed that refusal to mediate without giving good reason is itself unreasonable, and can deprive an otherwise successful party of their costs.

In the circumstances of the case the defendants ignored the claimants' offer to mediate. Mediation is a form of  alternative dispute resolution (ADR). Later the claimants accepted a Part 36 offer made by the defendants. The usual costs order would then be that the claimants had to pay the defendants' costs incurred from 21 days after the offer. But the Court of Appeal confirmed that because the defendants ignored an offer to mediate, that was unreasonable behaviour which deprived the defendants of the usual order for costs in its favour.

So the moral of the story is ignore an offer to mediate at your peril. It is vital that an immediate response is made to the offer, and that if you are not prepare to mediate you must give good reasons why you refuse to do so.

The courts expect parties to make every reasonable attempt to resolve their disputes before going to court. That involves a structured approach, starting off with attempted negotiation, then if that fails an ADR procedure, and finally the courts. Of course there are cases where because of limitation periods or the very nature of a case, ADR is not apporopriate. But it is important to make this clear at the time, particularly if the other side is asking for mediation.

To remind you of the types of ADR available:

1. Arbitration is perhaps the oldest form of ADR. It is usually as expensive and inflexible as court proceedings, but with the advantage that the arbitrator who will decide the issues is an expert in the subject matter of the dispute, and hearings are in private. Many commercial agreements provide for disputes to be determined by arbitration. Awards made by an arbitrator are binding on the parties.

2. Adjudication is common in the construction industry. It provides for interim binding decisions, which can be challenged at the end of the contract, and often covers many issues arising in an on-going contract.

3. Mediation The process is confidential, “without prejudice”, flexible, and only binding if the parties agree. The mediator is a trained facilitator only, skilled in identifying the strengths and weaknesses of each party’s case, and in moving the parties towards a settlement.

4. Expert Determination is where the parties jointly appoint an expert to decide a question which the parties accept will be binding on them. Usually this is a technical question which may be the deciding factor in a dispute. The expert could for example be a valuer of goods or property, or an engineer.

5. Neutral Evaluation where the parties approach a neutral expert in the area of dispute for an indication of the likely outcome of court proceedings. The decision is non-binding but persuasive.

Arbitration is the common form of dispute resolution in international contracts. Adjudication is only to be found in construction disputes, and mediation is available for any dispute.

Nigel Musgrove
Business and Litigation Solicitor
Tel: 0845 003 5639

Blog by Nigel Musgrove
Nigel has been providing dispute resolution advice as a solicitor for over 35 years. As well as advising SMEs and business owners on disputes he also offers a specialist licensing law service. View profile
Call Nigel on +44 (0)1285 847 001 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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