Can a Refusal to Engage in ADR be Justified?

Published 24 marzo 2020

Failing to engage in ADR / Mediation can result in an adverse costs order being made against the refusing party, if it is found that they were acting unreasonably in refusing the invitation, even where they later succeed in their case. In PGFii SA v OMFS Company (2013) the Court of Appeal confirmed that silence in itself in the face of an invitation to engage in ADR would, as a general rule, be unreasonable, regardless of whether or not the refusing party would have a good reason to refuse. What is the position if reasons are given for the refusal to engage in ADR?

In Simon Kelly v Raymond Kelly (2020), the Defendant was successful in defending a claim brought against him by his father in relation to an oral agreement between them. The Defendant had made two Part 36 offers of settlement to the Claimant, the first one in September 2017 and the second in December 2018 and both were rejected; at trial he beat both his offers.

The parties had attempted to resolve the claim through mediation, twice, the Defendant refusing to engage in a third mediation and listing five reasons for this refusal in correspondence, the reasons being the bad feeling between the parties, the Claimant’s failure to honour the two earlier mediation agreements, the Claimant’s failure to make written offers despite an invitation to do so and the Claimant’s failure to return money to the Defendant and to the other parties.

Following Judgment, the Defendant sought an Order for costs assessed on the standard basis until the expiry of his first Part 36 offer and then costs assessed on the indemnity basis thereafter. The Claimant, whilst accepting in principle that he was liable for the Defendant’s costs, submitted that the Defendant should only get 50% of his costs assessed on the standard basis as he had unreasonably refused to enter into mediation and he had been dishonest in the proceedings (which was admitted).

The question for the Judge related to whether the refusal to enter into further mediation was unreasonable, the question of dishonesty being viewed as peripheral to the question of costs. He concluded that the Defendant’s refusal to engage in the third mediation was understandable, given the risk of further broken promises, and therefore the Defendant’s conduct was not unreasonable; the Defendant was awarded his costs on the basis claimed, including costs assessed on the indemnity basis from the expiry of his offer.

In contrast, in DSN v Blackpool Football Club Limited (2020), a claim for historic sexual abuse on which the judgment was handed down on 20 March 2020, the Defendant (which failed to beat the Claimant’s Part 36 offer) advised the Claimant that it was unwilling to engage in ADR as it maintained its defence and denied liability, the Defendant’s solicitor filing a statement giving this explanation in accordance with the Court’s Directions. The Claimant beat his Part 36 offer, made before the Defendant’s statement explaining its refusal to engage in ADR, and had made two other Part 36 offers; the Defendant had not sought to engage in negotiations and had not responded to any one of the Claimant’s offers. The trial Judge, Mr Justice Griffiths, awarded costs, assessed on the indemnity basis, not only from expiry of the Part 36 offer beaten by the Claimant, but (because of the Defendant’s refusal to engage in negotiations) also from two months before that offer was made.

Whilst there are many cases in which a party may not wish to engage in ADR, either because the claim is being defended or due to other reasons, the reasons for the refusal to engage in ADR should be explained to the other side (and, in many cases, the Court); if the reasons are not viewed as sufficient by the Court, costs sanctions may follow.