Mediation shouldn’t be seen as optional

High Court decision that highlights the importance of mediation
PGF II SA v OMFS Co 2012 EWHC 83 (TCC)

The claimant landlord claimed for dilapidations arising out of alleged breaches of the repairing covenants of an underlease, particularly in relation to the air conditioning system.

The defendant made a part 36 offer to settle the dispute on 11.04.2011. In May, June and July 2011 the claimant offered to mediate. On each occasion the defendant refused.

On 10.01.2012, the day before the trial, the claimant accepted the part 36 offer, as it came to light that the defendant was to amend its defence to the effect that the air conditioning did not fall within the definition of the demised premises in the underlease.

The usual costs consequences of this acceptance are set out in CPR r.36.10(5) which would be that the claimant would be liable to pay the defendant’s costs from the date of the expiry of the relevant period to the date of acceptance.

However, the court ordered:

i) that the defendant pay the claimant’s costs on the standard basis up until the end of the relevant period; but
ii) that there should be no order as to costs from the the end of the relevant period to acceptance.

The defendant therefore lost the right to recover costs under CPR r.36.10(5).

The court found it was unreasonable to have refused to mediate, particularly as the court believed that there was a reasonable prospect that the dispute could have been settled during the mediation.

This decision highlights how the court will use its wide discretion on costs and move away from the default position under CPR Part 36 in circumstances where parties refuse to mediate. Parties must recognise that mediation is a fundamental part of the litigation process, and a refusal to mediate can result in severe costs sanctions.