CA extends Halsey ADR rule and upholds costs sanction "pour encourager les autres"

Costs sanction: appeal court sends a message

The Court of Appeal yesterday sent out a stark warning to parties which fail to engage with a “serious invitation” to take part in alternative dispute resolution (ADR).

“Modestly” extending the guidance in the well-known Halsey ruling, it established the principle that silence in response to an invitation to participate in ADR is itself unreasonable regardless of whether it amounted to a refusal, or whether there were reasonable grounds to refuse.

As a result, the court upheld a costs sanction against the offending party, even though Lord Justice Briggs said it was “a little more vigorous than I would have preferred”.

The decision operates “pour encourager les autres”, he said.

“This case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation. To allow the present appeal would, as it seems to me, blunt that message.”

In PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288, the claimant’s ADR invitation was “met with complete silence”, Briggs LJ recorded.

After the case settled with the claimant’s last-minute acceptance of the defendant’s part 36 offer, the trial judge, Mr Recorder Furst QC, sitting as a deputy judge of the Technology and Construction Court, penalised the refusal to mediate by depriving the defendant of the costs to which it would otherwise have been entitled under part 36.

However, he declined to take the further step of making the defendant pay the claimant’s costs over 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.

Briggs LJ said: “In my judgment, 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.

“I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism.

“There may also be cases where the failure to respond at all was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made, but in such cases the onus would lie squarely on the recipient of the invitation to make that explanation good.”

The judge said that had he been free to do so, he would have concluded that despite the ADR failure, “the overall responsibility for the expenditure of a further £500,000 odd in costs during the relevant period nonetheless still lay primarily with the claimant” and would only have disallowed a proportion of the defendant’s costs. But he found the decision was within the first-instance judge’s discretion.

Briggs LJ added: “The court’s task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres.”