In the costs decision of Stephen Furst QC in PGF II SA v OMFS Company [2012] EWHC 83 (TCC), he sanctioned a party with a valid expectation of being awarded costs, on the grounds that the party had completely ignored what was found to be a bona fide invitation to mediate from the potential paying party. His decision has now been upheld by the Court of Appeal [2013] EWCA Civ 1288, the judgment of Lord Justice Briggs being simply agreed by his fellow judges. In sum, the Court of Appeal held that silence in response to a bona fide request to mediate can in of itself constitute unreasonable conduct.

The litigation concerned a claim for dilapidations for just over £1.9m by PGF under a lease of commercial premises. OMFS as the lessee denied responsibility altogether, asserting that there was no damage to the value of the reversion. PGF made a second Part 36 offer to accept £1.125m plus interest in April 2011 and proposed mediation, suggesting dates and mediators, and providing an exchange of information prior to mediation, and asking for reasons if this was not agreed. On the same day OMFS made a Part 36 offer of £700,000. They did not respond to PGF’s mediation proposal, and ignored a repetition of PGF’s proposal in June 2011. Neither Part 36 offer was accepted then. On the day before trial in January 2012, OMFS indicated that it would seek permission to amend so that it could argue that the claim for dilapidations relating to the air-conditioning system, embodying roughly £250,000 of PGF’s claim, was irrecoverable as the system was not part of the demise. PGF immediately accepted the unwithdrawn Part 36 offer of £700,000 to settle the substantive claim but sought to avoid the normal consequences of a late acceptance of a Part 36. At the hearing before Mr Recorder Furst QC, PGF argued that OMFS should pay PGF’s costs both because of the late amendment and also because they had ignored the proposal to mediate. They lost on the first point but succeeded in part on the second, in that the judge made no order as to costs against PGF, while not going so far as to award costs against OMFS. OMFS appealed the adverse costs order and PGF cross-appealed that they should have actually received their costs from OMFS.

Jan-Mar 2014 issue

Centre for Effective Dispute Resolution (CEDR)