Factual and Procedural Background
The dispute arose from a claim by Plaintiff, the freehold owner of a mixed commercial and office building at The City, against Defendant, the assignee of office leases on several floors of the building. Plaintiff alleged breaches of tenant repairing covenants, claiming damages exceeding £1.9 million after serving notices and schedules of dilapidations. Defendant denied liability, particularly disputing that any disrepair caused damage to the reversion, relying on statutory provisions.
Proceedings commenced in the Chancery Division in October 2010 and were later transferred to the Technology and Construction Court. Both parties exchanged Part 36 offers narrowing the settlement gap, but no agreement was reached. Plaintiff invited Defendant twice to participate in mediation as a form of alternative dispute resolution ("ADR"), but Defendant failed to respond to these invitations.
Before trial, Defendant raised a new issue relating to part of the claim, prompting Plaintiff to accept Defendant's Part 36 offer, settling the case save for costs. Plaintiff then sought a costs order on the basis that Defendant had unreasonably refused to mediate. The trial judge partially granted Plaintiff's application, depriving Defendant of its costs entitlement for the relevant period but declined to order Defendant to pay Plaintiff’s costs. Both parties appealed the costs decision.
Legal Issues Presented
- Whether silence in response to a reasonable invitation to participate in ADR amounts to a refusal to mediate.
- Whether such silence or refusal to mediate is, as a matter of principle, unreasonable conduct warranting costs sanctions.
- The proper application of the Halsey v Milton Keynes General NHS Trust guidelines to cases involving non-response to ADR invitations.
- The appropriate costs consequences under CPR Part 36 where a party unreasonably refuses ADR but the litigation settles by Part 36 offer acceptance.
Arguments of the Parties
Defendant's Arguments
- Silence did not constitute a refusal to mediate.
- Even if silence was a refusal, it was reasonable on grounds including the strength of Defendant’s Part 36 offer and the nature of the dispute.
- The expenditure of costs during the relevant period was primarily due to Plaintiff’s failure to accept Defendant’s reasonable Part 36 offer, so no departure from normal costs rules was justified.
- The judge’s decision to deprive Defendant of all costs during the relevant period was excessive and lacked proper balancing of all relevant factors.
Plaintiff's Arguments
- Silence in response to an invitation to ADR is itself unreasonable, regardless of whether it constitutes a refusal or whether there were reasonable grounds for refusal.
- A civil litigant’s first duty upon receiving an ADR invitation is to engage with it rather than ignore it, even if ultimately refusing mediation or proposing alternative ADR methods.
- The court should encourage a culture of constructive engagement with ADR to promote proportionality and efficient use of court resources.
- The costs sanction imposed by the trial judge was appropriate to enforce the principle that parties must respond to ADR invitations.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 |
Guidelines for assessing whether refusal to participate in ADR is unreasonable and the court’s power to impose costs sanctions for such refusals. |
Provided the foundational principles and non-exclusive factors applied to determine unreasonableness of refusal to mediate, extended here to cover silence as unreasonable conduct. |
| Lumb v Hampsey [2011] EWHC 2808 (QB) |
Application of the "unjust" test under CPR Part 36 rule 10(5) allowing court discretion over costs consequences. |
Supported the approach that the court may depart from prescribed Part 36 costs consequences on grounds of unreasonableness, guiding the judge’s costs discretion. |
| SG v Hewitt [2012] EWCA Civ 1053 |
Endorsed the application of the "unjust" test and wide discretion in costs orders under CPR Part 36. |
Confirmed the judge’s discretion in costs orders and reinforced the principles guiding costs consequences of Part 36 offers. |
| Burchell v Bullard [2005] EWCA Civ 358 |
Parties cannot ignore a proper request to mediate even if made before claim issuance. |
Supported the proposition that failure to respond to mediation invitations may be unreasonable conduct. |
| Rolf v De Guerin [2011] EWCA Civ 78 |
Failure to reply to successive mediation offers can be regarded as "spurning" them. |
Provided judicial recognition that silence or non-response may amount to unreasonable refusal. |
| Matthews v Metal Improvements Co. Inc [2007] EWCA Civ 215 |
Part 36 offers provide protection against costs risk and encourage realistic settlement. |
Contextualised Part 36’s role in encouraging settlement and its interface with ADR. |
| Hurst v Leeming [2003] 1 Lloyds Rep 379 |
Consideration of party’s reasonable belief in strength of case relevant to assessing reasonableness of conduct. |
Supported the view that reasonableness involves subjective as well as objective assessment. |
Court's Reasoning and Analysis
The court addressed for the first time the principle of whether silence in response to an ADR invitation constitutes unreasonable conduct. It affirmed that silence should generally be treated as an unreasonable refusal to engage in ADR, unless exceptional circumstances exist (such as a clear administrative error or the obvious inappropriateness of ADR).
The court emphasized that requiring parties to provide reasons for refusal at the time of invitation promotes constructive engagement and facilitates resolution or alternative ADR methods. Failure to respond frustrates this objective and imposes difficulties on the court and opposing parties in assessing the legitimacy of any later-advanced reasons.
The court rejected Defendant’s argument that Part 36 offers alone demonstrate reasonable grounds for refusing mediation, noting that such offers often reflect strategic cost-risk management rather than genuine belief in the strength of a case. The narrowing of the settlement gap and the nature of the dispute (complex valuation and repair issues) made mediation particularly appropriate.
Regarding costs, the court recognized the judge’s discretion to impose varying degrees of costs sanctions for unreasonable refusal to mediate, ranging from partial to full disallowance of costs. It affirmed the judge’s decision to deprive Defendant of its costs during the relevant period as within the proper range of responses, despite some criticism that a fuller balancing exercise might have been warranted.
The court underscored the importance of encouraging ADR engagement to conserve court resources and promote proportionality in litigation conduct, especially in the current economic climate.
Holding and Implications
The court DISMISSED both the appeal and the cross appeal, thereby upholding the trial judge’s decision that Defendant’s silence in response to invitations to mediate amounted to an unreasonable refusal to participate in ADR.
The direct effect is that Defendant was deprived of its costs entitlement for the relevant period under CPR Part 36 due to its unreasonable conduct. No further costs order was made against Defendant.
This decision establishes a clear principle that silence to a reasonable ADR invitation is generally unreasonable conduct warranting costs sanctions, reinforcing the court’s role in promoting ADR engagement. However, the court acknowledged limited exceptions and preserved judicial discretion in applying costs consequences proportionately.