Failure to mediate taken into account to prevent usual Part 36 order

31-01-2012 09:14

In PGF II SA v OMFS Company & Anor [2012] EWHC 83 (TCC) (27 January 2012) the Defendant made a Part 36 offer of settlement on 11 April 2011. This was accepted by the Claimant on 10 January 2012, the day before the trial of the claim was due to start.

Part 36 provides that the court has discretion in such circumstances as to the costs order it may make but that, unless it orders otherwise, the Claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and the Claimant as offeree will be liable for the Defendant offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance.

Accordingly, pursuant to the terms of Part 36, the Claimant could have been ordered to pay the Defendant’s costs following the expiration of the “relevant period” (21 days after the offer was made) to the date of acceptance unless the court ordered otherwise, a period of roughly 8 months.

The Claimant argued that as it had invited the Defendant to mediate twice and as the Defendant had not replied to those offers to mediate, the Defendant’s failure to agree to mediate should cause the court to make a different order pursuant to its discretion to do so.

The Claimant also drew attention to the Defendant’s late introduction of a new defence to part of the claim the day before the trial was due to start, which the Claimant suggested was the reason for its decision to accept the Defendant’s Part 36 offer.  

Mr Recorder Furst QC rejected the Defendant’s various arguments as to why it considered mediation would have been unsuccessful, including that mediation between the parties related to a separate dispute had been unsuccessful and that expert reports were not available to enable the parties to properly consider their respective positions, and found that “there was a reasonable prospect that these parties, given the essentially commercial nature of the dispute and being well-advised, would have been prepared to compromise and/or would have accepted that various points raised were not as strong or certain as the open position they adopted.”

Mr Recorder Furst QC held that “it was unreasonable for the Defendant to refuse to mediate and this conduct is a matter which I take into account in the exercise of my discretion as to the costs incurred after the relevant period.”

Accordingly, the Claimant was awarded its costs on a standard basis up to the expiry of the relevant period following the 11 April 2011 Part 36 offer but there was no order for costs in respect of the 8 month period thereafter.

If you would like any further information on this topic, please contact Philip Vickers.

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