Unreasonable refusal to participate in ADR – an extension of the Halsey principles

December 19, 2013

In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 the Court of Appeal addressed the extent to which the court can encourage parties in the settlement of disputes. It was held that the successful party can be deprived of all or part of its costs if it unreasonably refused to participate in Alternative Dispute Resolution (“ADR”).

Almost ten years later, the Court of Appeal’s judgment in PFG II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288 has provided a “modest” extension of the guidelines set out in Halsey to include silence in the face of an invitation to participate in ADR. The Court held that as a general rule, failure to respond to an invitation to participate in ADR is itself unreasonable, regardless of whether there was a good reason for refusing ADR.

This was put forward as a general rather rule because it was possible that there might be rare cases where ADR was:

“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…but in such cases the onus would lie squarely on the recipient of the invitation to make that explanation good.”

The proceedings in PFG concerned alleged breaches of a tenant’s repairing covenants. The claimant had twice written to the defendant asking it to mediate and to provide reasons if they refused to do so. However, the defendant failed to respond at all. In fact, the invitation was met with complete silence. The Court of Appeal held that, the defendant’s silence amounted to a refusal to mediate, the refusal had been unreasonable and a costs sanction was imposed on the defendant.

The Court deprived the defendant of the costs it to which it would otherwise have been entitled to but declined to go further and make the defendant pay the claimant’s costs. It appeared that a sanction that draconian should be reserved for only the most serious and flagrant failures to engage with ADR, for example, where the Court had encouraged the parties to do so and that encouragement had been ignored.

Briggs LJ commented on the need for parties to engage with each other to consider the suitability of ADR, rather than wait on encouragement from the Court. Briggs LJ said that:

“…the provision of state resources for the conduct of civil litigation… call for an everincreasing focus upon means of ensuring that court time, both for trial and for case management, is proportionately directed towards those disputes which really need it, with an ever-increasing responsibility thrown upon the parties to civil litigation to engage in ADR, wherever that offers a reasonable prospect of producing a just settlement at proportionate cost.

Just as it risks a waste of the court’s resources to have to try a case which could have been justly settled, earlier and at a fraction of the cost by ADR, so it is a waste of its resources to have to manage the parties towards ADR by robust encouragement, where they could and should have engaged with each other in considering its suitability, without the need for the court’s active intervention.”

PFG has indicated that parties to a dispute should consult The Jackson ADR Handbook by Blake, Brown and Sime, published in April 2013. Briggs LJ summarised advice given in the handbook at section 11.56 as “calling for constructive engagement in ADR rather than flat rejection, or silence.”

The message from the Court in this case is clear; parties are required 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. Briggs LJ felt that to have allowed the appeal would blunt that message.

The Court’s task in encouraging the more proportionate conduct of civil litigation was so important in current economic circumstances that it was appropriate to emphasise that message by a sanction.

It is important to be aware that whilst the decisions of the English Court of Appeal, are not binding in Northern Ireland, they are highly persuasive.
If you require advice on any form of Alternative Dispute Resolution, please contact of litigation team.