In civil litigation, parties are expected to consider and, where appropriate, engage in alternative dispute resolution (ADR). A failure to do so can have significant implications when it comes to legal costs.

The issue of refusal to mediate costs consequences has been considered in a number of leading authorities, with the courts making it clear that an unreasonable refusal to engage in ADR may result in a costs sanction, even for a successful party.

 

The General Rule on Costs

The starting point remains the general rule that the unsuccessful party will be ordered to pay the successful party’s costs.

However, the court retains a broad discretion when determining costs and will consider the conduct of the parties throughout the proceedings. This includes whether a party has refused to agree to, or failed to properly consider, an offer to mediate.

In the context there is a refusal to mediate, costs consequences can arise where a party’s conduct is found to be unreasonable, potentially leading to a departure from the usual costs order.

 

The Court’s Approach to ADR

The courts have consistently encouraged parties to engage in ADR as a means of resolving disputes efficiently and proportionately.

A refusal to participate in ADR is not automatically penalised. However, where that refusal is found to be unreasonable, the court may impose a costs sanction, which can include:

• A reduction in the successful party’s recoverable costs
• An order requiring a successful party to pay the claimant’s costs
• Adverse costs orders affecting part or all of the proceedings

The key question is whether the refusal to mediate was justified in all the circumstances.

 

What Amounts to an Unreasonable Refusal?

The leading authority remains Halsey v Milton Keynes General NHS Trust, in which the court set out the principles for determining whether a refusal to engage in ADR amounts to an unreasonable refusal.

Relevant factors include:

• The prospects of success
  A party may argue that mediation would have been futile if their case was particularly strong
• The nature of the dispute
  Some disputes may be less amenable to ADR, although this is increasingly rare
• The timing of the request
  A late offer to mediate may be less persuasive
• The costs of mediation
  Disproportionate costs may justify a refusal
• Whether ADR had a reasonable prospect of success

While these factors remain relevant, the courts have since taken an increasingly robust approach to parties who fail to engage in ADR.

 

Key Case Law Developments

Halsey v Milton Keynes General NHS Trust

In Halsey v Milton Keynes General NHS Trust, the Court of Appeal held that parties cannot be compelled to mediate, but an unreasonable refusal may justify a costs sanction.

This case established the framework for assessing refusal to mediate costs consequences, which continues to guide the courts today.

PGF II SA v OMFS Company Ltd

The position was strengthened in PGF II SA v OMFS Company Ltd (EWCA Civ), where the Court of Appeal considered a party’s failure to respond to an offer to mediate.

The court held that silence in the face of an invitation to participate in ADR was, in itself, unreasonable. As a result, the party in default was deprived of its costs, despite being successful on the substantive issues.

This decision marked a clear shift towards a more proactive expectation that parties must properly engage with ADR proposals.

 

Silence, Refusal, and Failure to Engage

The courts now distinguish between:

• An express refusal to mediate
• A refusal to agree to ADR without adequate justification
• A complete failure to engage with an ADR proposal

In each case, the court will assess whether the conduct was reasonable. However, following PGF II SA, even a failure to respond may attract adverse costs consequences.

This reflects a broader judicial emphasis on encouraging parties to resolve disputes without the need for a full trial.

 

The Interaction with Part 36 Offers

The issue of refusal to mediate costs consequences often arises alongside Part 36 offers.

While Part 36 provides a structured framework for settlement, ADR remains a separate but complementary mechanism. A party who refuses mediation but later relies on Part 36 may still face criticism if their earlier conduct is found to be unreasonable.

The court will consider the overall conduct of the parties, including both settlement offers and their willingness to participate in ADR.

 

Practical Guidance for Litigants

Given the court’s approach, parties should proceed with caution when considering whether to refuse mediation.

Key points to keep in mind include:

• Always respond to an offer to mediate, even if declining
• Provide clear and reasoned justification for any refusal
• Keep the decision under review as the case progresses
• Be prepared to demonstrate why mediation would not have been appropriate

In many cases, a failure to properly consider ADR may expose a party to a costs sanction, regardless of the outcome of the claim.

 

How Greener Costs Can Help

Navigating the costs consequences associated with a refusal to mediate requires a careful and strategic approach to both conduct and costs.

At Greener Costs, we provide specialist support to ensure that parties are well positioned to manage costs risk and respond effectively to ADR issues, including:

• Advising on whether a refusal to mediate may be considered unreasonable
• Assessing exposure to potential costs sanctions
• Strategic guidance on ADR, settlement, and Part 36 offers
• Assisting with costs arguments where there has been a failure to engage in ADR

Whether you are seeking to protect your position as the successful party or challenge a costs order arising from an alleged unreasonable refusal, early expert input can make a significant difference.

Get in touch with Greener Costs via the enquiry form below or by emailing info@greenercosts.co.uk to discuss how we can support you.