PGF II SA v OMFS Company & Anor

Where a Part 36 offer is accepted after the relevant period, the usual costs order should be displaced only where it would be unjust for the claimant to pay the offeror’s subsequent costs. Information relevant to that assessment ordinarily concerns factual matters affecting the merits; the proper interpretation of a lease is not information of that kind where it was available from the documents. A causal link between the alleged procedural failing and the late acceptance must also be shown. A party’s failure to respond to a genuine invitation to mediate may amount to an unreasonable refusal. The court may impose a costs sanction from the date of that refusal, rather than from the date when a hypothetical mediation would have occurred.

The claimant brought dilapidations claims concerning three floors of a building. The defendant made a Part 36 offer on 11 April 2011. The claimant accepted it on 10 January 2012, shortly before trial, after the defendant raised a proposed defence concerning whether the air-conditioning system fell within the demised premises.

The claimant sought its costs after expiry of the Part 36 relevant period. It argued that the defendant had failed to disclose material information and had unreasonably failed to engage with invitations to mediate. The issue was whether those matters justified departing from the usual costs consequences under CPR Part 36.

1. The claimant was entitled to its costs up to 2 May 2011, the expiry of the relevant period. There was no basis to order otherwise.

2. Under CPR rule 36.10(5)(b), as explained in Lumb v Hampsey [2011] EWHC 2808 (QB), departure from the usual order is exceptional and requires injustice. The relevant considerations include the information available when the offer was made and the parties’ conduct in providing or withholding information.

3. The late argument concerning the scope of the demised premises was not relevant information within CPR rule 36.14(4)(c) or (d). It involved lease construction, which was available to the claimant from the underleases. In any event, the claimant failed to establish that it would have accepted the offer earlier had the point been pleaded or raised in mediation. The necessary causal link was absent.

4. Applying the principle in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, the defendant acted unreasonably by failing to respond to the claimant’s detailed invitations to mediate. The dispute was suitable for mediation, the parties were commercially advised, and there was a reasonable prospect of settlement. Incomplete disclosure or expert evidence did not justify refusing mediation, particularly where those difficulties could have been addressed at the time.

5. The refusal to mediate was unreasonable when made. Its costs consequences therefore ran from the refusal, shortly after 11 April 2011, rather than from the date on which a hypothetical mediation might have taken place. The claimant was not required to pay the defendant’s costs after 2 May 2011, but the defendant was not ordered to pay the claimant’s costs for that period.

6. Evidence concerning an earlier mediation was disregarded because of without-prejudice privilege, applying Farm Assist Ltd (in liquidation) v The Secretary of State for the Environment, Food and Rural Affairs (No. 2) [2009] EWHC 1102 (TCC). Each party bore its own costs of the hearing.