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Eversheds comment: Court of Appeal decision confirms importance of considering ADR in real estate litigation

  • United Kingdom

    24-10-2013

    The Court of Appeal’s recent decision in the case of PGF II SA v OMFS has confirmed that a party’s failure to respond to an offer of alternative dispute resolution (“ADR”) is unreasonable conduct which will allow the court to deviate from the usual cost consequences of a Part 36 offer. Commenting on the ruling, William Densham, partner and real estate litigation expert at global law firm Eversheds, says:

    "The defendant tenant in a dilapidations claim made a Part 36 offer. On the same day, the claimant landlord made its own Part 36 offer and offered mediation. The tenant failed to respond. A number of months later, the landlord made a further offer of mediation and again received no response. On the day before trial, the landlord accepted the tenant’s Part 36 offer.

    "Following the usual costs consequence of a Part 36 offer, the landlord should have been liable to pay the tenant’s litigation costs incurred after the expiry of the tenant’s offer. However, both the High Court and Court of Appeal in this case held that the tenant’s failure to respond to the offer of mediation amounted to an unreasonable refusal allowing the court to depart from the usual costs order. Instead, each party was ordered to bear its own costs incurred after the expiry of the tenant’s offer.

    "ADR is a key element of the Jackson reforms, encompassed in the recently published Jackson ADR handbook. ADR should play an important role in reducing the use of the court’s resources and costs. This case confirms that the court will not tolerate parties unreasonably failing to consider ADR. It is wise to revisit any previous offers of ADR to ensure responses are given and any refusals are justified. Undoubtedly, there are likely to be cost consequences for not fully responding to an offer to mediate, even if it may be entirely reasonable to do so.”

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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