If a party to litigation makes and beats a Part 36 Offer it would generally expect to recover its costs on an indemnity basis (i.e. 100%) as from the end of the “relevant period” (usually 21 days after receipt of the offer).
This is subject to the Court’s discretion, though a departure from the usual order will be the exception rather than the rule.
In essence, the Court must be satisfied that it would be unjust for the losing party to pay the winning party’s costs.
In PGF II SA v OMFS Company on the day before Trial PGF accepted a Part 36 Offer which had been made by OMFS some 9 months previously. The issue of costs remained unresolved.
OMFS accepted that it should pay PGF’s costs on the standard basis up to the end of the “relevant period”. PGF argued that OMFS should also pay PGF’s costs thereafter on the basis that:
- submissions made by OMFS in relation to the imminent Trial raised a new material point, which PGF said would have resulted in it accepting the Part 36 Offer had the point been made earlier; and
- OMFS had unreasonably refused to mediate.
The Judge found that the new point raised by OMFS was irrelevant as it related to the interpretation of a document common to the parties (a Lease) and so was something PGF could have worked out for itself. It was not “new information”. In any event, there was no evidence that PGF would have accepted the Part 36 Offer earlier had it been aware of the point.
However, by failing to respond to PGF’s suggestion of mediation, OMFS had “unreasonably refused” to mediate.
The Judge adopted criteria set out in previous case law, including:
- the fact that the dispute was suitable for mediation
- there was nothing to suggest that OMFS thought that its case was so strong that it was reasonable to refuse mediation
- the costs of mediation would not have been disproportionate not would mediation have caused any delay
- there was a realistic prospect of the mediation resulting in a settlement
The Judge therefore held that this was conduct he was entitled to take into account in departing from the usual costs order. Each party was to bear their own costs as from the end of the “relevant period”.
COMMENT: The decision provides yet further warnings on the perils of refusing to mediate, and again shows the Court’s judicial encouragement for the use of ADR.
Author: James Coppinger, Head of Construction and Engineering.
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