Landmark Ruling Set To Generate Significant Rise In Alternative Dispute Resolution Settlements

The number of commercial property disputes where the parties attempt to settle through mediation is set to increase significantly, following a recent landmark decision handed down by the Court of Appeal.

The PGF II SA-v-OMFS Company 1 Limited case focuses on a landlord’s claim against a former tenant for damages in relation to the disrepair of three office floors, in a building on London’s Lombard Street.

The claimant originally issued proceedings for damages of £1.9m and later made, without prejudice, offers of £1.25m and £1.05m. The defendant and former tenant offered to pay £700,000 and crucially, refused to mediate.

On the day before trial in January 2012, the landlord accepted the tenant’s offer of £700,000 on the basis that they were not liable for the air conditioning system. By this time, however, both sides had spent £250,000 on legal costs.

The case was heard by the Court of Appeal after the judge in the initial hearing had said, despite the usual rule, that the tenant was not entitled to recover its cost from the landlord because it had refused to respond to requests to mediate.

Although the defendant appealed this decision claiming that mediation would have failed, the Court of Appeal upheld the original decision.

Expert Opinion

The Court of Appeal’s decision in PGF reiterates the importance of mediation in the litigation process. Whilst, for the time being, Courts do not have the power to compel mediation this case makes clear the potential and costly consequence for a party that fails to engage in the process. Well advised litigants will almost certainly see this case as a way to exert pressure on opponents and it will undoubtedly lead to an increase in mediations. “