Commercial Mediation – when to agree, or not agree, that is the question
27th February, 2025
Britain's common-law system of civil justice has recently been greatly improved.
The UK’s adversarial system, in which the parties present their evidence to a Judge to decide, on the balance of probabilities, who is right and who is wrong, generally produces a just result. However, the attendant delay and legal cost usually makes it more difficult to resolve the dispute.
The above is why, over the last 30 years, alternative dispute resolution (ADR) methods have emerged. These include: early neutral evaluation, expert determination, and mediation, the latter being the most common and enjoying a high degree of success.
The two leading case authorities are Halsey v Milton Keynes General NHS Trust 2004 and Churchill v Merthyr Tydfil CBC 2023 where the Court of Appeal struggled with the idea of making mediation compulsory. In Halsey the court decided it could not compel parties to mediate based on Article 6 of the European Convention of Human Rights, but laid down principles that put a party at risk of cost penalties if it unreasonably refused to mediate. In Churchill, the Court of Appeal edged forward, deciding a court can lawfully ‘stay’ proceedings, or Order unwilling parties to engage in ADR, but refused to lay down firm principles for doing so, leaving it to the court to exercise its discretion on a case-by-case basis.
Halsey resulted in extensive case law as Judge’s dealt with the award of costs and questions of whether a party had acted reasonably, or not, in engaging in ADR. This in turn, after consultation, resulted in 2021 in the Civil Rules Committee deciding compulsory mediation was compatible with Article 6. Coupled also with different court guides and Pre-Action Protocols positively advocating ADR, the Civil Procedure (court) Rules were amended from 1st October 2024 to include the following:
- CPR 1.1 – The overriding objective of dealing with cases justly and at proportionate cost, so far as practicable, will now include “promoting or using ‘ ADR.
- CPR 1.4(2) and 3.1(2) – The courts’ general case management duties and powers have been updated to not only encourage, but also require, parties to engage in ADR.
- Part 44 – When the court is exercising its general costs discretion, its consideration of the parties’ conduct may now include “whether a party failed to comply with an order for ADR, or unreasonably failed to engage in ADR.”
Positively, the judiciary has acted quickly to support the above rule changes – see DKH Retail Ltd (Superdry) v City Football Group Ltd (City) November 2024, summarised below:
The above claim was a trademark dispute between the owners of the Superdry fashion brand and Manchester City Football Club about whether promotional branding on players kit would denote the Superdry brand or City’s sponsor ‘Asahi Super Dry 0.0%’.
Both parties had spent large sums on costs and proceedings were well advanced. Superdry then applied for a short and sharp mediation, arguing that there were many variables such as the form and size of the logo, lettering, money and timing, which may result in a compromise. City resisted this, arguing there was no realistic prospect of success, it needed to know if it could put Asahi branding on its players kit, and the application was too late in the day.
The Judge recognised the application was late in the day, and the fact that where there were commercial parties with experienced solicitors one would expect that if a settlement was possible it have been reached by that point. However, those arguments did ‘not do full justice to experience, which shows that bringing the parties together through mediation can overcome an entrenched reluctance to negotiate even where sincere. The range of options available through mediation also goes beyond the binary option a court can provide.’
Ordering a short sharp mediation, the Judge later reported that the mediation had been successful.
As to when the court will exercise the above powers, Churchill is authority that decisions will be on a case-by-case basis. The Halsey principles also continue to apply. These include, when a Judge exercises their discretion on costs: the nature of the dispute, the merits of the case, the settlement options, whether the costs of mediation are disproportionately high (rarely), delay, and whether the mediation has a reasonable prospect of success.
Where are we now?
- ADR (particularly Mediation) was previously an option, whereas now, save in limited circumstances, it will be a necessity.
- Resolution via a Trial should be much less common, with a civil justice system that is better fit for purpose i.e., one that provides a range of ADR processes that enable businesses to obtain timely, private, flexible and cost effective ways of resolving their disputes.
- The demand for mediation services is likely to increase, particularly online mediation.
- Whilst the City case shows mediation can crack even the toughest nuts, these changes do not mean a party must mediate at an early stage, particularly where it believes it has a well-founded case. Indeed, Halsey is authority that a successful party should not be deprived of any of its costs because it refused to accept an invitation to mediate, as Halsey had not acted unreasonably by refusing.
- Achieving a satisfactory resolution typically involves understanding the parties, the facts, the issues arising, the risks, and parameters for any settlement. Using mediation (or another ADR process) at the appropriate time therefore is key.
- Lawyers need to give early consideration to mediation/ADR, discuss this with their client, record the reasons for and against, and be ready to identify and justify its use, or not, at the appropriate time.
- Mediation is likely to be used more often in the pre-action stages, and if not to run a costs risk then the parties will be expected by the Directions Hearing to either have held a mediation, or to have one arranged.
For more information please contact Tim Toomey, or any of the Mediator team at Ward Hadaway.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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