Mandatory mediation: will it enhance dispute resolution outcomes?

Why should I read this?

‘When you do it?’ and ‘how you use it?’ rather than ‘is it necessary or helpful?’ are now the key questions when it comes to mediation.

It is the job of commercial dispute resolution professionals to assist clients to resolve their commercial disputes. A key tool in the toolkit is mediation; a flexible forum for negotiation in which an independent third party will facilitate settlement dialogue between the parties. It is received wisdom that mediation requires (at least) two willing parties. However, experience shows that mediations are rarely a complete waste of time; during even a failed mediation it is likely the parties will have learned something of value about the ‘pain points’ of the other party. Mediating early can give you insights into what the other parties real drivers are and, before trial, mediation allows the parties to find a resolution they can both control accept rather than risk an unfavourable judicial determination.

In the first case to consider the court’s increased powers to order alternative dispute resolution since the Court of Appeal’s 2023 decision in Churchill v Merthyr Tydfil County Borough Council[1] and the subsequent amendments to the CPR in October 2024, DKH Retail Ltd & Ors v. City Football Group Ltd[2] is a clear indication of the direction of travel – the courts are increasingly willing to support and even actively compel parties to engage in alternative dispute resolution as part of the litigation process.

Ultimately, this is a positive for commercial parties. ADR, and in particular mediation, has a high success rate in breaking the impasse between parties and making settlement possible - at a lower cost than continuing to trial. The court’s active involvement in and support of ADR throughout the litigation process makes early settlement much more likely, even in complex, seemingly intractable disputes with unwilling parties. 

What should I do?

Parties in the litigation process should actively keep alternative dispute resolution under review, in particular in recognition of the potential for adverse costs consequences, should parties fail to engage in compulsory, or even voluntary ADR.

What else do I need to know about the Court’s attitude to ADR, and mediation in particular?

In Churchill, the Court of Appeal determined that the court had the power to order unwilling parties to engage in alternative dispute resolution provided that the order (a) did not impair the claimant's rights to proceed to a judicial hearing, and (b) was proportionate to achieving the legitimate aim of settling the dispute fairly, quickly, and at reasonable cost.

Following that decision, in October 2024 the Civil Procedure Rules (CPR) were revised to:

• Amend the Overriding Objective of “enabling the Court to deal with cases justly and at proportionate cost” to specifically include “promoting or using alternative dispute resolution” (CPR 1.1(2)(f))
• Amend the Court’s case management powers to expressly state that the court may “order or encourage the parties to engage in alternative dispute resolution” (CPR 3.1(2)(o))
• Amend the multi-track case management provisions, so that when the court is setting directions, the Court “must consider whether to order or encourage the parties to engage in alternative dispute resolution” (CPR 29.2(1A)). This also applies to cases allocated to the fast or intermediate track
• Amend the costs provisions, specifically expanding the court’s discretion on awarding costs to take into account “whether a party failed to comply with an order for alternative dispute resolution, or unreasonably failed to engage in alternative dispute resolution” (CPR 44.2(5))

In DKH Retail, the Claimant applied for an order of compulsory mediation at the PTR. The dispute in DKH Retail was between the Superdry clothing brand (the Claimant) and the entity which runs Manchester City’s commercial operations (the Defendant), and concerned whether the public would associate the branding of Manchester City’s kit with the words “Super” and “Dry” with the Claimant, or with the Defendant’s sponsorship partner, Asahi ‘Super Dry’ lager.

The parties were not in dispute that the court had the power to order compulsory mediation. The Defendant resisted the Claimant’s application on the basis that (i) an order for compulsory mediation should only be granted by the court where there was a realistic prospect of success, and in this case mediation was not realistically likely to lead to settlement (ii) both parties wanted their position to be judicially determined and (iii) it was very late in the day to seek the order, as trial was imminent, and the Defendant had limited availability before trial for a mediation.

The court made the order for compulsory mediation despite the objections on the basis that:

• Experience shows that mediation is “capable of cracking even the hardest of nuts” i.e. the process succeeds even where the parties appear to have intractable differences

• The solutions available to parties through mediation can be broader and more flexible than the binary answer available through judicial determination from the courts

• The fact the order was being sought so close to trial was not a bar to the order being granted and in fact there was some advantage to the parties’ positions being crystallised through pleadings and witness statements. The court did not consider mediation would significantly disrupt the parties’ preparations for trial

In the event, the dispute settled.

For further insights

To read our view on the implications of the decision in the construction sector, see here.

Our Global Guide to Alternative Dispute Resolution answers the key questions surrounding ADR methods and outlines how processes can differ depending on each country’s local legal system. The guide provides an insight into the current status and enforceability of ADR across more than 40 jurisdictions worldwide. 

[1] [2023] EWCA Civ

[2] [2024] EWHC 3231 (Ch)