Introduction
In the past two years, there has been significant progress in advancing Alternative Dispute Resolution (ADR) with the goal of resolving cases more quickly. The Court of Appeal’s landmark decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 and the amendments to the Civil Procedure Rules (CPR) effective from 1 October 2024 both contribute to this drive for earlier resolutions. This article focuses on the new CPR 44.2(5)(e), which allows the courts to take into consideration any unreasonable failure of a party to engage in ADR when making decisions as to costs, and potential costs implications for such a failing party.
Obligation to Engage In ADR
As a reminder, Churchill confirmed that compulsory mediation would not violate the right to a fair trial under Article 6 of the European Convention on Human Rights, provided any such process was conducted at proportionate cost, within a reasonable time, and the parties could still effectively access the court should the mediation not succeed.
The idea of compulsory mediation, or more broadly, the mandatory obligation to engage in a dispute resolution process (whether mediation or other ADR methods), was first introduced in the Civil Justice Council’s (CJC) Interim Report published in November 2021. This concept aims to reduce the number of litigated claims.
In the first part of its final report issued in August 2023, the CJC recommended amendments to the current pre-action protocols in the civil justice system, including a proposal to make engagement in ADR pre-action mandatory. As proposed, the parties would be allowed to select their preferred ADR method, with a default option being a without-prejudice meeting. The second part of the CJC’s final report was published recently in November 2024, which set out its recommendations for reforming the specific pre-action protocols for various types of claims.
As it stands, participation in ADR pre-action is not yet mandatory; however, once proceedings are underway, the courts now have the authority to order parties to participate in ADR as part of their general case management powers following the amendment to CPR 3.1(2)(o) which came into effect on 1 October 2024. DKH Retail Ltd v City Football Group Ltd [2024] EWHC 3231 (Ch) is believed to be one of the first cases in which the High Court exercised its new power to compel mediation, which did result in a settlement.
Against this backdrop, it is helpful to understand the potential costs implications in circumstances where a party has failed to engage in ADR. The same analysis may be equally helpful where a party decides not to engage in ADR at a certain stage for legitimate reasons.
New CPR 44.2(5)(e)
The meaning of the new CPR 44.2(5)(e) provision is straightforward. It provides that the court will consider “whether a party… unreasonably failed to engage in alternative dispute resolution” when using its discretion to make costs orders.
What Behaviours May Amount to an Unreasonable Failure to Engage?
Previous case law suggests that, typically, a refusal to mediate or engage in some other form of ADR process, including silence in the face of an offer to mediate, merits a costs sanction unless there are exceptional circumstances (see PGF II SA v OMFS [2013] EWCA Civ 1288).
In a recent case, Northamber PLC v Genee World Ltd and others [2024] EWCA Civ 428, the claimant’s award of costs was increased from 70% to 75% to reflect the defendants’ failure to engage in mediation after the claimant made an invitation to mediate. At first instance, the judge described the invitation to mediate as ‘half-hearted’, queried whether it was even an attempt to mediate at all, and refused to adjust the costs order in the claimant’s favour. However, the Court of Appeal disagreed and held that silence in the face of an offer to mediate was unreasonable in and of itself, and this was compounded by the defendants’ failure to explain their failure to agree to mediation, despite a court order requiring them to do so.
The factors identified by the court in Halsey v Milton Keynes NHS Trust [2004] 4 All ER 920 as being relevant to considering costs penalties include: the nature of the dispute, the merits of the case, the extent to which other settlement methods had been attempted, whether the costs of ADR were disproportionately high, whether any delay in setting up or attending the ADR would have been prejudicial, and whether ADR had a reasonable prospect of success. This list of factors provides helpful guidance on the assessment of whether a particular failure to engage in ADR is unreasonable.
The Risk of Superficial Engagement
With the introduction of the amendment to CPR 44.2(5), parties are more likely to be ordered (or encouraged) by the courts to participate in ADR. However, there is a potential risk that some parties might only engage in ADR superficially, primarily to avoid penalties stemming from the court’s expanded case management powers. Superficial compliance with ADR requirements could undermine the purpose of the amendments, increase legal costs, and further entrench parties in their disputes.
In the coming years, it will be interesting to see what level of engagement in ADR is considered sufficient to meet the court’s expectations and avoid possible cost penalties for an “unreasonable failure” to participate under CPR 44.2(5). This determination is likely to be fact-sensitive. While the ADR process is ordinarily conducted on a without-prejudice basis and is therefore privileged from disclosure, this privilege will usually have no application once the dispute has been resolved and when costs are being considered.
The case Thakkar v Patel [2017] EWCA Civ 117 suggests that a slow response or dragging one’s feet may be deemed an unreasonable failure to engage, even if the party does not outright refuse to mediate. In this case, the parties criticised for their conduct were slow to respond to letters regarding mediation and raised various difficulties, while the other side was proactive in making arrangements. Jackson LJ in the judgment noted that “[t]he defendants did not refuse to mediate, but they dragged their feet and delayed until eventually the claimants lost confidence in the whole ADR process”.
However, in certain circumstances, a delay in holding the mediation or other ADR may be justified by reasonable grounds. For example, in Car Giant v Mayor and Burgesses of the London Borough of Hammersmith [2017] EWHC 464 (TCC), no costs penalty was imposed on the delaying party because the delay was due to matters of tactical importance. The delaying party had legitimate concerns, believing that the mediation would be more successful if the experts’ views had been fully set out before proceeding.
Looking Ahead
Looking ahead to 2025 and beyond, we expect to see further developments in mediation and ADR in general, including potential amendments to the pre-action protocols based on CJC’s recommendations (in particular whether this will involve a mandatory requirement for parties to engage in some form of ADR pre-action along with guidelines on what such engagement would entail) as well as courts’ further decisions on ADR-related matters.
In the interim, given the current direction of change, it is recommended that parties and their legal representatives take the following actions:
- Consider and propose mediation or other ADR methods at the pre-action stage or whenever appropriate during litigation.
- Respond promptly to any ADR proposals from the other party, avoiding any delay or indication of reluctance to participate (without reasons).
- Document reasons for refusing ADR if the timing or circumstances make mediation or ADR unsuitable, ensuring that these justifications are on record to avoid potential cost penalties in the future.
- Document unreasonable conduct from the opposing party—such as failure to respond to mediation/ADR proposals, slow responses, or difficulty with mediation arrangements—and reserve the right to bring these issues before the court when discussing costs.
- Continue to reassess the suitability of ADR throughout the litigation process, even if it is initially decided that mediation or ADR is not appropriate at a particular stage.
A copy of the Court’s decision can be found here.
