Commercial disputes: What are the risks of refusing mediation?

Mediation is a process in which a neutral third party, known as a mediator, helps parties in a dispute to communicate and reach a mutually acceptable agreement. Mediation is something that each party must voluntarily agree to. Although the court cannot force someone to mediate, it is important to be aware of the consequences of refusing to mediate.

Mediation is now a well-established practice incorporated into the court rules and protocols for handling business disputes.

Why do the courts encourage mediation?

Mediation has a proven track record of being a mostly successful way to resolve commercial disputes, which is why it has become increasingly popular as a go-to method of alternative dispute resolution in recent years.

A few of the key benefits of commercial mediation include:

• It’s more cost effective than litigation
• It’s a quicker way of resolving disputes compared to court proceedings
• It’s confidential
• Creative solutions can be found outside of the confines of the rules that govern litigation
• The mediator is a completely neutral third party whose role it is to facilitate an agreement hopefully being reached
• The chances of the parties leaving the mediation with a good relationship intact are higher than if they go to court, meaning that the smooth running of the business can be resume.

There are many advantages to engaging with the process and the above points are some of the main reasons why mediation is heavily encouraged by the courts and is embedded within the pre action protocols.

The court's expectations

The pre action protocols say that it's important for parties in a dispute to think about alternative dispute resolution methods. If a party unreasonably refuses to try these alternative methods, the court can make them pay costs because of their refusal.

The courts actively encourage parties to try other ways to solve their dispute. When a directions questionnaire is dispatched, it contains a question as to whether or not the parties require a stay to engage in ADR and if they say no, you will have to give the reasons for the refusal. Importantly, legal representatives have to tick a box to say that they have explained ADR to their clients and the potential cost consequences of refusing ADR.

Whilst the courts cannot force a party to mediate, the judge will expect that the parties have considered ADR and where a party refuses to mediate it will be necessary for them to explain why. You should seek advice from someone experienced in commercial mediation if you are thinking of refusing mediation.

If a successful party refuses to participate in mediation, the court may decide not to award them costs or even order them to pay an element of the costs of the other party.

As the usual rule is that the unsuccessful party is ordered to pay the successful party’s reasonable legal costs, it is for the unsuccessful party to prove to the court that the successful party acted unreasonably in refusing mediation.

There has been several recent examples where the courts have been prepared to find that a party’s decision to refuse mediation has been unreasonable and to various degrees the court have either refused awards of costs in favour of a successful party or alternatively awarded costs against the unsuccessful party.

Factors considered by the court

The issue is of course case-sensitive and there are similar authorities whereby the court has found a refusal justified.

The factors that the court will look at in determining whether a party acted unreasonably in refusing mediation include the nature of the dispute, the merits of the case, other settlement options, costs of mediation, delay and prospects of success.

Summary

Considering ADR, including mediation, is now an established part of the legal process at different stages, if someone outright refuses mediation, they must provide clear reasons for doing so. Simply believing they will win the case and dismissing settlement discussions is often not enough. It's important to document the justification for refusal. If the case goes to trial and the refusing party wins, the other party may highlight the refusal, and the court may closely examine the reasons. The deprivation of costs or an element of costs could potentially turn a successful outcome sour!