The penalty may be to deprive a successful party of all or some of their costs or to require any unsuccessful party to pay indemnity costs. Note that it is extremely unwise to refuse to mediate in the face of a direction by the court that it would be a good idea (Dunnett v Railtrack). An adverse costs order is almost guaranteed in such circumstances. It is also clear that backing out of mediation is just as bad as failing to agree to mediate in the first place unless you have a very good reason for doing so (e.g. that the mediator was biased) and have explained it fully to the other side and the court.

Paul Thomas Construction v Hyland

The claimant’s “exceedingly heavy handed approach” in failing even to consider mediation before beginning proceedings was penalised by an order for indemnity costs.

Dunnett v Railtrack

This was the first case to indicate that the Court of Appeal was determined to do more than merely encourage mediation as a settlement tool. The claimant sought to appeal on a basis that had not formed part of her case below. When she was granted permission to appeal to the Court of Appeal it was strongly suggested that the parties attempt to resolve the matter by arbitration or mediation. Railtrack refused to pursue that route. The court commented that the parties and their legal representatives have a duty to further the overriding objective. Given Railtrack’s refusal to consider arbitration or mediation, no costs order was made against the claimant, even though she had lost on the appeal.

Cowl v Plymouth City Council

In this case concerning the closure of a residential home, the parties had not followed the available complaints procedure, but instead the claimants had issued an application for judicial review. In the parties’ defence, they had thought that they were not required to do so unless the alternative procedure fulfilled all the functions of judicial review and so constituted an alternative remedy. The Court of Appeal dealt with this view robustly, saying that parties do not, under the CPR, have a right to have a resolution of their respective contentions by judicial review if there is an alternative procedure by which a significant number of issues between the parties could be resolved. Even after exhausting any alternative appeal or complaints procedure, parties should try some form of ADR before beginning proceedings. You must exhaust all internal appeal and complaints procedures before issuing proceedings. Having exhausted them, you should still try to resolve the dispute by a suitable method of ADR before issuing proceedings.

Neal v Jones Motors

The Court of Appeal reduced the costs to be paid to the successful defendant by £5,000 because the defendant’s insurer failed to give instructions to the defendant’s advisers to enable them to give a rational explanation as to whey they rejected the claimant’s offer of mediation.

Leicester Circuits Ltd v Coates Brothers Plc

The Court of Appeal penalised Coates in costs for their unexplained withdrawal from mediation two days before the date fixed on the instruction of their insurers. Counsel for Coates argues that mediation offered no realistic prospect of success. Judge LJ commented that:

“the whole point of having mediation, and, once you have agreed to it, proceeding with it, is that the most difficult of problems can sometimes, indeed often are resolved….it hardly lies in the mouths of those who agree to it to assert that there was no realistic prospect of success. It seems to us that the unexplained withdrawal from an agreed mediation process was of significance to the continuation of this litigation….We do not for one moment assume that the mediation process would have succeeded, but certainly there is a prospect that it would have done had it been allowed to proceed”.

He awarded Coates, who were successful on appeal, their costs in the lower Court up to 1st January 2002 (about the time that the mediation was agreed) but no costs thereafter, leaving each party to bear their own costs of the trial. Leicester Circuits were ordered to pay the costs of the appeal.

Virani Ltd v Manuel Revert y Cie SA

Where the appellant failed to adopt any form of mediation, notwithstanding the fact that the Court of Appeal’s mediation service was offered to the parties, the respondent’s costs should be assessed on the indemnity basis.

Shirayama Shokusan Co Ltd v Danovo Ltd

Blackburne J held that the Court has jurisdiction to order an unwilling party to mediate under its case management powers. This conclusion should now be read in the light of the Halsey case and although it is possible that the Court would still have made an ADR order with the benefit of the Court of Appeal’s guidance in that case, it must be a borderline example. The Judge made an ADR order in the form of the Commercial Court wording because he considered mediation to be the only way forward to the parties who were in a long-term relationship occupying County Hall under a twenty-year lease. The factors that weighed against mediation in this case were firstly that the refusing party considered its case to be watertight and secondly that relations had been soured between the parties by allegations of fraud made against the refusing party.