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Taking the plunge: when to mediate a commercial dispute


They say timing is everything – so when is the best time to mediate a commercial dispute?


Clients can be reluctant to mediate: regarding it as a sign of weakness, worried about the time or cost involved, or daunted at the prospect of facing their opponent across a table. Litigators should be ready to allay those concerns and explain the need to try to settle.


The conversation should begin as early as possible and should also address the question of timing.


Starting the conversation


A useful starting point is to draw your client’s attention to the Practice Direction on Pre-action Conduct and Protocols (“PDPACP”), which exhort parties to consider ADR throughout (see below for more details on the PDPACP and the court’s powers in this area):


Litigation should be a last resort… the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings. [8]


“Parties should continue to consider the possibility of reaching a settlement at all times, including after proceedings have been started… [9]


Flexibility is key


Mediation is one of the most flexible forms of ADR. As the process takes place outside the court’s procedural timetable, there are no rigid rules on when a mediation should take place. The exact timing will be a matter for the parties but mediation is a realistic option from the moment they have set out their stalls (in pre-action correspondence or statements of case) right up to the start of trial.

A sign of weakness?


Being willing to meet, set out your position, explore the issues and seek a resolution is a sign of strength, not weakness. Be prepared to initiate the discussion but don’t get too hung up on which party starts the ball rolling. What really matters is how the parties respond, and what steps they take to try to resolve the dispute.


Picking the best time – how crucial is it?


Thankfully, mediation, unlike trial, doesn’t have to be a “one-shot” attempt. Mediation will often bring immediate closure but it can also start a dialogue which focuses on narrowing the issues and paving the way towards settlement. All the same, good preparation is important to get the best from the process (see my earlier article on that here).


Holding back until your case is at its best?


It may be tempting to defer settlement efforts – see how things develop, see what documents emerge on disclosure, see what witness evidence your opponent will be relying on – but beware of holding back simply out of a Micawberish hope that something good will turn up: your opponent may have exactly the same idea - and one of you, at least, is likely to be disappointed!


Early vs late mediations - the sooner the better?


In general, an early mediation gives parties the best chance to come together and find a mutually acceptable outcome before positions become too entrenched or costs become disproportionate.


That said, there may be factors making an early mediated settlement unfeasible, for example a lack of critical information, the need for expert evidence, the need to bring in another party or to bottom out the insurance position. Even so, consider carefully whether a mediation or other ADR could help with those matters or otherwise narrow issues – and be prepared to justify your decision to the court.


If an earlier mediation isn’t possible, don’t despair. The looming prospect of trial certainly concentrates the mind - and even a “court door” mediation can avoid uncertainty, risk and cost.


The court’s powers - no doubting what is expected


The PDPACP warns of consequences if parties do not attempt to settle their dispute:


“If proceedings are issued, the parties may be required by the court to provide evidence that ADR has been considered. A party’s silence in response to an invitation to participate or a refusal to participate in ADR might be considered unreasonable by the court and could lead to the court ordering that party to pay additional court costs.” [11]


“If a dispute proceeds to litigation, the court will expect the parties to have complied with a relevant pre-action protocol or this Practice Direction. The court will take into account non-compliance when giving directions for the management of proceedings… and when making orders for costs…” [13]


“The court may decide that there has been a failure of compliance when a party has… unreasonably refused to use a form of ADR, or failed to respond at all to an invitation to do so…” [14]


“Where there has been non-compliance… the court may order that… (a) the parties are relieved… (b) the proceedings are stayed while particular steps are taken to comply…; (c) sanctions are to be applied…”[15]


“sanctions… may include… (a)… that the party at fault pays the costs… (b)… costs on an indemnity basis… (c)… depriving [a successful claimant at fault] of interest… and/or awarding interest at a lower rate…” (d)… awarding interest [against an unsuccessful defendant at fault] at a higher rate” [16]


The need for parties to attempt to settle is firmly built into the case management architecture for civil claims:


CPR 1.4(2)(e): courts must actively manage cases to further the overriding objective by

encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure”.


CPR 3.1(4):

Where the court gives directions it will take into account whether or not a party has complied with the Practice Direction (Pre-Action Conduct) and any relevant pre-action protocol”.


CPR 3.1(5): the court may

order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, practice direction or a relevant pre-action protocol.”


CPR 3E: parties are expected to factor in ADR/settlement when budgeting costs for the court - a section of the prescribed budget format (Precedent H) is set aside for this purpose.


CPR 26: parties must file a Form N181 Directions Questionnaire which begins with a reminder to parties that they should

make every effort to settle their case before the hearing. This could be by discussion or negotiation (such as a roundtable meeting or settlement conference) or by a more formal process such as mediation. The court will want to know what steps have been taken.”

N181 requires legal representatives to confirm that they have explained to their clients the need to settle, the options, and the risk of cost sanctions. Parties must elect whether to seek a stay to attempt settlement and, if not, explain why not.


CPR 44.2(5): when exercising its discretion on costs, the court should have regard to the parties’ conduct:

before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol”.


CPR 44.4(3)(a)(ii): when deciding the amount of costs, the court should have regard in particular to:

the efforts made, if any, before and during the proceedings in order to try to resolve the dispute”.


The courts have demonstrated in numerous cases that they are very ready to use these powers to steer parties towards ADR and mediation (and sanction those who unreasonably fail to engage constructively with settlement efforts).

Conclusion


The question is not whether but when to engage in ADR - I hope this article will provide some food for thought when making that decision.

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This article is for general guidance only, it must not be relied on as legal or other professional advice. Anyone engaged in a civil dispute should obtain their own up-to-date legal and other advice specific to their circumstances and the applicable law at the relevant time.

© Duncan Crine Mediation Limited 12.04.2022

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