There has been 3 interesting recent cases in this area: (1) Invenia; (2) Northamber; and (3) Ellis. These will be gone thorough in turn:

Invenia 

In Invenia Technical Computing Corp v Hudson (also known as Re Invenia Labs Ltd) [2024] EWHC 1302 (Ch) on 7.6.24, ICC Judge Barber considered when the Court might deny a successful party their costs if they unreasonably refuse to participate in mediation. 

Under the heading, 'The impact of a refusal to engage in ADR', ICC Judge Barber in Invenia summarised the position as follows, from paragraphs 9 to 16:

'The court may deny a successful party their costs if they unreasonably refuse to participate in mediation: Halsey v Milton Keynes NHS Trust [2004] EWCA 576. As confirmed by Dyson LJ at [13] in Halsey, however:

‘In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR.’

At [16], Dyson LJ went on to confirm that the question whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. Factors which may be relevant to the question whether a party has unreasonably refused ADR will include (but are not limited to):

(1) the nature of the dispute;

(2) the merits of the case;

(3) the extent to which other settlement methods have been attempted;

(4) whether the costs of the ADR would be disproportionately high;

(5) whether any delay in setting up and attending the ADR would have been prejudicial; and

(6) whether the ADR had a reasonable prospect of success.

The subject matter of some disputes renders them intrinsically unsuitable for ADR. These may include cases involving allegations of fraud or other commercially disreputable conduct against an individual or group: Halsey at [17].

The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted unreasonably in refusing ADR. As observed by Dyson LJ in Halsey at [18]:

‘If the position were otherwise, there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even when the claim is without merit. Courts should be particularly astute to this danger.’

Some cases are clear-cut. A good example is where a party would have succeeded in an application for summary judgement pursuant to CPR 24.2. Other cases are more borderline. In truly borderline cases, the fact that a party refused to agree to ADR because he thought that he would win should be given little or no weight by the court when considering whether the refusal to agree to ADR was unreasonable: Halsey at [19].

Where the costs of mediation would be disproportionately high, it may be reasonable for a litigant to refuse to incur them. Similarly, where acceptance of mediation may have the effect of delaying the trial of the action, this is a factor which it may be relevant to take into account when deciding whether a refusal to agree to ADR was unreasonable: Halsey at [21]-[22].

The burden should not be on the refusing party to satisfy the court that mediation had no reasonable prospect of success. As put by Dyson LJ in Halsey at [28] (with emphasis added):

‘the fundamental question is whether it has been shown by the unsuccessful party that the successful party unreasonably refused to agree to mediation.’

Where a successful party refuses to agree to ADR despite the court’s encouragement, that is a factor which the court will take into account when deciding whether his refusal was unreasonable: Dyson LJ at [29].'

For brevity, ICC Judge Barber in Invenia did not address some other relevant authorities which she had been referred to, namely: (a) Dunnett v Railtrack [2002] ALL ER 850; (b) Hurst v Leeming [2003] 1 Lloyds’ Rep 379; (c) Royal Bank of Canada v Secretary of State for Defence [2003] EWHC 1841 (Ch); and (d) Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416.

Northamber

In Northamber Plc v Genee World Ltd [2024] EWCA Civ 428; [2024] 1 WLR 4826 ('Northamber'), on 1.5.24, the Court of Appeal (Lewison LJ; Arnold LJ; Phillips LJ) considered an appeal, amongst other things, against a trial judge's decision not to impose a costs penalty on an (in essence) unsuccessful party, in favour of the (in essence) successful party, the unsuccessful party having unreasonably refused (failed) to mediate. The allegation was that the unsuccessful party (S) had fail to respond to an offer of mediation (paragraph 98), and that failure needed to be seen in light of the fact that a DJ had earlier made a case management order, which had provided (paragraph 99):

'At all stages the parties must consider settling this litigation by means of alternative dispute resolution. Any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise.'

Pausing there. A complicating factor (at least, in respect to providing extracts from the judgment), is that there was another party that C had claimed against, namely IES. IES had successfully defended the claim. Given that the Court of Appeal reached, on this issue (see paragraph 107), no final decision with respect to IES and costs, this article will consider the position in relation to IES no further (though the quotations below, unavoidably, will make reference to IES)

Returning to the core facts. In respect to C's invitation/proposal to mediate, S did '...not respond at all.' (paragraph 101) and 'Neither party served a witness statement as required by [the DJ's] order.' (paragraph 101)

The trial judge's costs order was that S was ordered to pay C, 70% of C's costs of the claim against S. Crucially, the trial judge refused to impose an upwards adjustment to this costs order, because S had unreasonably failed to mediate.

On C's appeal in the Court of Appeal, C contended, that:

(a) '...this reasoning amounts to an error of principle.' (paragraph 103)

(b) 'It is almost 20 years since this court held in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 that an unreasonable refusal to participate in alternative dispute resolution constitutes a form of unreasonable litigation conduct to which the court may properly respond by applying a costs sanction. It is over ten years since this court held in PGF II SA v OMFS Co 1 Ltd [2014] 1 WLR 1386 that silence in the face of an invitation to participate in mediation is, as a general rule, of itself unreasonable even if a refusal might have been justified by the identification of reasonable grounds.' (paragraph 103)

(c) '...Furthermore, in the present case, [the DJ's] order required both [S] and IES to explain their reasons for refusing to mediate, but neither did so. In those circumstances ... the judge should have held that [S's] and IES's silence in response to its offer to mediate was unreasonable conduct and that this should have been reflected in the judge's costs order.' (paragraph 103)

As to this argument, Arnold LJ (with whom Lewison LJ and Phillips LJ agreed) said, at paragraphs 104 to 105:

'I agree that the judge fell into error. [S] and IES were silent in the face of an offer to mediate. That was in itself unreasonable. To compound matters, they breached an order of the court requiring them to explain their failure to agree to mediation. If breaches of such orders are ignored by courts when deciding costs, parties will have no incentive to comply with them. That would undermine the purpose of making them, which is robustly to encourage parties to mediate.

The judge's reasoning ignores these points. The facts that the litigation had been underway for a long time by 14 February 2022 and that substantial costs had already been incurred were certainly relevant to the exercise of the court's discretion as to how to respond to [S's] and IES's conduct, but the litigation continued for more than eight months after that, including a nine-day trial, and substantial further costs were incurred which could have been avoided by a successful mediation. The judge seems to have considered that the onus lay on [C] to chase [S] and IES for a response, but I do not see why that should be so. They made a clear offer to mediate and reminded [S] and IES of [the DJ's] order. After that, the ball was in [S's] and IES's court. That was particularly so in the case of IES given that its solicitors said that they were taking instructions, but did not reply substantively. [C] was entitled to assume that a chasing letter would not have met with a positive response. Nor do I see why the offer to mediate should be castigated as “half-hearted”, particularly in the absence of any reasons whatsoever from [S] and IES explaining their refusal to mediate. Finally, although the judge stated that he was taking the breach of [the DJ's] order into account, in reality he did the opposite.'

But, Arnold LJ in Northamber made clear, a finding that a party had unreasonable refusal to mediate or for silence in response to an offer of mediation ('S's Conduct'), does not mean a costs penalty is automatically imposed. Arnold LJ said, at paragraph 106:

'Although costs sanctions have been imposed in a number of cases for an unreasonable refusal to mediate or for silence in response to an offer of mediation, it does not automatically follow that a costs penalty should be imposed: see Gore v Naheed [2018] 1 P & CR 1, para 49 (Patten LJ). Rather, it is a factor to be taken into account among the other circumstances of the case.' [bold added] 

So far so straightforward. 'The more difficult question is how [S's] and IES's conduct should properly be reflected in costs.' (paragraph 106)

On the facts, Arnold LJ allowed the appeal on this ground, and increased the % amount to pay, by 5%, from 70% to 75%, to reflect S's Conduct (paragraph 112). As part of the process of settling on a 5% increase in costs, as the correct reflection of S's Conduct, in costs, Arnold LJ said, at paragraph 107:

'...I shall confine attention ... to the judge's order that [S] pay 70% of [C's] costs of the claim against him. He reached this decision taking into account the extent of [C's] success, the extent to which costs had been incurred on issues where [C] had succeeded and [S's] conduct. [C] contends that [S] should be ordered to pay 100% of its costs. In my judgment this cannot possibly be justified by [S's] failure to respond to [C's] offer to mediate. Equally, however, I do not think that it would be right to impose no sanction at all for [S's] conduct. I consider that the correct response would be to impose a modest, but not insignificant, costs penalty by increasing [C's] costs recovery by an additional 5% to 75%.'

Ellis (update)

In Ellis v Ellis [2025] EWHC 2609 (Ch), HHJ Michael Berkley, sitting as a Judge of the High Court, found in favour of a claimant and against a defendant. On the issue of costs, the defendant argued that the claimant had unreasonably failed to mediate, and that there should, consequently, be an 'alteration to the usual costs order' (paragraph 109). As to this, the Judge:

(a) said: 'I fully accept what was said by Arnold LJ in Northamber Plc v Genee World Limited [2024] EWCA Civ 428 at paragraph 103, but each case turns on its own facts. [Counsel for the defendant] described silence in the face of an invitation to mediate as "automatically" unreasonable by virtue of Arnold LJ's dicta. I do not agree: Arnold LJ specifically referred to the proposition as being "a general rule".' (paragraph 102)

(b) noted that he'd been taken to paragraph 28 of DSN v Blackpool Football Club Ltd [2020] EWHC 670 (QB), wherein Griffith J had said:

'The reasons given for refusing to engage in mediation were inadequate. They were, simply, and repeatedly, that the Defendant "continues to believe that it has a strong defence". No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded […]'

SIMON HILL © 2024 (UPDATED 2026)*

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