The courts are keen to encourage parties to explore means of alternative dispute resolution once litigation has commenced and will penalise parties in costs for unreasonably refusing to agree to mediate. It is also clear that the courts can order a party withdrawing from a pre-action mediation to pay the other party's wasted costs of that mediation.

In Roundstone Nurseries Ltd v Stephenson Holdings Ltd, the parties agreed to attend a mediation as part of the Pre-action Protocol for Construction and Engineering Disputes (the Protocol). However, the defendant withdrew from the mediation following the withdrawal of a third party whom the defendant claimed was essential to the resolution of the proceedings. The third party had withdrawn due to the late service on it of evidence by the defendant. The claimant sought its wasted costs of preparing for the mediation on an indemnity basis.

The court held that as the mediation was arranged as part of the Protocol, rather than a standalone process, the costs of it would form part of the costs incidental to the litigation and could be recoverable as such. Although there was no bad faith in the defendant withdrawing from the mediation, its decision to do so had still been wrong. The defendant was obliged to attend a "without prejudice" meeting as part of the Protocol requirements and such meetings would often be in the form of a mediation. Its refusal to participate due to the withdrawal of the third party was not reasonable as the third party was not a party to the mediation when it had initially been arranged. The claimant was entitled to recover its wasted costs, but only on the usual, standard basis, not on the indemnity basis, due to the lack of bad faith on behalf of the defendant.

Things to consider

Although this was a case proceeding under the Protocol, the outcome may well be the same in any proceedings where the parties agree to mediation pre-action, agree that that mediation will be part of the pre-action process and agree that the costs of the mediation will be included as part of the costs of the proceedings rather than each party bearing their own costs. In such circumstances, parties withdraw from mediation at their peril.