A business may have a strong claim or defence and still damage its position on legal costs by refusing to consider mediation. The merits of the dispute matter, but so does the way the parties conduct themselves before and during proceedings.

For directors and business owners, the practical question is whether a proposed settlement process offers a proportionate way to resolve the dispute, narrow the issues or avoid further expense.

A court can require participation

Under Civil Procedure Rule 3.1(2)(o), civil courts in England and Wales can order parties to engage in alternative dispute resolution (ADR). Mediation is one option. An independent mediator helps the parties explore a resolution, without deciding the dispute or imposing a settlement.

A requirement to participate does not mean a business must admit liability or accept an unacceptable offer. The parties retain control over whether they reach an agreement and its terms. A company can maintain its legal position while taking a genuine opportunity to negotiate.

Refusal can affect the costs outcome

Where the court has discretion to award legal costs, it considers the parties’ conduct alongside other circumstances. Rule 44.2 expressly includes failure to comply with an ADR order and unreasonable failure to engage in ADR.

An unreasonable refusal can therefore affect the costs order even where the refusing party succeeds in the underlying dispute. A successful business may recover less of its costs than it otherwise would. An adverse order is not inevitable simply because a party declines a proposal: the court considers the relevant circumstances and costs rules. Small claims and cases subject to fixed recoverable costs have their own rules.

Silence also carries risk. The Practice Direction on Pre-Action Conduct and Protocols warns that ignoring an invitation to participate in ADR may be considered unreasonable and lead to additional costs.

If a proposed process is unsuitable, explain why and consider an alternative. Where mediation has been ordered, seek any necessary change from the court rather than disregarding the order.

Make the proposal commercially useful

Before responding, assess the amount at stake, the likely legal expenditure, the evidence available and the disruption to the business. Consider what information is needed for meaningful negotiations and whether the proposed timing and mediation costs are proportionate.

Consider a hypothetical dispute over defective goods. The supplier denies breach while the customer withholds payment. A mediation proposal could include exchanging the relevant inspection records first, then discussing payment, replacement goods and future supply arrangements. That creates a practical basis for negotiation without requiring either party to concede its case in advance.

Preparation should include a realistic assessment of the strengths and weaknesses, a clear settlement range and attendance by someone with authority to agree terms. Check any insurer or other approval requirements early.

If agreement is reached, record the obligations precisely: who must pay or act, by when, which claims are released and how legal costs are treated. Existing proceedings may also require an appropriate consent order.

Protect deadlines while negotiating

Mediation does not itself suspend a limitation period or change a court deadline. Where time is running out, obtain advice on issuing proceedings in time and securing any necessary stay or extension. An invitation to negotiate should not distract from preserving the claim, defence or evidence.

A sensible dispute strategy addresses both legal entitlement and the cost of achieving a useful result. Mediation deserves a reasoned assessment throughout the case, including where an earlier attempt has failed.

Contact Balaghi & Rose for advice on a commercial dispute, responding to a mediation proposal or documenting settlement terms.

General information only. This article concerns civil disputes in England and Wales and reflects the position checked on 9 November 2026. It is not legal advice.

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