Mediation was a hot topic at the end of last year following the Court of Appeal’s judgment in Churchill v Merthyr Tydfil Borough Council. It confirmed that the court can go further than to simply encourage parties to engage in “a non-court-based dispute resolution process”– it is lawful, with certain provisos, for the court to order that the parties engage in it or stay proceedings to allow it to happen. Such orders are not an obstruction to a party’s right to a fair trial. The process in this particular case was an internal complaints procedure operated by the local authority, but the ruling applies just as much to other forms of alternative or negotiated dispute resolution, including mediation.

Parties wanting their “day in court” may be clichéd, but it is often a reality. Entrenched and aggrieved parties may regard mediation as a diversion from their path towards trial, where, if all goes to (their) plan, they will be vindicated in a public forum. But that does not account for the inherent risks involved in pushing on to a final hearing, which can be avoided by negotiated dispute resolution processes like mediation.

Whilst persuading a party to engage in mediation can be difficult, in my time both in practice and as a litigation funder, I can say that it is rare for a party to regret a mediation, even one that does not ultimately result in settlement. That the court may therefore order it, subject to various provisos, is a powerful tool.

Why should a litigating party attempt mediation? It seems to me there are both “pull” factors (why is mediation good?) and “push factors” (why is going to trial bad?).

Of the “pull” factors, I would place control as the most important. In a mediation it is the parties themselves, not the court, in control of the outcome. Frequently the parties are experienced business people for whom relinquishing control can be uncomfortable, but who nevertheless are comfortable with, and often skilled at, reaching a commercial deal. It should not be seen as a weakness to apply those practices to resolving a dispute. Unlike a trial, a mediated result need not be a binary win or lose scenario but one where each side can walk away with some level of satisfaction. Good mediators recognise what it will take, financially but also, psychologically, to bring entrenched parties to a workable compromise.

The push factors boil down to the economics. If a dispute reaches trial, that is where both the risk and the costs are the highest for each party. Parties must factor in not only the financial costs of the trial hearing itself – long lawyer days, barristers on a daily refresher, senior management out of the office- but also the physical and mental strain of a formalised court hearing which may involve difficult cross-examination, public airing of the inner workings of a business, and more.

Moreover, if the claim involves lawyers working on contingency, funders, or adverse costs insurance, a party will need to factor in their financial impact. If, as is common, they are staged according to the phase of proceedings, a funder’s return and an insurer’s contingent insurance premium are likely to be at their highest level at or just before trial, reflecting the point of highest risk. Thus, even if trial results in success, the winning claimant must pay out more to those stakeholders before taking the balance of the damages for itself.

Funders (and insurers) are usually strong advocates for mediation and other forms of ADR. A sensible – even if reduced- return earlier on in proceedings is likely to be preferable to risking the whole investment on a trial outcome. Funders generally prefer to obtain their return of capital earlier, which they can apply back into their business or the next case. They are aligned with the party’s own commercial incentives to settle early rather than risk everything at trial and will generally be supportive of settlement negotiations in whatever form they come.