Mediation is recognised as a cost-effective form of dispute resolution. There are statistics to support this; a World Intellectual Property Organization survey found an average IP litigation case costs between $475,000 and $500,000, compared to mediation, where costs do not usually exceed $100,000. A Ministry of Justice report on the use of judicial mediation in Employment Tribunals, meanwhile, found an average cost saving of 22%.
In Lord Justice Jackson’s Review of Civil Litigation Costs (2009), he made no secret of his desire to encourage alternative dispute resolution (ADR) to reduce legal costs to sums proportionate to the dispute. While Jackson did not say mediation should be compulsory, he believed that mediation was under-utilised and that a “cultural” rather than regulatory change was needed. He adhered to a line of judicial thinking about mediation in viewing costs as the principal means of coercing unwilling parties to mediate. The post-Jackson Civil Justice Reforms empowered the courts to automatically refer small claims to mediation, and to direct parties towards mediation.
Central to “coercing unwilling parties to mediate” is costs budgeting. Costs budgeting is already fixed into the Technology and Construction Court and in defamation proceedings and, while not mandatory, judges in the Commercial Court can deploy the model if the case requires it.
The Precedent H form, the multi-track costs budget now used in some courts where costs run to more than £25,000, can be onerous. The nine-page document requires both parties to draw-up an extensive estimate of both incurred and future costs, including thorough estimates covering pre-action costs, discovery, statements, expert witness reports, fee rates for lawyers and counsel, contingents and other disbursements. Costs have to be proportionate or may not be recoverable.
Costs experts warn, however, that lawyers need a better understanding of budgeting and how mediation may affect the final bill before engaging. If mediation is ignored and costs-budgeted litigation follows, then the likelihood is that costs will soar. On the flipside, engaging in mediation that proves to be fruitless may become yet another cost to the larger litigation bill.
“Around two thirds of total legal spend occurs when a case goes to trial so if a settlement can be reached before a matter reaches trial, then mediation can save a huge amount in legal costs,” observes legal costs expert Jim Diamond. “That said, there could be more practice direction for mediation, especially ensuring parties understand how much it is likely to cost them if the case goes to court.”
Complex litigation cases subject to costs budgeting will require a great deal of time, energy and calculations. On a base level, ADR may be more attractive than filling in the lengthy form. That said, mediation and settlement costs can be recoverable, although a recent case, Northern Oxford Golf Club v A2 Dominion Homes Ltd  EWHC 859, provided some clarity on what is recoverable. During detailed assessment, the Costs Master drew a line between the costs of participation in mediation, such as the fees to the mediator and costs of the hearing room, and the costs incurred in the run up to the mediation. In an unsuccessful mediation, the latter are recoverable but the former not.
Some costs lawyers see costs budgets as a way to encourage mediation. The budgets are exchanged between parties so, for instance, if the defendant is faced with an extremely high costs budget, the risk of losing a case and being hit with a hefty legal bill makes mediation an attractive route.
There is also the option to balance the risks by turning to mediation at certain points in the case, such as before expert witnesses are drafted in. Parties may be comfortable with pre-trial costs and see how things progress before the sharp uptake in costs of a full trial. This more speculative approach, according to Diamond, is something that third-party litigation funders also like.
“[Funders] want to know how much a case will cost and want to be able to see that in spreadsheets and budgets,” he adds. “Many funders embrace mediation because of reduced costs and risk in funding a case up to mediation and reaching a beneficial settlement.”
Whatever the approach, history suggests that the courts look unfavourably on those parties that refusal to mediate when it comes to recovering costs. Notable cases such as Halsey v Milton Keynes General NHS Trust  EWCA Civ 567 and last year’s PGF II SA –v- OMES Company I Limited  EWCA CIV 1288 have given guidance on when to engage with mediation. In the latter case, the Court of Appeal ruled that a refusal to respond to an offer of mediation was unreasonable.
As costs budgeting becomes more prevalent, the hard facts about the full costs of litigation will become evident for both parties. Faced with a spreadsheet of how much full litigation will cost – combined with the courts desire to embraced ADR – mediation’s cost benefits become even more apparent.