A Tough Nut to Crack? Hardly… Court Ordered Mediations post-Churchill

A Tough Nut to Crack? Hardly… Court Ordered Mediations post-Churchill

Since the Court of Appeal in Churchill v Merthyr Tydfil Borough Council [2023]EWCA Civ 1416 (“Churchill”) found that Courts in England and Wales had the power to order parties to attempt alternative dispute resolution (“ADR”),lawyers and litigants have been waiting with bated breath to see the new reality of civil litigation within this jurisdiction.

In the recently reported case of DKH Retail Ltd & Ors v City Football Group Ltd [2024] EWHC 3231 (Ch) (“DKH v City”), the High Court tested its newfound powers and, following an application made by the Claimant, ordered the parties to engage in mediation. The purpose of this short piece is to examine that decision with a view to answering when the power to order mediation should be exercised.

The Facts of DKH v City

DKH v City is a trademark dispute between the owners of the “Superdry” brand and the group which runs the commercial operations of Manchester City Football Club. The essence of the dispute is whether the use of the words “Super” and “Dry” on Manchester City’s kit, in the eye of the public, is seen as referring to the Defendant’s sponsor (Asahi Super “Dry” 0.0% lager)or to the Claimant’s clothing brand, “Superdry”.

When should the power to order mediation be used?

The question of when the Court ought to order mediation is one which lawyers have been struggling to answer since Churchill was decided. It is, strictly speaking, a question of whether it is right for the Court to exercise its powers and order mediation when considering the Overriding Objective in CPRr1.1, but it goes further than that and there is presently a lack of definitive guidance.

The most useful thing to do would be to examine the arguments made by each party in DKH v City and see what impact each set of submissions had on Miles J’s exercise of the Court’s discretion. The arguments made by the parties and their effect on the Court can broadly be summarised as follows:

(1)   The Claimant submitted at [32] that mediation does work in complex and entrenched disputes, even where the ADR process appears unlikely to succeed at first glance.

That submission was supported by findings from the Civil Justice Council ADR Working Group in para8.29, page 45 of their “ADR and Civil Justice” Final Report in November 2018 (https://www.judiciary.uk/wp-content/uploads/2018/12/CJC-ADR-Report-FINAL-Dec-2018.pdf).

In response, the Defendant argued at [35] that the Court should only order mediation where there is a realistic prospect of success (i.e. that it was likely on first glance to result in a settlement). The Defendant argued that this was not such a case because the parties needed to know, once and for all, whether Asahi branding can be placed on the Defendant’s clothing and that, it was submitted, was a question that the Defendant was entitled to have determined by a Judge.

Miles J at [38] and [40]appeared to find considerable force in the Claimant’s submission and rejected the Defendant’s position, going on to state that:

[38]… in many cases the parties’ positions in the litigation are diametrically opposed and it may easily be said that each party requires a judicial determination. But nonetheless the parties come through ADR to recognise the desirability of settling for less than their strict legal rights and compromising their positions. Experience shows that mediation is capable of cracking even the hardest nuts. The process sometimes succeeds in cases where the parties appear at first to have intractable differences…

[40] There is also some force in the submission of counsel for the defendant that these are commercial parties with experienced solicitors and that if there was realistically to be a settlement, one would have expected it already to have been reached. But that argument does not do full justice to experience, which shows that bringing parties together through mediation can overcome an entrenched reluctance of the parties to negotiate, even where sincere. The purpose of mediation is to remove roadblocks to settlement…

This is interesting because it vindicates what ADR practitioners have been saying for the better part of almost three decades since the Civil Procedure Rules were introduced –litigation is aggressive, adversarial, and not always the best way to resolve a dispute between two entrenched parties.

In a way, by realising the true value of mediation as a way of resolving legal disputes and deploying it routinely to “crack the toughest nuts”, the Court can now truly give effect to the overriding objective in CPR r1.1 in a way that was not possible before Churchill. It seems that Miles J understood this in DKH v City, exercising his discretion on the basis of his own experience with mediation, and on the back of substantial research done by the Civil Justice Council’s ADR Group.

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(2)   The Claimant further said at [33] that the dispute was capable of resolution. It was not overly complicated and there were a number of variables which might better be addressed with an out-of-court compromise (or which may not have been available in an order of the Court) such as agreements about the form and size of any logo or lettering, payment of money, and the timing of changes.

Miles J at [38] and [40]did put weight on this submission, saying:

[38]… Here, as the claimants said, everything would be up for grabs at a mediation, including the form of representation of any branding on the relevant kit, timing and money. The claimants are also right to say that the dispute is self-contained and that a mediation would be able to focus on possible solutions rather than raking over historical grievances.

[40]… The range of options available to the parties to resolve the dispute through mediation goes beyond the binary answer a court could provide. There may be solutions other than yes or no.

This appears at first glance to have been a lighter version of the Defendant’s submission regarding prospects of success (albeit from the other perspective), but it is really a point about the flexibility advantages to mediation that are not present within the litigation process.

This was a case which involved two large corporate entities, each with well-known brands, who had a very minor dispute about how those brands were being represented by the Defendant. The Claimant’s point was a practical one: it did not benefit either party to continue insisting upon a strict legal remedy that nobody is content with, when there was clearly a business-centred deal to be struck which both sides could accept. Miles J seems to have acknowledged that, time and time again, this is proven to be true in a broad range of cases that are heard within the Civil courts, ordering that the parties attempt mediation as a practical, real-world solution to this dispute.

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(3)   Finally, the Claimant at [34] made the usual arguments that a short, sharp mediation of one day might allow the parties to avoid hundreds of thousands of pounds in legal costs as well as saving time and resources.

In response, the Defendant said at [37] that the parties had already spent hundreds of thousands of pounds and that, due to the proximity of the trial and limited availability of the Defendant, a mediation simply would not work within the parameters of this particular case.

Miles J at [39], [41], and [42]rejected the Defendant’s position and appeared to put stock in the old CPR r1.1arguments raised by the Claimant, saying:

[39] I see some force in the defendant’s submission that it is late in the day to be seeking an order, but it may also be said that there is some advantage in the parties’ positions having been crystallised through pleadings and the service of witness statements. It is sometimes an objection to mediation that it is premature, proposed at a stage when the parties’ positions are unknown. That cannot be said here.

[41] A mediation of this case will be short and sharp, and the documents needed for it would be brief. The defendant did notsuggest that mediation would significantly disrupt the parties’ preparations for trial.

[42] Counsel for the defendant said that his instructions were that they had very limited availability in December. However, on the available material it seems it would be possible for the parties to find a workable date.

Mediation that takes place too early is often criticised as being premature, but Miles J found that the Defendant could not have it both ways. The parties’ positions were clearly and obviously set out in the documents that they had prepared for trial, so there was significant scope for each party to understand the objectives and motivations of the other which greatly assists the mediator in facilitating discussions.

However, it is not thought that the Court will routinely order that mediation takes place so late in the day. Rather, it is more likely that mediation will be built into the directions of case management orders far earlier in the process– for example, around the time that disclosure takes place and/or witness evidence is exchanged. DKH v City was a very specific case which warranted a late mediation on its own facts, but there are thousands of cases that come through the Civil courts each year which would benefit from mediation much earlier in the process.

It is far more likely that mediation will become routine at a much earlier stage, and may even form part of the Court’s standard directions in the not-too-distant future. This process is already underway as the changes to various parts of the CPR post-Churchill, including the power in CPRr3.1(2)(o) to order the parties to participate in ADR, as well as CPR 28and 29 which now provide that the Court must consider whether to order the parties to engage in ADR in fast-track, intermediate track, and multi-track cases, makes it seem that the Court really is on a mission to make mediation a fundamental part of civil justice in England and Wales.

This is only compounded by the wording of CPR r44.4(e) which now states that when making a costs order, the Court must consider:

(e) whether a party failed to comply with an order for alternative dispute resolution, or unreasonably failed to engage in alternative dispute resolution.

The Verdict

Asit turns out, the Claimant in DKH v City was right to request that the Court ordered a mediation in this case. The Court recently entered apost-script of the judgment at [44] which noted that: “on 13 January 2025the parties notified the court that they had settled their dispute”.

A tough nut to crack? Hardly.

Mediation 1 – 0 Litigation

KBG Chambers has a strong team of qualified and accredited Civil / Commercial mediators who are ready to mediate disputes and to represent clients throughout the ADR process.