The recent High Court decision in DKH Retail Ltd and ors v City Football Group Ltd [2024] EWHC 3231, marks a significant step in the direction of wider use of mediation and specifically, court-ordered compulsory mediation in commercial litigation. This case appears to be the first exercise of the court’s powers to order compulsory mediation where there was no contractual compulsory mediation requirement in any underlying commercial arrangements.
The case was a trademark dispute between the owners of the Superdry brand and the defendant, which runs Manchester City Football Club’s commercial operations. The core issue in the litigation was whether promotional branding on professional sports players’ kit was likely to be seen by the public as denoting the Superdry brand or as denoting the defendant’s sponsor, Asahi Super “Dry” 0.0% lager. The words appearing on the relevant kit included “Super” and “Dry”. The question of reference to compulsory mediation arose in a pre-trial review.
The Claimants sought an order for compulsory mediation under the revisions to the Civil Procedure Rules (“CPR”) which followed the Court of Appeal’s decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416. In Churchill the Court of Appeal held that it had power to order unwilling parties to engage in alternative dispute resolution. The CPR amendments came into effect from 1 October 2024 and include amending the overriding objective to provide for promoting or using alternative dispute resolution; CPR 1.4 (the duty of active case management) now includes an express power to order the parties to use and facilitate the use of ADR; the court’s case management powers under CPR 3.1 now include the power to order the parties to participate in ADR; and under CPR 29.2(1A) when giving directions the court must consider whether to order or encourage the parties to participate in ADR.
The Judge in the DKH Retail case (Miles J), decided to order compulsory mediation, despite the defendant’s contention that the dispute was unsuitable for such a process. The defendant submitted that, while there was no dispute about the power of the court to order mediation, it should only do so where there was a realistic prospect of success. The defendant contended that there was no realistic prospect of successfully mediating the case and emphasised the importance to the defendant of having the matter judicially determined so that it would know definitively whether or not it was entitled to place the Asahi branding on football kit and other clothing. The Defendant also pointed to the fact that although the order was being considered at a pre-trial review, the parties had already expended hundreds of thousands of pounds on the litigation.
In his judgment, Miles J stated (at paragraph 38) that
“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. 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.”
He also noted in paragraph 40 of his judgment that one of the key advantages of mediation is its ability to produce outcomes that are not limited to the more binary outcomes provided by a judicial determination:
“The purpose of mediation is to remove roadblocks to settlement. I am unable to accept the submissions of the defendant that a mediation here has low prospects of success and that adjudication by a court is necessarily required. 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.”
Additionally, the court noted that the mediation process would likely be brief and would not significantly disrupt the parties’ trial preparations.
As an apparent vindication of the decision to order compulsory mediation, the postscript to the judgment notes that on 13 January 2025, the parties notified the court that they had settled the dispute.
The ramifications of this decision are profound:
1. It underscores the court’s willingness actively to encourage (and even require) the use of ADR methods, even at advanced stages of litigation. The decision clearly aligns with the broader judicial trend towards promoting ADR to alleviate the burden on the court system and to foster more amicable resolutions of disputes.
2. For clients involved in commercial litigation, the decision highlights the need to take a flexible and highly strategic approach to litigation, including being prepared for the possibility of court-ordered mediation. It is also important to consider the potential benefits of mediation at any stage of a dispute. Mediation can offer a speedy, more flexible and less adversarial resolution process and although it does entail some additional cost, those costs are very modest compared to the cost of litigation at trial.
3. It is clear that there are many factors that are likely to influence a court’s decision to order compulsory mediation. These include:
a. the suitability of the case for mediation
b. the timing of the mediation
c. the parties’ attitudes towards ADR.
d. any relevant pre-action protocol requiring ADR
e. the potential cost savings of mediation compared to continued litigation
f. the stage of the proceedings that has been reached
g. any substantial financial or power imbalances between the parties
h. the overall costs of the litigation.
In light of the DKH Retail decision, it is highly advisable for clients to consider ADR options proactively from the very outset of a dispute. This includes evaluating the potential for mediation and being prepared to engage in such processes if directed by the court. By doing so, clients can better manage the risks and costs associated with litigation and increase the likelihood of a favourable outcome.
A copy of the Judgment can be accessed here.
