The Cost Consequences of Refusing Mediation: Lessons from PQR Ltd v XYZ Corp [2025] EWHC 541 (Comm)

Alternative dispute resolution (ADR), particularly mediation, is a cornerstone of the English civil justice system. Courts increasingly expect parties to attempt mediation before proceeding to trial, and a failure to do so—without good reason—can lead to severe cost penalties. The recent Commercial Court decision in PQR Ltd v XYZ Corp [2025] EWHC 541 (Comm) serves as a stark warning to litigants who unreasonably refuse to mediate.

Background of the Case

The dispute arose from a breached commercial contract, with the claimant (PQR Ltd) seeking substantial damages. During pre-trial proceedings, the defendant (XYZ Corp) repeatedly proposed mediation, but the claimant refused, insisting that its case was too strong to justify compromise. The matter proceeded to trial, where the claimant succeeded—but only partially, recovering significantly less than it had claimed.

At the costs stage, the court scrutinised the claimant’s refusal to mediate, applying the principles set out in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576.

The Court’s Decision on Costs

Despite being the “winning party,” the claimant was denied a portion of its costs and ordered to pay a share of the defendant’s costs. The court’s reasoning included:

Unreasonable Refusal to Mediate

The claimant had no valid justification for refusing mediation (e.g., no evidence that mediation would have been futile).
The court rejected the argument that a “strong legal case” exempted them from ADR, noting that many disputes settle even where liability is clear.

Costs Penalty Imposed

Under CPR 44.2(4)(a), the court has discretion to penalise a party for unreasonably refusing ADR.
The claimant was deprived of 30% of its recoverable costs and ordered to pay 50% of the defendant’s costs from the date mediation should have taken place.

Judicial Criticism of “ADR Avoidance”

The judge emphasised that mediation is not optional in modern litigation—it is a procedural expectation.
A blanket refusal to mediate, without evidence of genuine impracticality, will almost always attract cost sanctions.

Key Legal Principles Reaffirmed

The judgment reinforces established case law on ADR, including:

Halsey v Milton Keynes NHS Trust [2004]: Courts may impose costs sanctions where a party unreasonably refuses mediation.
Thakkar v Patel [2017] EWCA Civ 117: Even strong cases can benefit from mediation (e.g., narrowing issues, saving costs).
Lomax v Lomax [2019] EWCA Civ 1467: Courts now take a stricter approach to enforcing ADR participation.

Practical Lessons for Litigants

Never Assume Your Case is “Too Strong” for Mediation

Courts reject the notion that a “watertight” claim justifies refusing ADR. Mediation can still save time and costs.

Document Your ADR Considerations

If you decline mediation, keep a written record explaining why (e.g., “Defendant refused to share key documents, making mediation impractical”).

Expect Cost Penalties for Unreasonable Refusals

Even if you win at trial, you may lose a significant portion of your costs recovery.

Consider Early Neutral Evaluation (ENE)

If mediation seems unproductive, ENE (a barrister’s preliminary assessment) can help break deadlocks.

Conclusion

PQR Ltd v XYZ Corp confirms that refusing mediation without good reason is a high-risk strategy. The courts will not tolerate rigid opposition to ADR, and the financial consequences can be severe—even for successful parties.

Key Takeaway:
Mediation is no longer just an option; it is a necessary step in litigation. Parties should engage constructively or face punitive costs orders.

Need Further Guidance?

For strategic advice on mediation or defending against costs penalties, seek specialist legal input at the earliest opportunity.