Commercial Mediation UK: How It Works, Costs & When Courts Compel It

At a glance

• What it is: a confidential, structured negotiation between businesses in dispute, run by an independent mediator who has no power to decide the outcome.
• Outcome status: the mediation process is voluntary and without prejudice throughout; a signed settlement reached at the end becomes a legally binding contract.
• Courts can now order it: following Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, courts can lawfully stay proceedings or order parties into ADR, subject to Article 6 proportionality.
• CPR case management duty: rule 1.4(2)(e), amended from 1 October 2024, lists "ordering or encouraging the parties to use, and facilitating the use of, alternative dispute resolution" as part of active case management.
• Costs risk of refusing to mediate: under rule 44.2(5)(e), unreasonably refusing ADR or failing to comply with an ADR order is a factor the court must take into account when deciding who pays costs — even the eventual winner can be penalised.
• Smaller money claims: most defended claims heading for the small claims track (broadly up to £10,000) are automatically referred to the free HMCTS Small Claims Mediation Service under Practice Direction 51ZE, currently extended to 6 April 2027.
• Typical duration: a single day (often 8–10 hours), sometimes a half-day for lower-value disputes; can usually be arranged within a few weeks of both sides agreeing.

What is commercial mediation?

Commercial mediation is a structured form of alternative dispute resolution (ADR) used by businesses to sort out disagreements without issuing court proceedings, or alongside proceedings that have already started. A trained mediator, who has no stake in the outcome, sits between the parties and helps them talk through the issues, narrow the gaps, and negotiate terms both sides can live with.

Crucially, the mediator does not act as a judge. They will not rule on the merits, take sides, or impose a decision. The outcome stays entirely in the hands of the parties, and either side can walk away at any point during the process itself.

If a settlement is reached, it is typically recorded in a written agreement signed on the day, which then becomes a binding contract. This guide covers England and Wales; ADR practice and procedure can differ in Scotland and Northern Ireland.

The legal framework: why courts now expect ADR

For years, the courts encouraged mediation but stopped short of compelling unwilling parties to take part. That changed with the Court of Appeal's decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, handed down on 29 November 2023, which held that a court can lawfully stay existing proceedings for, or order, the parties to engage in a non-court-based dispute resolution process — provided any such order does not impair the essence of a party's right to a fair trial under Article 6 of the European Convention on Human Rights, and is proportionate to the legitimate aim of settling the dispute fairly, quickly and at reasonable cost.

The Civil Procedure Rules were amended to reflect this, with the changes coming into force on 1 October 2024:

• Rule 1.4(2)(e) — active case management by the court now expressly includes "ordering or encouraging the parties to use, and facilitating the use of, alternative dispute resolution".
• Rule 44.2(5)(e) — when deciding who pays the costs of a case, the court must take into account "whether a party failed to comply with an order for alternative dispute resolution, or unreasonably failed to engage in alternative dispute resolution".

In practice, this means two things for a business in a dispute. First, a court may actively direct the parties to attempt mediation, or stay a claim to allow it, rather than merely suggesting it. Second, refusing to mediate — or refusing without a good reason — carries a real costs risk, separate from the outcome of the underlying claim. A defendant who successfully defends a claim at trial can still be denied some or all of its costs, or ordered to pay the other side's costs, if the court finds it unreasonably dodged ADR along the way.

Smaller claims: automatic referral to mediation

For business disputes that fall within the small claims track — broadly, defended money claims worth up to £10,000 — Practice Direction 51ZE goes further still. Since a pilot began on 22 May 2024, most such claims are automatically referred to HM Courts and Tribunals Service's Small Claims Mediation Service, and attendance at a free, roughly one-hour telephone mediation appointment is a required step, not an optional one. The pilot has been extended (most recently to 6 April 2027) and does not apply to claims issued through Online Civil Money Claims or to road traffic accident and personal injury claims. See GOV.UK: resolve your claim through mediation.

Higher-value commercial disputes are not swept into this automatic referral scheme, but the same underlying direction of travel applies: courts increasingly treat a serious attempt at ADR as a standard step in the litigation process, not an optional extra.

How commercial mediation works: the key steps

1. Agree to mediate and pick a mediator. Both sides need to agree that mediation is worth a try, whether voluntarily or because the court has ordered or strongly encouraged it. You then choose a mediator together, usually someone with sector experience relevant to your dispute. Fees are normally split between the parties.
2. Sign the mediation agreement. Before the session, each party signs a mediation agreement setting out the ground rules. This covers confidentiality, the mediator's role, how fees are shared, and confirms that discussions are conducted on a without prejudice basis so nothing said can generally be used later in court if the matter does not settle.
3. Exchange position statements and key documents. In the run-up to the mediation, both parties usually prepare a short position statement summarising their view of the dispute and what they want. Relevant contracts, correspondence, and any expert reports are shared with the mediator so they arrive fully briefed on the issues.
4. Attend the mediation day. The session typically starts with a joint opening where each side sets out their position. The mediator then moves between private rooms, speaking to each party in confidence, testing arguments, exploring interests, and carrying offers back and forth until a workable middle ground emerges or the parties reach an impasse.
5. Record and implement the settlement. If you reach agreement, the terms are written up and signed before anyone leaves. Once signed, the settlement is legally binding and enforceable as a contract. If court proceedings were already on foot, the parties will usually file a consent order to bring the claim to an end.
6. Keep evidence of your ADR conduct. Whether or not settlement is reached, keep a record of your engagement — invitations sent, dates offered, reasons given for any delay or refusal. Given rule 44.2(5)(e), that record can matter later if costs become an issue.

Which disputes suit mediation — and which don't

Mediation tends to work best for commercial disputes where both sides ultimately want to preserve a relationship, protect confidentiality, or avoid the delay and expense of trial — contract disagreements, partnership and shareholder fallouts, supply chain disputes, and most debt and payment disputes.

It is generally less suited to cases where:

• A binding legal precedent or public ruling is genuinely needed.
• Urgent interim relief, such as an injunction, is required before there is time to explore settlement.
• One party is not negotiating in good faith and is using the process to delay.
• Serious allegations, such as fraud, mean that formal findings of fact by a court are essential to resolve the matter properly.

Given the costs risk under rule 44.2(5)(e), even where a business genuinely believes mediation is unlikely to succeed, it is worth documenting clearly why — rather than simply ignoring an invitation to mediate.

What to do if you're facing a commercial dispute

1. Consider ADR early, not as a last resort. Given the costs consequences of an unreasonable refusal, raising or responding to a mediation proposal early protects your position regardless of how the dispute ultimately resolves.
2. Check whether automatic referral applies. If the claim is, or is likely to be, a defended money claim of £10,000 or less, expect referral to the Small Claims Mediation Service under Practice Direction 51ZE.
3. Choose a mediator with relevant experience. Sector knowledge — construction, professional services, franchising, and so on — can materially help the mediator get to the heart of the dispute quickly.
4. Prepare a clear, realistic position statement. Set out the facts, the legal basis for your position, and what outcome you are actually looking for.
5. Keep a written record of your ADR conduct. Dates of proposals, responses, and reasons for any refusal may become relevant to costs later, even if they are never relevant to the merits.
6. Take advice before the mediation day, not during it. Understanding your legal position, your realistic best and worst outcomes at trial, and any offers already on the table puts you in a much stronger position to negotiate on the day.

This guide provides general information about commercial mediation in England and Wales. It is not legal advice and is not a substitute for advice tailored to your specific circumstances. The law described was accurate as at August 2026 and is subject to change — always check GOV.UK and legislation.gov.uk for the most current position.

Last reviewed: August 2026 by a non-practising solicitor · Next review due: August 2027 or on legislative change.