ADR & the law
Since October 2024, courts in England and Wales can order parties in commercial disputes to engage in alternative dispute resolution — and impose adverse costs sanctions on those who refuse without good reason. For businesses facing a commercial claim, understanding what satisfies this requirement — and what does not — is now a practical commercial necessity, not a legal technicality.
This page explains the ADR requirement, what adverse costs sanctions actually mean, what counts as genuine engagement, and which alternatives give you the best protection against a costs order while producing the most practical outcome for your dispute.
The courts in England and Wales can now order parties to engage in alternative dispute resolution where such an order is proportionate and does not undermine the parties' right to a judicial hearing.
This power comes from two sources. First, the Court of Appeal decision in Churchill v Merthyr Tydfil Borough Council in 2023, which overturned more than 20 years of legal orthodoxy and confirmed that courts can compel parties to engage in ADR. Second, the Civil Procedure Rules amendments that came into force on 1 October 2024, which embedded that power directly into the rules governing all civil litigation.
As of 1 October 2024:
In plain terms: a court can now order you into ADR, and if you refuse without good reason — or simply ignore an ADR proposal from the other side — you risk a costs sanction even if you win on the merits.
An adverse costs order is not a fine. It is a judicial decision about who pays the legal costs of the proceedings — and it can go against a party that wins on the substance of the case if that party behaved unreasonably in relation to ADR.
The consequences can be severe. In Henderson & Jones Ltd v Salica Investments Ltd in 2025, the court imposed enhanced interest at 8% above base rate for over 12 months on a £9.75 million judgment sum — resulting in an interest penalty exceeding £1 million — after the defendant refused mediation outright and argued the case was too complex for ADR. The court rejected that argument entirely.
In Northamber PLC v Genee World Ltd, the Court of Appeal reaffirmed that failing to respond to a mediation proposal is inherently unreasonable, even without an explicit refusal. Simply not replying to an ADR proposal can be enough to attract a costs sanction.
Genuine engagement means actively considering an appropriate ADR route and participating in it in good faith — not going through the motions to avoid a sanction while having no real intention of resolving the dispute.
Courts assess this on all the circumstances. Relevant factors include whether the ADR proposal was reasonable and proportionate, whether the refusing party gave proper reasons for refusal, whether those reasons were justified given the nature and value of the dispute, and whether the party that refused made any counter-proposal.
For commercial disputes under £150,000 — the sub-legal band where litigation costs are frequently disproportionate to the amount at stake — refusing a reasonable, proportionate ADR proposal is very difficult to justify. The smaller and more straightforward the dispute, the harder it becomes to argue that ADR was unsuitable.
Not all ADR is equal in terms of the protection it provides against adverse costs, or in terms of the practical outcome it produces. Here are the main viable alternatives and what each delivers.
Mediation is the most commonly ordered form of ADR and satisfies the court's expectation in most cases. A mediator facilitates negotiation between the parties — but has no decision-making power. If the parties cannot agree, the dispute is unresolved and litigation continues.
For commercial invoice and debt disputes where the primary question is whether money is owed, mediation carries a significant limitation: it requires both parties to reach agreement. A debtor who has already ignored a final demand and a letter before action may engage with mediation in a technical sense while having no genuine intention of settling. Participation satisfies the ADR requirement, but it does not guarantee resolution.
Early Neutral Evaluation involves an independent expert giving a non-binding opinion on the merits of the dispute. It can be useful for resetting unrealistic expectations and creating conditions for negotiated settlement — but the opinion is not binding and either party can reject it and proceed to litigation.
ENE satisfies the ADR requirement where it is the process the court has ordered or where it is a reasonable response to the nature of the dispute. For a full comparison of ENE and binding alternatives, see our page on whether you should agree to Early Neutral Evaluation.
A binding neutral decision process goes further than either mediation or ENE in two important respects: it produces a definitive outcome, and it demonstrates a more substantive commitment to resolving the dispute outside the courts.
Both parties agree in advance to be bound by the neutral's decision. An independent neutral — a legally trained professional with substantial commercial experience — reviews the contract, the documents, and the written submissions from both sides, and issues a binding determination. There is no hearing. Neither party needs a solicitor. The dispute is resolved.
At Dispute Neutral, that decision is issued within 10 business days of the matter being ready. Fees are fixed. The process is entirely private. It covers commercial disputes under £150,000 in England, Wales, and Northern Ireland.
From a costs protection perspective, agreeing to — and genuinely participating in — a binding neutral decision process is the strongest available position. It satisfies the court's ADR expectation, demonstrates good faith engagement, produces a binding outcome, and removes the dispute from the litigation track entirely.
Whether you are bringing a claim or on the receiving end of one, here is how to protect your position.
Propose ADR early and in writing. Do this before proceedings are issued if possible. A written proposal — by email or letter — creates a clear record. State the process you are proposing, why it is proportionate, and the timeframe you suggest.
Respond to any ADR proposals promptly. Silence is treated as unreasonable refusal. If you receive an ADR proposal you have concerns about, respond in writing with specific reasons — do not simply ignore it.
Choose a process that produces a binding outcome. Mediation and ENE carry the risk of no resolution. A binding neutral decision process produces a definitive outcome and demonstrates the strongest possible commitment to resolving the dispute proportionately.
Document everything. Keep records of every ADR proposal made or received, every response, and every reason given for acceptance or refusal. This documentation is your protection in any subsequent costs assessment.
Include an ADR clause in your contracts from the outset. Businesses that include a Dispute Neutral clause in their standard terms of business ensure that if a dispute arises, the ADR process is already agreed — before proceedings begin and before positions become entrenched. Draft clauses are available in the Include us section of the site.
No. Courts assess unreasonable refusals under CPR Part 44, with cost penalties potentially imposed even on victorious litigants. A strong case is not sufficient justification for refusing ADR. In Henderson & Jones, the court explicitly rejected the argument that confidence in the merits justified non-engagement. The strength of your case affects the outcome of the dispute — it does not affect the obligation to consider ADR seriously and engage with it in good faith.
Document the refusal carefully. Send your ADR proposal in writing, set a reasonable response deadline, and keep every communication. In Northamber PLC v Genee World Ltd, the Court of Appeal reaffirmed that failing to respond to a mediation proposal is inherently unreasonable, even without an explicit refusal. A party that refuses a reasonable ADR proposal without proper justification faces real costs risk in any subsequent proceedings. Your documented record of proposing ADR — and their failure to engage — will be a significant factor in the court's costs assessment.
No. Agreeing to participate in ADR — including a binding neutral decision process — is an agreement about how the dispute will be resolved, not about who is right. The neutral reviews both sides' case equally and issues a determination based on the evidence. Engaging with ADR is a procedurally sensible decision that protects your costs position. It is entirely separate from the substantive question of whether the claim against you is valid.
Yes. Expert determination and binding neutral decision processes are recognised forms of ADR. Participating in a binding neutral decision process satisfies the court's expectation under the October 2024 CPR amendments — and goes further than mediation or ENE in demonstrating substantive commitment to resolving the dispute outside the courts, because it actually produces a definitive outcome. For more on how Dispute Neutral fits the current ADR landscape, see our page on why Dispute Neutral is a strong fit.
If you are facing an ADR requirement in commercial proceedings, or you want to propose a binding ADR process to the other side before proceedings escalate, Dispute Neutral offers the most practical and protective route available for commercial disputes under £150,000.
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